Update: Jan. 2, 3PM EST
Above is the 30 minute chart of the SP500 showing the entire wave up from the final blue fourth (circle). I’ve put circles around the large fourth waves that have been causing me to label this entire wave as corrective (which meant a triangle was likely). It does not look like a motive wave, but when you get to a situation with such low volume, wave structures tend to get a little bit wonky.
If this count is correct, (I actually have only changed the upper part of the wave in terms of the count), then we’re looking at an imminent top … perhaps even tomorrow.
Currencies don’t support a top other than the fact that they’re trying to go up in a corrective wave, but aren’t moving. Otherwise, currencies still have a major wave to go, but it may finish up after the US market tops (which has been an alternate scenario, and why I’ve been suggesting more time for a top).
The final waiting game begins in earnest.
The resolution to this “never-ending” rally will obviously be in the New Year, but when?
Based upon the current position of the asset classes I cover, we’re looking at the first quarter. We’re in the final Elliott Wave pattern – a contracting triangle, although not technically confirmed.
The potential ending diagonal has failed and so all that’s left is a traditional triangle of some sort, the “contracting” variety being the most common.
The US equities market is, for the most part, “done.” The over-arching wave structure is complete. We’re in a final fourth wave pattern that will resolve and change the direction of the trend with one more slight rise to a new high.
However, the US Dollar and related currencies all have one more slightly larger wave to complete. As the dollar is the reserve currency, it defines the ultimate market direction; All other asset classes have a relationship with the dollar, so they’re all affected by its movement. Once it completes the topping process, everything else will turn. I think we have another couple of months left while the US equities triangle unfolds to a slight new high, and the dollar seeks a slight new low.
Once demand for the US dollar increases (as debts demand payment in the reserve currency), deflation will start to engulf the financial system worldwide, as it always has in each depression we’ve suffered throughout history.
Contracting triangles move sideways and burn up a lot of time with their up and down five waves. They end up with a final wave to a new high. The final wave up is typically the same length as the widest part of the triangle, but not always. So, while we can’t count on it, it’s a good guideline.
Once we have the contracting triangle confirmed (with a larger drop in a C wave), there’ll be some high probability trades that set up. But we need confirmation first.
As I wrote last week, it’s the dollar that will have the last word on the top, but they’ll all join the parade to a final top (each perhaps in its own way. A little more patience is warranted.
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The Market This Week
Here's the latest daily chart of ES (emini futures)
Above is the daily chart of ES (click to enlarge, as with any of my charts).
There have been no material changes to my prognosis. We are at the high. I expect this final wave to breach the previous high for the final time.
Although a bit early to call, based on what the rest of the market is doing, the highest probability pattern unfolding is a contracting triangle.
Volume: It's dismal. The only thing apparently holding this market up is the action of the US Dollar, which still has to bottom.
Summary: The count is full for the US market in general, except for small subwaves that form the balance of a motive set of waves in SPX and some other major US indices. I'm leaning towards a contracting triangle as the final pattern, although confirmation is needed, with the completion of a C wave to the downside being the first step.
Above is the 60 minute chart of ES (click to enlarge). Please watch the video to get the full story on what's happening short term.
Last weekend, we knew we were dealing with a triangle of some type. Although I wasn't expecting it, we completed a tiny one with a double top. I've traced it out on the screen above. Other than the NYSE, it appears to be the only index that went to a new high. As a result, I have to label the double top as the completion of a complex zigzag (perhaps a "triple"). There's more than one way to label this chart, so we'll have to see what waves trace out this week.
The key here is that the wave up is corrective, which means a top is not in place. As well, the waves down are in all the indices are also corrective and that means we have one more wave up to a final high.
I expect a low volume week, with a bounce to start it off and a then a continuation down to the lower trendline. I've placed two lower trendlines on the chart—where the wave down stops will determine the width of the triangle, if that's indeed the pattern unfolding.
At this point, I have to leave it to the market to confirm the contracting triangle pattern.
Short term: The wave larger count is now virtually complete. We're tracing out a triangle of some sort. I'm leaning now towards a contracting triangle as being the operative pattern; however, we need confirmation from the market with the completion of the C wave down.
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