The Bigger Picture
Bob Prechter and Pete Kendall wrote an article for Barron’s in 2004, in which they forecast the eventual alignment of all markets based upon liquidity. Here’s some more background on that. This is today’s theme. I’ve been watching the equities and currencies move closer and closer into alignment over the past year or so, to the point that today, you can see them move together intraday. Quite spectacular.
What does this mean to traders? It means you can confirm your trade across multiple assets. Or, quite simply pick anything you want, since they’re all moving in tandem. Just make sure you know what’s aligned and what’s moving contra.
Keeping this in mind, let’s look at the short term forecast.
Bottom line: My prognosis hasn’t changed, but the recent wave down has become clear, and is at an end (or extremely close to one). The wave down since Nov. 4 is wave 4 of the C wave. We now have to rise back up to test the previous high at SP 2116.48. The drop took approximately 7 market days. The rise should take about that long, which brings us to about the Nov. 23 cycle turn projection. The fifth wave should rise in 5 waves.
Cycles and Astro: November has lots of turn dates for equities, the dollar, and other currencies. The key dates for the month of November for equities and currencies are Nov. 4, 16, and 23. These come from the Market Timing Report, among other sources. I suspect Nov 16 (Monday) will be the wave 4 low, while Nov. 23 may be the top of wave 5 (top of wave C, wave 2). Looking head, the important December 14 date could be the low of wave 3 down, which would lead to a end of year rally before the final low in January, 2016.
Short Term Charts
A look at the DOW shows that we’re at (or almost at) the bottom of wave 4. What has been disconcerting about this wave is its odd structure. The first half came down in overlapping waves and the second half in a “motive fashion.” However, it is not a motive wave, and can now be one of two things: either a 4th wave (the preference), or a leading diagonal (much less likely).
The fourth wave will see us heading back up to the high at 2116.48 before turning down in a very large third wave. The leading diagonal would retrace only 62% (I put this as a low probability event, although I’ll be on the lookout for it and will alert you on this blog).
Here’s a one hour chart of the SP500 showing the 4th wave down. The larger pattern from August 24 is a regular flat (an ABC wave configuration, 3-3-5). This means the first two waves will be in waves of 3 and the final C wave will be a wave in 5 waves. Above is the C wave.
The giveaway to the next move for me is the fact that wave 4 has done a very deep retracement. In fact, it has now retraced down to the point that it is EXACTLY 1.618 X the length of the first wave from the top. The fifth wave is usually 1.618 times the length of the first wave. I’ve place the fibonacci retracement tool on the chart and you can see on the left that 161.8 aligns with the top horizontal line, marking the top of the third wave.
The market is telling me we’re going to complete a 5th wave to test the previous top at 2116.48 SPX.
If you were to go and measure all the other major indices, you’ll find they have come down exactly the same percentage in relationship to their perspective first waves.
Now for a look at the coming week, with a “zoom in” to the 15 minute chart of the SP500.
You can see we’re looking at the 4th wave, which has almost come down to touch the previous 4th wave (horizontal line). We may see a little more downside on Sunday in the futures. However, I would expect us to start the 5th wave up on Monday.
The fifth wave up should rise in 5 waves to the previous high (exactly 1.618 X the length of the larger first wave of the larger C wave (shown in a previous chart above).
The best place to enter is at the bottom of the second wave (the green arrow on the chart), which usually retraces 62% of the first wave up. In this case, the retrace may drop lower than 62% because we’re talking about a market that is overly bearish and in arguably the last wave of the larger C wave, ready for a very large drop. So use caution.
After the retrace to the top, the market should turn down.
Here is a one hour chart of ES (SPX futures) as at the close on Friday, Nov. 13.
Many of you know I’ve been flirting with the leading diagonal idea which came from the configuration of the futures market. This chart show that the futures market is still sporting that pattern. However, I’m not sold on the idea that a leading diagonal actually exists, and so I’m suggesting the e-mini futures will also retrace to the top before turning over.
Currencies and the Dollar: All One Market
Above is a daily chart of the SP500 (top) and then a daily chart of the US Dollar (middle) and finally, a daily chart of the euro/dollar (bottom), which is flipped vertically to show how it inversely lines up with the other two indices. I have been watching these three indices for months now.
What appears to be happening now is that the dollar is short-term topping and this should cause the US equities to turn down. I think this is why we’re seeing the equities about to turn now.
It’s no secret, if you’re an Elliott wave counter like I am, that the euro and other dollar pairs are about to turn. Their waves are virtually complete. I’m also seeing the imminent turn of all the dollar pairs. In fact, we appear to be in the last wave down this week.
Keeping this in mind, it seems to me that the US equities market may top as the currencies bottom (or top, in the case of the dollar).
Relative movement to equities (the US stock market):
- USD, USD/JPY: in parallel
- USD currency pairs (EUR, CAD, AUD, GBP): contra
USD/JPY appears to have one more leg up to end the larger wave, which the other US dollar currency pairs have one more leg down.
History: The 1929 crash
I think it’s important to look at 1929 and the wave structure (above and below), which was the same as 2007—to a point. I will show the 2007 crash below in the “What If” section.
The wave structure of the 1929 crash was in 3 waves overall. There were 5 waves down from the top (the A wave) and then a very large B wave retrace. The final C wave down was a stair-step affair and lasted over 2 years.
Let’s look a little close at the timing of the 1929 crash because the similarities to today are uncanny.
The market peaked on September 3, 1929 and then it took 2 months for the crash to actually happen (to reach the bottom of wave 5 of the A wave). The larger crash which we always hear about began on October 23, 1929. Then there was that large B wave, which lasted 5 and a half months and finally (which I explain a little further in the cycles section below), the C wave which went on for more than 2 years. This might be the scenario we’re looking at going forward.
Keep that December 14 date in mind for the bottom of the A wave.
Finally, let’s take a look at a big picture of the SP500 and project the bottom of the third wave down. I’ve drawn a couple of horizontal lines on the SP500 chart to suggest ending prices for the bottom of the A wave.
If the full wave drops 1.618 X the length of the first wave, the bottom would be at 1645.98. *
If the A wave extends to 2.618 X the first wave (historically more likely), the bottom would come in at about 1367.84.
- * These numbers are based on the current top of 2116.48 in the SPX (and same date tops in the other cash indices).
“What if”—Without the FED
Above is the 2007 chart of the DOW. I’ve marked the motive wave down so that you can see the configuration compared to what should happen today and to what happened in 1929. Note that wave (1) came down in 5 waves and then we retraced to the 62% level. We Elliott-wavers thought we would turn down at that point, but qualitative easing had its effect on the market and up we went.
It’s interesting to note the correlation between the QE segments and the movements of the market.
Below is a chart of the various segments of quantitive easing undertaken by the FED, with their dates, so you can see how they applied to the DOW chart above.
Cycles Analysis (updated November 15, 2015)
This is my cycles analysis from today (Nov 15, 2015). You can click on it to expand.
Above is the long wave in SPY. In the analysis tonight, this wave returns the highest percentage of trade wins of the 25 cycles the program finds, trading both the bottoms and tops of the cycles over a period of 12 years. I show this to give an idea of the larger cycle running through SPY (and the SP500) and where we are tonight in relation to it.
This chart uses a compiled display of all the cycles the program finds.
This cycles analysis uses Techsignal X from the Foundation for the Study of Cycles. I’m using data going back to 2002 this analysis of SPY (SPX) and displaying a compilation of all the cycles the software has found over that period.
This analysis suggests a cycle top of October 19, so we are overdue for a turn down.
It shows a bottom to this set of waves down at December 9, 2015. There are Gann and astro projections for a December 14, 2015 bottom from different, very credible sources. I would suggest that these dates are the dates to watch.
Looking Ahead Even Further
You can see on the above chart that we bounce after the December expected bottom. The cycles analysis shows a bounce that lasts through mid June of 2016. This would be consistent with 1929. The fourth wave bounce in 1929/30 lasted 22 weeks, which is about 5.5 months. From December 12 to June 12 is, of course, 6 months. This suggests a similar scenario to the 1929 drop.
I’ve gone a little deeper into what the analysis is telling me on a separate page. Here’s a more in-depth explanation of what this chart is suggesting.