On the Hunt for Red October

The hunt for this elusive top continues! It might seem frustrating at times (I think so!) but the reward at the end will be worth the wait.

I was not feeling comfortable with where we topped and, in fact, was surprised. We’d had a very shallow 4th wave and then a small top, which I thought was a final, somewhat truncated fifth. In retrospect, it wasn’t. It was the end of the third wave of the fifth wave up. Today we had the real fourth wave down and so we have one more wave to go up to the top.

Tonight in the futures, we’re already well on our way. So I would expect to see the top this week.

I had mentioned a number of indictors pointing to a top on October 13.

• a strong cycles analysis (below) that shows a definitive cycles top
• the Puetz TPD crash window focusing on the October 13 new Moon
• the market itself, which appears to be finishing wave 5 of 5 of a regular flat
• the upward movement of gold, which typically suggests a “flight to safety”

They’re all  still valid. In fact, cycles aren’t as accurate as a specific day, but they’re usually not more than a few days off. That’s because cycles can slide slightly over time and we’re analyzing 13 years of past data.

In today’s post, I’ll look at what happened today and where the market went wrong. I’ll use the SP500 as an example. And then I want to go through the major indices and show the big picture. Because they’ll all in the same boat; they’ve all done a fourth wave and have a final gap to fill to the 62% line.

As we approach the top of this correction, I often get asked where the best place to enter is. Here is a brief explanation of what to expect and the safest point at which to enter a short trade after a first wave down.

Here’s a 5 minute chart of the SP500 from today. We came down in 5 waves yesterday, except the second wave was somewhat muted and was making me uncomfortable. Then today, we headed up in a B wave (really unexpected) and then headed down in a C wave.

So what looked fairly good yesterday, all came apart today. We’ve ended up with 3 waves down. At the end of the day, we were obviously forming a double bottom and all the momentum was gone. In fact, there wasn’t much momentum at all today, something I commented on about midway through the day. The waves just didn’t “feel right” or “look right.”

So … three waves down means we completely retrace. We head back to the top.

The 2 hour chart of the SP500 (above) shows the big picture. It’s very much like the chart from two days ago, except for the fact that we now have a fourth wave. This fourth is a subwave (the fourth of the fifth of the C wave). I haven’t labelled all the other subwaves due to the lack of space.

I’ve placed the 62% retrace line (from the market top) on the chart. I was surprised when we didn’t hit it. But a mentor of mine once said:

“The market will do the obvious thing in the most un-obvious way.”

It’s one of the truisms of the market that I tend to repeat out loud when days like today happen. It’s obvious to me that we’re going to trace out a large second wave. All the indices are very close. So the target for the SP500 is about 2030, as it was two days ago. We could go a bit higher, but we need to reach that objective.

Here’s the explanation of the correction we’re forming on almost all the indices: a regular flat.

Based upon my scenario of an ABC down wave from last week and an “ending wave” up, here’s what remains of the path. The wavelengths in this final C leg up are textbook.

Wave 3 is 1.6 times the length of wave 1. In the final 5th wave, wave iii is 1.6 times wave 1. If wave v traces out the typical full length (1.6 x wave i), it should top at 2052. I have placed a line at the 62% line, which is another typical stopping point (2030). So, somewhere in between 2030 and 2052, the market should turn down.

I measure the ES top at about 2022 (roughly).

Any flat correction is in a 3-3-5 pattern. In this case, the B wave would have been the ABC wave down from last week. The A wave would be the pattern from Aug 24 up to the high.

In a regular flat correction, “wave B terminates about at the end or about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A.” If we complete a flat that goes to a slight new high, then this would have to be a larger 2nd wave and the downside will be much greater than a 5th wave. For example, the third wave alone would take us down to the low 1600s in the SPX. We would have a 5th wave after that.

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If it Quacks Like a Duck …

If all the indices reach 62%, I would be inclined to label this correction wave 2, which means the drop in wave 3 to come is very much greater that if this correction was wave four.

Let’s look at the overall market to get a sense of where we’re at in the larger time frame.

Above is a 2 day chart of the DOW. I’ve overlain a fibonacci retracement tool to give an indication of our target for the final fifth wave. The horizontal line marks the 62% retrace objective.

The Nasdaq now looks the same as the other indices. This final leg up should extend to reach the previous spike top at 4960.87. I haven’t drawn in the 62% retrace line as we’ve already exceeded it. The horizontal line marks the previous top, which I expect we’ll test before turning down.

If we only need to get to the 62% mark, it’s at about 4875.

Even the NYSE (above) is stretching itself to make the 62% retracement level (horizontal line).

The Global DOW (GDOW) has retraced up to the same relative spot as the US indices. I’m expecting it, too to rally to the 62% line to trace out a 2nd wave before a turn down in a 3rd wave. This would fit with the prognosis in the US markets and reinforce my count there as a second wave retrace.

Gold (GLD) above continues the rally. On a larger scale, I expect GLD to retrace to the 62% level, which is at about 153.00. It has a long way to go. You can see here that we’ve completed a first wave up in 5 waves, have retraced in an ABC pattern and are entering the 3rd of 3rd wave up (after completing waves 1 and 2 of 3).

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Cycles Analysis

I ran this chart Friday after the market close (Oct 9). I’m showing a cycle top now on Tuesday, Oct. 13, 2015.

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. You can see how close-fitting it has been in the recent past. The fit with the current wave is quite stunning and therefore, something to pay attention to.

This analysis suggests a top to the current wave on October 13 (starting down on the 14). Oct 13 is also the new moon.

It shows a bottom to this set of waves down at December 7, 2015.

This particular cycle top (Oct 13) is a strong one. 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. 

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The Panic Phase and the TPD (Turning Point Distribution) Principle

The TPD Principle describes a period in time of several weeks in which an array of cycles congregate, including gravitational, geomagnetic, and nuclear. It’s around this time that markets have historically topped. I was asked to include a reference to this in today’s blog post, which I’m happy to do. This principle generally refers to market tops (which we’ve already seen on May 20, 2015), but it’s interesting to note how many astro events we have occurring over the weeks surrounding the upcoming major turn in the market.

In his book, “the Universal Cycle Theory,” Stephen Puetz writes, “The TPD principle involves the eclipse cycle as well. The eclipse cycle normally peaks on the first new moon before a solar eclipse. Following that reversal point, it takes six weeks for sentiment to shift from euphoria to panic. Then on the first full moon after a solar eclipse, a panic-phase begins. A panic phase usually last two weeks—ending at the time of the next new moon.”

The dates:

Aug 14 , 2015 – First New Moon before the Eclipse (there is a New Moon happening at the same time as an Eclipse—Sept. 13)

***Aug 29 – Full Moon before the Solar Eclipse (peak of the eclipse cycle)

Sept 13, 2015 – New Moon and Partial Solar Eclipse

Sept 23, 2015 – Fall Equinox

***Sept 28, 2015 – Super Blood Moon Eclipse (start of panic phase)

***Oct 13, 2015 – New Moon (this would mark the end of the panic phase) – six weeks after the Aug. 29 full moon.

So … there’s a lot happening in the area of cycles right around now. The week of Oct 13 looks important to a possible major market turn.