January 26 Market Wrap — Trying to hold up

Monday's Market Stats
1234market stats

Following the weekend election results in Greece, where the anti-austerity Syriza party won, there was great concern about what it could do to their continued membership in the EU. And of course that starts the wringing of hands and gnashing of teeth over worry whether this will be the start of the complete unraveling of the big experiment called the European Union. Futures sold off sharply Sunday night but by Monday morning they had recovered and other than a quick dip back down following the cash market open the indexes held close to the flat line by the end of the day. The RUT did better than the others, rallying +1% and that kept things looking more bullish than bearish. With the FOMC meeting this week and announcement on Wednesday, it's possible the market will stay quiet until then, especially with the northeast snow storm potentially keeping a lot of NY traders home on Tuesday.

Friday had finished with SPX looking for one more leg up today, following Friday's 3-wave pullback, but this morning's quick decline had the bulls on the ropes following the break of the uptrend line from January 16th. But the buyers returned (they're not ones to let a good dip go to waste) and it appeared we could get the 5th wave of the rally from January 16th after all. But today's rally off the morning low looks choppy and weak, which has it looking more like an ending pattern and it could fail at any time. I show two upside targets for the 5th wave -- to 2066, where it would equal 62% of the 1st wave, and maybe up to near 2082, where it would equal the 1st wave. The way the rally is progressing I'm wondering if it will even make it up to 2066. A test of last Thursday high near 2065, or a little higher, with bearish divergence would be a good sign to short a rollover.

SPX 30-min chart
0126-z-spx-30

NDX has held inside a tight up-channel from January 16th, testing the bottom of it this afternoon. It has at least a little more upside potential to its November-December downtrend line, near 4297, and if that level holds as resistance while SPX struggles with near 2066 (assuming it will get there), I'd watch it closely for signs of a rollover. This should be a good shorting opportunity and we're looking for an entry with a tight stop until (if) it starts dropping.

NDX 60-min chart
0126-z-ndx-60

Like SPX, the NDX pattern looks like an a-b-c bounce off the January 6th low and once the leg up from January 16th is complete we could get another leg down that's at least equal to the December-January decline. It's possible the rally from January 16th is only the 1st wave of what will become a much larger rally but at the moment that's an alternate wave count.

The RUT was the stronger index today but it could be the closest one to finishing its rally with an ending diagonal (rising wedge) for the move up from January 16th. Again, that looks like it should complete an a-b-c bounce correction off the January 6th low and it's the reason I'm liking the setup for a shorting opportunity. Assuming we'll get at least a larger pullback, the form of the decline would provide clues as to whether we should be looking for just a pullback or instead something more bearish. At the very least we'd be able to trail a stop lower in order to protect against a big 3rd wave rally (green arrow).

RUT 60-min chart
0126-z-rut-60

Keep in mind that we could stay stuck in a choppy whippy price range for a while longer. As can be seen on the DOW's daily chart below, it is still inside its descending triangle pattern and as long as it stays inside the roughly 17000-17900 trading range we don't have any clear signals as to which way this triangle will resolve. I believe it will break down but that opinion and $2.50 will buy you a cheap cup of coffee. It's still an environment to protect rather than risk capital.

DOW daily chart
0126-z-dow-d

We could see the market stay somewhat pinned around current levels if the market waits to get through Wednesday's FOMC announcement (why people care, I have no idea). There is of course further upside potential but at the moment I see greater downside potential, especially if the indexes are finishing their 5th waves in the rally from January 16th. We'll see how it sets up in the morning.

Tuesday's pivot table:
1234pivot table