The End is Nigh

Update Friday, May 13, Noon EST

Updated at 3:30 PM EST:  Above is the 30 minute chart of the SP500. The triangle appears complete now in the SP500, but not in ES. In the SP500, the direction now is up to a new high—the target still 2116. It may take us a while to get there. The wave up should be in 3 waves.

Updated at 3:30 PM EST:  Above is the 60 minute chart of the SE (emini futures). The triangle for ES doesn’t match the triangle in SPX, in that the ES triangle has an additional “up-down” sequence to complete. As ES goes around the clock, the extra time it has should allow it to get “back in sync” with cash. However, now we have the full triangle defined and waves should trace out as per the arrows.

It will likely take a while to get to the top, and the target for now is the previous top at about 2105.

Above is the 2 hour chart of the USDCAD currency pair. This is a setup waiting to happen. After an ending diagonal, the pair has traced out an a and b wave. This is a 3 wave setup that will completely retrace to ~1.245. When it rallies to 1.315, it will be set to head down.

It’s a trade I will likely take but I don’t think we’ll see the setup until ES and SPX are at the bottom of the E wave.

______________________

Update Tuesday, May 10, After the Close 

Above is a 60 minute chart of ES (SPX emini futures). Click to expand. This is a close up look at the entire 4th wave triangle so far. We have another leg up to a target for D of ~2095, before a turn down into the E wave.

I’ve placed horizontal lines at the A and B apexes, to show the symmetry of the triangle, which is important. This should give us a fairly accurate target on the downside for wave E (the “E” should be on the up-sloping trendline, not on the horizontal line).

I’m happy we’re in a triangle, as triangles denote the end of the trend. One final wave up (the fifth wave up from E) will end the wave up from February 11.

The blue circle on the left marks an area that gave us a clue as to the triangle early on. The waves in the triangle were in 3’s, meaning the entire pattern to come could not be a simple ending motive wave in 5 waves. All waves of a motive wave have to be in 5’s (waves 1, 3, and 5) or the wave would need to be a triangle of some sort.

In order to erase the influence of the waves in the circle, the structure would have had to correct to the bottom of the fourth wave, which it did not do (although I thought yesterday it would and that led to a very subjective decision on my part that the ending diagonal was not complete). Every once in a while subjectivity creeps in, although I try very hard to keep it on the shelf.

Above is a 30 minute chart of the SP500. The triangle is still alive! This is an updated chart showing the balance of the path to finish the triangle pattern. The target for this wave up, which would be the D wave, is ~2095. Wave C of the D wave would be 1.618 X the length of the A wave at that point.

The entire length of wave D will also be .618 X the entire length of wave B, which is a normal relationship in a symmetrical triangle.

___________________________________

Original Post:  Saturday, May 7, 2016

“Trade what you see, not what you think.”

Elliott Waves are how the market moves. You can either refuse to believe and continue to guess or pick off little trades from time to time, or embark on a path to embrace and learn how to use them and spend less time analyzing and more time winning. It may take a while to achieve the latter, but eventually you’ll eventually see huge benefits to your profitability.

It always amazes me how I can be continually correct in my calls (in the 90 percentile) and yet there are many that just will not buy into the fact that the Principle works, or they’ll simply pay it no attention.

There’s a well known quote attributed to Albert Einstein (but he has professed that he never said it) that has been dubbed: “The Definition of Insanity.”

“Doing the same thing over and over again and expecting different results.”

It’s up to you open up to new ways of doing things. A tiny percentage of people in the market can build a nest egg from trading it. It takes lots of study and in-depth analysis of the tools out there. Whether you make the effort to learn everything you can about them is up to you, of course.

Last week, I focussed on the importance of waves in 3. They figure heavily in today’s report, of course, as the reason we’re going to down on Sunday and will finally finish off this fourth wave.

We have ending diagonals in all the indices and futures. We had a set of waves up on Friday in three waves.

I laid out my prediction on Friday (here it is again, if you missed it):

An ending diagonal drops to a throw-over wave (it should exceed the lower trendline). In this case, our target is 2023 for SPX. Ending diagonals are the final waves in a sequence. It will end in a dramatic reversal and the first wave up will go to the beginning of the ending diagonal pattern (in this case, about 2083).

The larger wave down from the top is overlapping and the waves are in 3’s. So this is a corrective wave down. The bottom line is that the medium term direction is still up. We’re looking for a bottom for this wave. I suspect the wave down will last through Sunday, which means we may bottom Monday morning.

A full fourth wave ending at SPX 2033 or a bit lower would suggest a fifth wave up in 5 waves will be the next move.

USDCAD and EURUSD are also in fourth waves now, consistent with that the equities are doing. USDCAD should now turn down and EURUSD up (once the 4th wave in US equities has bottomed).

All the Same Market. I’ve been mentioning for months now that the entire market is moving as one entity, the “all the same market” scenario, a phrase that Robert Prechter coined many years ago, when he projected the upcoming crash.

______________________________

Here’s a video overview of the market for Monday, May 9, 2016:

Market Report for May 9, 2016

Make sure you zoom the video to full size with frame expander (arrows) in the bottom right hand corner and also set the quality to as high as your web connection allows. This is an HD quality video so the best viewing is at that level.

_______________________________

The Charts Going into Monday

On Friday, the market showed its hand. This past week, the highest probability was that we were in a fourth wave triangle. Friday morning, we fell out of the triangle and it was clear that the market was finally going to tell us what it was doing. Cash and futures are now pointing in the same direction with an ending diagonal in progress.

Above is the 60 minute chart of ES showing an ending diagonal (more info in the video). If so, we’ll see one more wave down. The wave up today is in three waves, so it should come down.

Above is a 30 minute chart of SPX. The waves up on Friday were in 3 waves (you can see the abc configuration in the video). Waves in 3 always retrace. So we need to get to a new low.

An ending diagonal drops to a throw-over wave (it should exceed the lower trendline). In this case, our target is 2023 for SPX. Ending diagonals are the final waves in a sequence. It will end in a dramatic reversal and the first wave up will go to the beginning of the ending diagonal pattern (in this case, about 2083).

Important money-making tool: In terms of the downside target, I’m using the same technique with the fibonacci retracement tool that I showed in the video. This is an extremely reliable tool you can use on all 2nd and 4th corrective waves. You can see that I’ve overlaid it on the chart to span the first wave down (100% level of the fib tool). The extension will almost always point to the end of the C wave (either at the 1.618 or 2.618 level). In this case, it’s pointing to the 2.618 level at 2023. That’s also arguably a 4th wave level (my numbering is a little suspect in terms of which corrective wave is the actual 4th).

The larger wave down from the top is overlapping. So this is a corrective wave down. The bottom line is that the direction is still up. We’re looking for a bottom for this wave. It looks like we’re going to finish this fourth wave. I suspect the wave down will last through Sunday, which means we may bottom Monday morning.

A full fourth wave ending at SPX 2023 or a bit lower would suggest a fifth wave up in 5 waves.

USDCAD and EURUSD are also in fourth waves now, consistent with that the equities are doing. USDCAD should now turn down and EURUSD up (once the 4th wave in US equities has bottomed).

Above is the daily chart of NYSE. I keep a fairly close eye on this index as it’s by far the largest in the world (in terms on capitalization). We are at the top of an ABC corrective wave (a bit more to go). I’m expecting a termination of this 2nd wave up at ~10648. This would “correct” the truncation and end in a double-pronged second wave. Third wave down should drop to around 6100.

Above is a two hour chart of IWM (Russell 2000). This shows another perfectly valid way to label this wave up. It’s traced out a very obvious ending diagonal with the “throw-over” to complete. The first wave up has no second wave (as per the major indices), so as with the major indices, this is a corrective wave. The current B wave down should now turn up to create a double top. I expect to see 5 waves up from here.

Above is the 4 hour chart of the SP500, showing the double 2nd wave top waiting to finish tracing out. This would negate the “truncation” and create a spectacular EW textbook set up for a huge third wave down.

Second waves have few restrictions. The key rule is that they can not retrace to the previous top. They should retrace between 62 and 100% (but cannot hit the 100% retrace level). I expect us to reach 2116 before a turn down.

It’s typical in a bear market for second waves to trace out a double prong (an ABC wave down in this case and a 5 wave structure up). The five wave structure, however, is not motive (subwaves won’t necessarily all be in “legal” 5 wave motive configurations). I have therefore labelled this wave more correctly, showing that it is indeed a 3 wave corrective wave, with the C wave up expected to produce a final ending wave of 5 waves.

Above is the 4 hour chart of the DOW. It’s similar to all the other indices, as it should be. I predicted we’d reach the previous 2nd wave high and that in fact is what we’ve done. Look for a double top with the most recent high before a turn down. The reason I show this index is that I’m always looking to other indexes for confirmation of a move. You’ll note that the DOW did not come down to a new low in February, so this puts it clearly in a corrective abc wave up. As all the indices move in tandem, this supports the fact that SPX is also in a corrective wave.

Above is the 4 hour chart of USDCAD. I have been stalking this for some time, waiting for it to bottom and we have the first signs  now.

The larger pattern is an ABC corrective wave, and we have an ending diagonal, which looks to be complete. However, I expect this wave up in 3 waves to trace out a double bottom (to ~1.246) before turning back up into a very large 5th wave.

The euro, Australian dollar, dollar, and Canadian dollar are all at similar major inflection points.

Here’s the daily chart of EURUSD showing the major corrective pattern from the low of March, 2104. The triangle configuration hinted at with the converging trendlines is no longer, so I predict we’re going to hit the 38% retrace level, that I’ve been suggesting for the past 8 months or so is my preferred turning point.

It should turn in tandem with the US equities.

The US dollar (this is a 3 day chart) should do the same thing but in the opposite direction (up). I’m up in the air right now about the structure of this entire wave. Although in 5 waves, it looks more corrective to me than motive.

Short term, however, we’re heading down to the 38% retrace level (which would be the expected place to end this correction).

Above is the 4 hour chart of GDOW (Global DOW) showing the current count. The short story here is that we’ve done a complete set of 5 waves down. As a result, the new trend is officially confirmed at DOWN. The second wave we’re in now has retraced exactly 62%.

Bottom line: All the indices are lining up for a HUGE third wave down. More confirmation!

Major international indices like the GDOW and NYSE are where I do for the overall count. I can be much more committed (as I was on the SP500 first wave down, while everyone was questioning it) when I see a count on these two indices which is clear.

Above is the daily chart of XGLD (gold). No real change here in the past week. The bottom line is that we should turn down here. If we go much above the previous fourth (horizontal line) then I’m obviously wrong and something else is going on.

The target on the low side is the 62% retracement level, somewhere close to 1142.

________________________

First Wave Down – What to Watch For

This weekend we’re dangerously close to a top of a second wave (in the fifth of the fifth, with an ending diagonal pattern).

What we’re looking for to confirm a turn is a motive wave down in 5 waves.

Because we have an ending diagonal, the first wave will likely drop to the previous fourth, which is also the beginning of the ending diagonal pattern (~2022). After that, we should get a second wave that will retrace in 3 waves about 62%. That’s the preferred EW entry point. So don’t feel you have to rush in. There’ll be a much better opportunity at the second wave level than at the top and the risk is substantially reduced.

__________________________

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.