Update: Monday, August 8, 3PM EST
Above is the 15 minute chart of GBPJPY. For anyone interested in the long swing I mentioned below, here’s how we’re doing. I see 5 waves up and and 2nd wave down in progress. The entry point has changed slightly, at about 132.90. You’d go long and be in for a long time. Target is 170.46.
Original Post: Sunday, August 7: On Friday, August 5, EWI came out with their latest monthly financial report in which they stated,
“Large speculators have held big positions at various times curing the DOW’s advance since 2009, but their current holdings are by far the largest since the e-mini contract was first launched in in the late 1990s.“
This information supports a major top not far off. It also supports the ending diagonal pattern that I’ve been predicting as the only option at this point. I’ve been predicting this ending diagonal for the past month ever since we rose to a new high in the first week of July. In the Elliott Wave Principle, Frost and Prechter described ending diagonals, “indicate exhaustion of the larger movement.”
As such, we’re now finishing the first wave up and expecting a very large wave 2 down, with the target still to be determined. For the DOW, this could be in the neighborhood of 17,000.
When the bulls sport optimistic levels like these, it means that just about everybody’s “in.” They’ve all had great success thus far and are wildly optimistic that the good times are going to continue to roll … but they never do. When the bulls are more optimistic than they’ve ever been, that attitude suggest a top is imminent.
However, this isn’t the final top, as the pattern is not complete yet. We have more to come and I expect a blow-off wave (the final fifth wave) at the top. However, once we have a second wave in place, it will become a bit easier to predict how the waves following it will unfold.
It’s time for contrarians to lift the lid off their cash jars and get ready to go short.
Above is the daily chart of the DOW showing a revised numbering scheme for the ending diagonal that I’ve been predicting. Let’s look at the ending diagonal rules to see why I’ve decided upon this labelling.
- The waves all have to be in “3’s.”
- The waves get progressively shorter. So because the yellow C wave is longer than the yellow A wave, the C wave alone can’t be the third wave. In other words, the entire large ABC wave up to 18,616 must be wave 1 of the ending diagonal, meaning that wave 2 is still to come.
- Waves 3 and 5 have to each reach new highs above the previous odd-numbered wave.
- Wave 3 cannot be the shortest wave.
Above is a daily chart of the NDX (Nasdaq). As well as the DOW this pattern also looks like a very large ending diagonal. If that’s the case, we may get one very large 2nd wave down and then a final 3rd, 4th, and 5th wave up to a top. Ending diagonal waves are all in 3’s.
Above is the daily chart of the SP500 showing a similar (although very, very early) look at the potential configuration of the ending diagonal I’ve been predicting.In this case, as well, we have an almost complete first wave up and expecting a second wave down to at least even with the yellow B wave.
Here’s the daily chart of EURUSD showing the ongoing triangle—the major (combination—a flat and a triangle) corrective pattern we’ve been in since March, 2014. We’re in the final stages of a bearish triangle formation, with one more leg up to go to finish the E wave. I’ve widened the triangle here to leave a distance between yellow D and E of .618 X the distance between waves A and B (not shown here), which is the typical wave E length.
Although this currency pair has been “all over the place,” I still believe it should continue to drop to the 1.0870 level and then I suspect when we finish wave E of the expanding triangle in the US indices, we’ll turn up in the final E wave of the triangle. The chart below takes a closer look.
EURUSD should turn down after finishing the E wave in tandem with the US equities.
Above if the daily chart of GBPJPY showing a possible bottom of a motive first wave down. GBPUSD is also at a potential bottom, both looking for turn up for a good swing trade to the 62% retrace level. In this case the target would be the horizontal line at 170.46.
Above is a three minute chart of GBPJPY. I’ve been stalking this pair for a reversal and long-term corrective wave up to ~170.45. It looks like we’re completing five waves up at small degree to the previous 4th wave (at 133.80). The setup requires a drop to the 62% level (132.82 or so) in three waves, a turn there up into a third wave up. 132.82 is your entry point. Your stop is at the low (~132.24).