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SPX and Euro Updates: Still No Change Since Thursday


The market hasn't moved off the short-term pivot point since Thursday, but the expectation remains that 1269-1310 is the topping zone for wave Minor (2).

There's been no material change in the counts from as far back as last year (always wanted to say that). The market remains balanced at a short term pivot point, and there's literally been no change at all since the updates which were published for Thursday and Friday. As of this writing, US futures markets are closed; however, the rest of the world's markets seem to be very excited about 2012. The German DAX (^GDAXI) closed up 3% on Monday, and Asian markets have been generally positive as well.

Although the S&P 500 (SPY) reached its target zone (1269-1310), this zone remains an active target. On Thursday, I felt prices needed to head lower on Friday, which they did -- however, I was looking for more of a move. I'll admit that the world market party has left me feeling in doubt about the potential of lower prices over the very short term. It bears repeating that a break above the recent 1269 highs could lead the SPX above 1300 -- however a top could form anywhere in this zone and until the short-term picture makes more sense, it's very difficult to nail down an exact price. Since the short term questions from Thursday and Friday haven't changed in the slightest, I'm going to focus on the larger picture.

The first chart I'd like to share is of the NYSE Composite (^NYA). This index remains a favorite of mine, due to the fact that it's a much broader index than the indices generally reported by the mainstream media. The NYA shows the same basic Elliott pattern as the Dow Jones Industrial Average (^DJI), however the NYA remains well shy of its October highs, while the Dow has bested its October highs. This suggests that there's been something of a "flight to safety" into larger companies and dividend-yielding stock, as opposed to a broad-based recovery rally.

Click to enlarge

The chart above highlights some interesting volume trends. Going back to the March '09 bottom, one can see that the volume was quite strong off the lows, and then surged again in July '09 as the market rebounded higher off its first correction. Moving into the 2010 correction, one can again see that volume was trending upward as prices rose off the base. Contrast both of these with what has happened since summer of 2011, where volume has been steadily decreasing across the board. Some have suggested that a new bull market is forming, but in my view, the decreasing volume doesn't give much support to that thesis.

The next chart is the SPX. Back on November 20, this chart was the bullish alternate count, but it has since shifted into the preferred role. I wanted to share this chart because it provides a nice view of the October top, which was erratic and something of a blow-off top. That type of top leaves a lot of confusion in its wake, as it tends to get market participants looking "up," blows up a lot of short positions, and then reverses somewhat dramatically. It will be interesting to see if the market does something similar this time around.

Also note on this chart how the market behaved at the last two target zones (blue boxes) in early and mid-December -- it tagged the target zones, reversed, and then surged back into them. We may see a similar occurrence this time around.

Click to enlarge

On December 4, I published a target for the euro, which was hit. On December 26, I discussed how the euro looked like it needed to make another new low, and that has also happened. It's worth noting that the euro has now completed the minimum expectations for lower prices in this wave, and as such, could be forming a short-term bottom. This would imply that if the euro corrects higher into the wave (4) target zone, then equities will probably head higher right along with it.

Click to enlarge

As I shared on Friday, the sentiment among retail stock investors is very bullish, and this suggests that the market is in the process of forming a top. Sentiment is never a call for immediate reversal, however. The market can always continue moving in the same direction as the extreme sentiment levels for a time -- but high bullish sentiment does tend to argue against a large and sustainable move higher.

The first couple days of January are often bullish, as money from various fund sources flows into the market. The short-term charts remain inconclusive -- but the expectation that the Minor (2) top is forming hasn't changed yet. Hopefully, this week will finally answer some of the questions of the short term. Trade safe.

This article was originally published on Pretzel Logic's Market Charts and Analysis.

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