The principle of confirmation is one of the common themes running throughout the entire subject of market analysis, and is used in conjunction with its counterpart—divergence.
Confirmation refers to the comparison of all technical signals and indicators to ensure that most of those indicators are pointing in the same direction and are confirming one another.
Divergence (non-confirmation) is the opposite of confirmation and refers to a situation where different technical indicators fail to confirm one another. It is one of the best early warning signals of impending trend reversals. — Technical Analysis of the Financial Markets, John J. Murphy
The US Dollar
Most of the time when we’re talking about non-confirmation, we’re referring to indicators like Stochastics, Relative Strength, or MACD indictors, etc. In this case, I’m referring to a major non-confirmation is that the US Dollar is not confirming the direction of the EURUSD currency pair.
The US Dollar late in the week, rose to a new high and has potentially traced out five impulsive waves, which signals a change in trend. Elliott Wave methodology requires that we now retrace down at least 62% in a second wave and then rally back up to a new high. This will confirm the change in trend to up … for a very long time to come.
EURUSD, on the other hand, has dropped down in a set of overlapping waves, which conforms a fourth wave (or second wave of an ending diagonal), with a new high on the horizon, targeting the 1.24 level, which is a 38% retrace level of the larger wave down from 2010. So, EURUSD is still in the late stages of a larger corrective pattern that still needs to top properly.
I start off this weekend’s video addressing the US Dollar and EURUSD non-confirmation. It’s the first sign that a trend change is indeed in the works!
The Big Picture (Volume Two)
Big Picture, Volume 2
|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 above video is an update (October 28, 2017) of a video I produced this summer showing how all assets groups are moving in lock-step to a final market top, which will span markets internationally. Even though I haven’t included charts within this video, you can see impending tops in markets all around the world.
Get an upper hand … JC 2
Tops in your field DZ 2
The best of them JL 2
Couldn’t be happier … KK 2
Have not had a losing week RW 2
A true expert in Elliott Wave FL 2
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).
The big new this week is that the US Dollar rallied to new highs, without overlapping waves. This counts as a five and tells me the trend for the dollar has changed to up. My prediction here is somewhat preliminary, in that we need a second wave down to the 62% area and a turn up there to a new high. But the wave lengths so far are exactly what they should be, so I'm in the 85% probability camp that we've bottomed.
This is a major non-confirmation with the EURUSD (and other major USD currency pairs). The EURUSD has overlapping waves to the downside, so we need to expect another wave up to a new high. Non-confirmations between the US Dollar and Euro are typical at a market top. Usually, there is a small spike up in volume during the final "blow-off wave." We now have that, as well.
Last week, I called for a final fourth and fifth wave combination to finish off ES. We now have that final wave in ES mostly in place. NQ is in the throw-over stage of an ending diagonal.
I have a full count on NQ/NDX and ES/SPX now, but we still have subwaves to trace out, so the short term direction is still up for a few more points, at least.
I expect a turn down for the US indices this week; this should mark the top of the rally and lead to a multi-year bear market. There may be one more rally to a double top, after an initial turn down, so it will be important to watch the wave structure after the turn. Three waves down will retrace.
Volume: Note that for some time now, volume has been expanding with selling, and drops considerably when the market heads back up. This is yet another signal of the larger, impending top. There should finally be a small spike in volume in the last portion of the fifth wave—another predictor of a top.
Summary: The count is full for NQ and ES, except for subwaves as part of the final fifth wave.
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