Last week I wrote, “The turn is in.” That certainly seems to be the case.
The Summer Solstice was on June 21. The Nasdaq topped on June 9. For my Trader’s Gold subscribers, I’d predicted a turn for ES/SPX on that day at 2446, which it hit (and I called the NQ top as it happened).
However, I also warned of one more top after that for ES/SPX. I predicted that top for SPX at 2452, but I missed by two points, as it went up to almost 2454 before turning over. That was the final high on June 19.
Since then, we’ve been slowly turning lower. Volume, which was almost non-existant relative to the norm, has now started to rebound, as predicted. More downside is certainly to come. Wave continues to drop …
So, Ralph Elliott has been proven correct again, with his discovery of one of the laws of nature, one that predicts the movement of the financials markets so accurately, I often find it eery.
Ralph Nelson Elliott published Nature’s Law in 1946, two years before his death in 1948. It was as complete an explanation as he could provide of his work discovering the Elliott Wave Principle. It was not until many years later, with the publishing of the book, The Elliott Wave Principle, that Robert Prechter brought his work into the public arena.
The two key elements of Elliott Wave Theory to me are, fibonacci ratios and wave structure. Here’s a review of the basics in those two areas.
Here’s an excerpt from Nature’s Law:
“Fibonacci was an Italian mathematician of the 13th century A.D.. He was better known in his day as Leonardo de Pisa. He visited Egypt and Greece, and on his return to Italy, disclosed what is known as a summation series. This series of numbers follows: 1.. 2.. 3.. 5.. 8.. 13.. 21.. 34.. 55.. 89.. 144.., etc.
Any two adjoining numbers equal the next higher number, for example, 5+8 = 13. Any number divided by the next higher number gives a ratio of .618, for example, 8/13 = .618. Any number divided by the next lower number gives a reciprocal of 1.618. In the lower numbers, the ratios are not exact, but close enough for practical purposes. To simplify reading, I will hereafter refer to the former as .62 and the latter as 1.62.
Note that the first five numbers of the summation series, 1, 2, 3, 5 and 8, are shown in the complete diagram of the pyramid.
“The original measurements of the great pyramid of Gizeh are estimated to have been: base 783.3 feet, elevation 484.4 feet, ratio 61.8 percent. The elevation, 484.4 feet, equals 5,813 inches (5-8-13 FSS*).
Looking at a pyramid from any one of the four sides, three lines are visible. The diagram in figure 2 is a complete cycle. Viewing the pyramid from any one of the four corners as in figure 3, five lines are visible. A pyramid has five surfaces — four above ground and the bottom. From the apex, a pyramid shows eight lines, as shown in figure 4.
From experience, I have learned that 144 is the highest number of practical value. In a complete cycle of the stock market, the number of minor waves is 144, as shown in the following table and diagrams (click to enlarge):
|Bull Market||Bear Market||Total
All are Fibonacci numbers and the entire series is employed. The length of waves may vary, but not the number.
Note the Fibonacci Summation Series numbers in the following:
- The bodies of humans follow the numbers 3 and 5. From the torso there are five projections—head, 2 arms, and 2 legs. Each leg and arm is subdivided into three sections. Legs and arms terminate in 5 toes and fingers. The toes and fingers (except the big toe) are subdivided into 3 sections. We have 5 senses.
- The monkey is the same as a human except that his feet are the same as his hands, that is, his big toe is the same as his thumb. Most animals have 5 projections from the torso—head and 4 legs, total 5. Birds have 5 projections from the torso—head, 2 feet and 2 wings.
- Music: the best example is the piano keyboard. “Octave” means 8. Each octave is composed of 8 white keys and 5 black keys, total 13.
- Chemical elements: there are approximately 89 primary elements. [there have been more discovered since, but the primary elements from a biological perspective are 5: carbon, hydrogen, oxygen, nitrogen, and phosphorus [These are the primary elements found in cells, DNA, and RNA. The three main organic molecules are composed of Carbohydrates CHO, Fats CHO, and Proteins CHON.- Peter]
- Colors: There are 3 primary colors. Blending produces all other colors.
* FSS refers to: Fibonacci Summation Series
- The Western Hemisphere is composed of 3 subdivisions, North, Central, and South America.
- In the Western Hemisphere, there are 21 republics, all of which are members of the Pan American Union. North America is composed of 3 countries, Canada, Mexico, and the United States. South America is composed of 10 republics and 3 European colonies, total 13. Central America was, previous to the Panama Canal, composed of 5 republics.
- The United States was originally composed of 13 states. Today there’re 55 subdivisions as follows: 48 states, District of Columbia, Philippines, Panama Canal zone, Puerto Rico, Alaska, Hawaiian Islands, and the Virgin Islands.
- On the Declaration of Independence, there are 56 signatures. The original number was 55. The last was added later.
- Main branches of the federal government: 3. Highest salute of the army: 21 guns.
- Voting age: 21 years.
- The Bill of Rights contains: 13 points.
- The colors of the national flag are: 3.
Fibonacci relationships are everywhere. From our DNA right up through the planets that revolve around our Sun. My video on the Golden Mean is here.
The Elliott Wave Principle relies heavily on them. They’re all through the stock market. Waves have new relationships with each other that I keep discovering on an ongoing basis.
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). Last weekend, I wrote that we had finished topping. While there were points at which that call was questionable, it now seems most likely to be the case. We appear to be at the top of wave 3 of a (likely complex) five wave move to the downside.
Technically, in Elliott Wave, the top is not in until we drop below the previous 4th wave of one lesser degree, which is at 2400.
The lesson here is that the topping process is just that—a process. And with everything attempting to turn at the same time, it's been an extremely long and frustrating one.
The likeliest scenario for the pattern at the moment is a flat. We'd be at the top of the C wave, if that's the case.
Summary: We seem to have completed the third wave in ES at the top of a possible expanded flat (a running flat is also an option). Our task now is to break support to confirm the top.
Volume Head's Up: Look at the relative volume at the bottom of the above chart. Last weekend, I noted how low volume had fallen, but said that as we start to move down in the fourth wave, volume will start to return. This week, volume is headed up, which further signifies that top is most likely in place.
After completing the larger fourth wave, we'll have one more wave to go, which could be an ending diagonal as a fifth wave. The long awaited bear market is getting closer.
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