Truncations are one of those Elliott Wave market anomalies that don’t exist, in fact. There has never been one; each example in the book is bogus and at no point in the past hundred years, have we ever seen a documented example of one.
I have argued that, in fact, it doesn’t make any sense for one to appear. In that case, the discovery of the Elliott Wave Principle in the 1930s by Ralph Nelson Elliott would not be a science (as I have long maintained it is). After all, I have never seen it fail and I used it with great success every day of the week, at all levels of trend.
Now would be the perfect time for a truncation, of course, due to the fact that we have the coronavirus scaring a lot of people to death. While I’m expecting pandemics to start to crop up as it’s turning colder and dryer, this one appears to be man-made. It seems to have been a stolen from a Winnipeg, Canada lab and weaponized, ending up being released in the area of another world-renowned lab, in Wuhan, China. This story raised its ugly head about three weeks ago, and now we have the mysterious death of a Canadian (connected) Canadian scientist.
But, the market pays no attention, as it has a job to do. It’s like The Little Engine That Could, a well-known children’s book that I grew up with. It will keep going until the final sub-wave traces out in every affected asset class. Then, and only then, will everything turn at once.
There are no black swans that people keep talking about. The market doesn’t suddenly “crash.” People have imaginations and they use them. They don’t do their homework and figure out what’s really going on. My goodness, if they did, the entire market pundit industry would be on the ropes! OMG!
There is so much misinformation and propaganda out there, you can cut it with a knife (as the expression goes). That’s an phenomenon of the top of a 500 year cycle. The same thing happened at the top of Rome, in the period of the reign of Queen Elizabeth I, and to lesser degree at incremental 172 tops.
By the way, these same 500 year tops saw the same type of corruption we’re seeing come to light as the US Empire start to disintegrate. The CIA, Deep State, FBI and other elites will be found to have plotted against the government. Grab your popcorn; the next couple of years are going to be both interesting and very scary to very many on the wrong side of history.
But, “The Little Engine That Could,” the movement of the market, will keep on chugging along, doing its thing, which is providing a mathematical representation of the mood of the herd (the masses, in other words). Gradually, in this rally, the mood of the population is turning negative—you can see it in the wave structure—the waves get smaller, and shorter and shorter, but the turn will not happen until the final sub-wave plays out.
That event is coming very soon. It won’t be a surprise.
DXY (US Dollar Index)
Above is the daily chart of the DXY (US Dollar Index).
The US Dollar is, of course, the world’s reserve currency. The international economy revolves around it and, for the past four years, or so, other assets classes have been becoming more aligned with its movement. These days, the international stock markets are moving more of less in lock-step with the US Dollar Index, as the reported 250 trillion dollars in worldwide debt fluctuates.
For months now, I’ve been calling for a trend change in the US indices when the US dollar reaches the bottom of the last leg of what appears to be an ending expanding diagonal (marked 1,2,3,4,5) showing as a sort of “channel” between the slightly rising trendlines in the chart above. This week, it continued up to complete five waves to the upside.
So, in fact, the US Dollar Index has already turned. We have a non-confirmation, of sorts, between it and the the US indices. That being the case, it now will partially retrace to the downside in three waves before turning back up to trace out another segment of what appears to be a zigzag.
The US Dollar moving up is deflationary (it increases in value) and inflationary in the opposite direction. The EURUSD has a similar pattern in the opposite direction (a regular ending diagonal in that case). When the Federal buys more debt, this injects liquidity and the dollar moves to the downside (decreases in value).
The week before last, the Federal Reserve announced that it is resuming the liquidity operation it began in the fall of last year, in an attempt to increase reserves in the US banking system. They’re obviously losing the battle.
Know the Past. See the Future.
Elliott Wave Basics
Here is a page dedicated to a relatively basic description of the Elliott Wave Principle. You’ll also find a link to the book by Bob Prechter and A. J. Frost.
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US Market Snapshot (based on end-of-week wave structure)
This chart is posted to provide a prediction of future market direction. DO NOT trade based upon the information presented here (certainly NOT from a daily chart).
Above is the daily chart of ES (click to enlarge, as with any of my charts).
We're now in the final sub-wave of the rally from Dec. 26, 2019.
The wave up is a B wave of an expanded flat, a corrective wave, which I identified right from the start. It will completely retrace to the downside in five waves.
The turn is imminent, but since it depends on the movement of the US Dollar, which has a corrective wave to the downside to complete, the turn date remains a question. The advance in the US indices has slowed to a crawl. While the gap is very small, guessing the time it will take to get there is anyone's guess. A few days; a week?
All the US indices (again, as I've long maintained) need to reach a new high. The stragglers are the Russell 2000 and the NYSE exchange itself (certainly no surprise in either case; they're typically the ones we wait for).
Late Friday, we saw the start of a turn in the US Dollar Index after what appears to be a "broadening top" type pattern. As the wave down should partially retrace the five waves to the upside, it's difficult to tell where it will turn.
With five waves to the upside confirmed, the US Dollar Index has already turned up for the longer term. The partial retrace expected to the downside this week, will be corrective and result in more upside.
But since everything should turn together (oil, gold, silver, US Dollar, USD currency pairs, and the US indices, there will be some warning. It's also just as easy to pay attention to the wave count, which it almost completely played out.
The DAX, which appeared to have topped last week, did not complete its wave down (the final wave down came up short) and is now back up to a high. It will also turn with the US indices. It's going to be quite the drop, as virtually everything will move in tandem.
Summary: The current B wave up is most probably the B wave of an expanded flat. The A wave ended on Jan. 26, 2018. The B wave rally has all but ended, as other asset classes I cover have turned, or are about to turn after one more small wave.
We're going to drop from here into a large fourth wave. Look for the ultimate bottom to be somewhere under 2100 in ES.
Once we've completed the fourth wave down, we'll have a long climb to a final slight new high in a fifth wave of this 500 year cycle top.
There is an option of a set of zigzags down to the same level, but it's much less probable because there are so many flats set up across multiple stocks and indices. If a zigzag is the pattern that traces out, the retraces up will not be as strong as they would be with the C wave of a flat. We'll get a lot of information about the probable path from the first wave down.
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