SPX and NDX Update: Top May Be In as Retracement Rally Hits Targets

While the rally keeps hitting my targets perfectly, it is doing so in a very "ugly" fashion, and has now made charting the next move a bit difficult. Some moves are clean and a pleasure to chart ... other moves make you want to take up a new career, ideally one that involves counting things that are really large and not open to interpretation, like elephants. This is one of those moves. But I hear the Elephant Wave Theory field is flooded with applicants right now, so I guess I'm stuck.

The top may be in, but with the wave structure so messy, it's hard to predict a direct and immediate reversal. After cross-studying a number of indices, I'm leaning toward the idea that there's still one more new high coming -- but I'd give maybe 50% odds to the new high, and 50% odds to the rally being complete. If you forced me to give exact targets for any new highs, I would say 1267 for the S&P 500 (or SPX) and 2385 for the Nasdaq 100 (^NDX) -- so it’s probably safe to say that the rally is, effectively, over. 

The rally retraced right into my target zones, so whether it reverses immediately or continues slightly higher, I'm content with that for now.

If by some chance you're just joining the discussion, it would be helpful to familiarize yourself with The Big Picture chart, which has tracked well enough so far that I haven't felt the need to update it in over a month. That article also contains a brief introduction to Elliott Wave Theory (unfortunately, however, it contains nothing on Elephant Wave Theory).

The first chart is the SPX chart, with the best-fitting way I can find to label the jumbled mess that has been this rally. On this chart, you can see that it appears the SPX is in its final wave up, so it may have topped yesterday. Just going off this chart, one could be fairly convinced that the rally is over. The NDX chart (the last chart shown) looks like it might need another high, which is one reason I’m split on the two views.


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If this is indeed a second wave retracement rally, the only rule by Elliott standards is that it doesn't exceed the top; i.e., last Thursday's high. Second waves are allowed to retrace 100% of the prior move (but not over) ... so the targets posted are my preferred view, but the rally is free to exceed them if it wants.

For several days, I have also been showing the chart which has the alternate bullish interpretation of the current wave structure. I remain disturbed by the fact that the decline off last Thursday's high can count so well as an a-b-c ... however, if that's what it was, it was a very forceful correction ... but C-waves are known to trick people, even technicians, into believing the trend has changed. I am still giving this alternate count (chart below) about 30% odds. A move below 1197 SPX will knock this count out.


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One more chart of the SPX, then I'll move onto the NDX. The next chart shows a longer-term view of the SPX and how it has once again gravitated back into the area of the head and shoulders neckline. Depending on how one draws the neckline (intra-day lows or closing lows), we are either there already, or a few points away. It will be interesting to see how the SPX responds to this area now that it has been violated once previously. Theoretically, this area should still be a battleground and potential reversal zone.

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The final chart is the short-term NDX chart. The NDX is also in the zone where we could expect a reversal. On this chart, I have sketched in a possibility as to what may happen today/Monday, if a new high is coming.  It appears possible that the NDX might be in the midst of a small wave iv. If that's the case -- and due to the wave structure, that's a big "if" -- the market would start the morning off with some sideways/down action, which should eventually resolve to the upside. Again, the NDX has already hit its expected targets, and the rally may be fully complete, so additional upside may or may not be forthcoming.

If we head down hard at the open, and particularly if the NDX trades below 2347, I would no longer expect new highs. Of course, that would be barring some even stranger pattern formation going forward, such as the (z) wave of a triple three or zigzag. Triple zigzags are pretty rare, though.


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Again, if the preferred count is correct, the ultimate resolution to all of this will be new lows on all the indices. Beyond that, not much to add over yesterday's article.  Trade safe!

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

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