In Case You Missed It: So where are we in the count?

In Case You Missed It…

SPX rose approximately 185 points this week, after a major sell-off the prior week. Volume for the week was about average, and volume has been trending up noticeably since October.  Below is the weekly chart of SPX. Notice that we are still in the lower sideways range from this summer and that we have only reached the 23.6% retracement from the high:

This is now the fourth week in a row that we closed short gamma. We had a momentary long gamma flip midweek and the GT level is not very far from SPX’s closing price, but the indication is still that bulls need to be very careful in this environment. Leo’s latest post on the GT level was sent to the Flagship service on Friday, here: https://www.elliottwavetrader.net/trading-room/post/10438084 . (Learn more about the GT level here: https://www.elliottwavetrader.net/gamma-optimizer/Understanding-the-GT-level-202012076573537.html.)

Intraday realized volatility spent most of the week above 10%, indicating liquidity was struggling to keep up with the (mostly average) volumes we saw this week. I am paying close attention to realized variance because it can be an early indicator of where price may be headed.

Before turning to the wave count, here is a look at the daily NDX chart:

This chart shows more clearly the long stretch of time this market has been going sideways, although NDX did break below sideways support last week. This week NDX did regain that support momentarily, but closed below support Friday. We are consolidating around the 200-day moving average (gold line) for the time being.

So where are we in the count?

We left off last week with price looking to decide between the green and red counts. And while the lack of a 5-wave move to the downside does lend more credence to the green count, we are still torn between the two counts in the near term. Mike is looking for which direction gets a clearer 5-wave move first, up or down, to determine which count is primary.

Lead analyst Mike Golembesky explains this in the latest Market Update, posted Friday to the Flagship service, which can be found here: https://www.elliottwavetrader.net/trading-room/post-type/initial/section/25/section/235/header/AviMarketUpdate/links/1. Here is a copy of Mike’s latest SPX chart:

Note that in the very near term, things look a little sloppy because price action off the lows is not very telling. It does not look like we have completed a minor degree 1-2 off the lows. Nor does it look like we have completed the red (b) wave. Here is a zoomed in ES chart:

That is what we are looking at for Sunday night and Monday/Tuesday. The longer-term outlook will depend on which path we end up taking in the near term.

Volatility

VIX was 19.30 at the close. It was at 25.64 last week. The prior three weeks we hovered around the 19.40 level. I consider 19 (19.18) to be a support level from which VIX bounces during periods of high volatility. It can also act as resistance, sometimes. We seem to be hovering around that level for 5 weeks. This reads to me as indecision, though 19 is elevated, to be clear.

The VIX futures term structure shows volatility pricing has come down across the curve, which is no longer inverted and regaining a contango shape. This is a much less concerning configuration.

Other Trades – Metals and Miners:

This is an important time to be checking-in on the metals and miners trade. First, allow me to reiterate a couple of things Avi has been reminding members of the Flagship service:

• Avi is less impressed with the metals charts themselves, as Gold and Silver aren’t presenting the same setup as GDX and many of the miners. I own a half-sized position in GDX.
• Avi also stresses that individual mining stocks may be the best way to play the rally we’re tracking. Our Metals, Mining & Agriculture service covers these and is worth checking out, especially if you have a free trial available. I’m getting close to being fully allocated in the miners sleeve of my portfolio.

We had a healthy sell-off in the whole complex this week. Silver and gold broke below their October lows on Friday. GDX did not. So the relative strength in the miners is evident. It is also expected because that is what Avi has been saying. So the thesis is still intact for this trade. The trade is far from guaranteed, but at these levels the risk/reward skew is quite attractive.

Having said that, gold and silver are presenting as very weak and so risk management is of the utmost importance for folks who are invested, such as myself. Checking in on Avi’s Weekend Metals Update tonight is a must.

Other Trades – Bonds

Last week, I showed the following TLT chart, in which Avi wanted to see the wave 1 extend further into the blue box.

This week, price did get a little more into the blue box (barely) and then treasury bonds also had a healthy sell-off. Here is a copy of Avi’s latest TLT chart, posted to the Flagship service on Thursday, here: https://www.elliottwavetrader.net/trading-room/post/10437701.

This is not too bad of a continuation of the pattern, but there remain some reasons to stay cautious. Avi stated, “I am still seeking a full (a)(b)(c) structure for this pullback for me to [be] more confident of a buying opportunity. However, should the next rally be a 5-wave structure for wave i of 3/c, I will adjust.” I will start tracking this chart more regularly.

ICYMI – “A Nickel’s Worth”

This is something for your toolbox. Flagship service member Timmy-man authored a series of articles designed to help traders on topics such as mental preparedness, trade planning, trade execution, trade forensics, and setups. One of my favorites is titled, Rules Aren’t Made to Be Broken and can be found here: https://www.elliottwavetrader.net/trading-room/post/9157099.

You can also follow this link to get all of A Nickel’s Worth articles: https://www.elliottwavetrader.net/trading-room/tag/ANickelsWorth. (If you open the latest article there will be a .pdf file with a guide to the series.) Thanks T-man!!

Last week, SPX and NDX were both very close to support. That support has held for now. But ultimately, we are still looking for a clear signal as to which count the major equity markets wish to take. Markets are in a less precipitous posture than last week, but our job is to stay vigilant. It still appears that we should have a decision between the green and red counts sooner than later. Have a great weekend everyone.

As always, I am here if you have any questions about the site or its services. And you can type “@Lou” in to a post if you need to get my attention right away.