The Little Engine … that Couldn’t

Update Friday, Feb 5, Noon EST

The Nasdaq “gave it away” this morning. Here’s the 30 minute chart of the Nasdaq. We are definitely in wave 4 of the first wave down. We should now turn up in an e wave, which is the last wave in a triangle, and a fifth wave down will follow. The other indices will be in the same position, but do not show a triangle as the pattern. So … nothing has really changed. We have one more leg up … more patience required.

I will produce a new post this weekend with all the indices in it and targets (although they haven’t changed, either).

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Update Thursday, Feb 4, After the Bell

Above is the 30 minute chart of the SP500 showing are progress so far. In terms of the count and measurements, nothing has changed in SPX. The most recent B wave came down to the previous b wave and so the count remains the same. We’ve now completed the b wave of the second zigzag and based on the length of the a wave of this final zigzag, I’ve raised the target slightly to 1961. This would amount to a c leg the same length as the a wave.

Since eurodollar is moving inversely to equities, consider watching for a turn in the eurodollar at the previous fourth wave level (1.1074). It may coincide with a turn in equities.

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Update Wednesdasy, Feb 3, Before the Bell

Up we go again in equities. We should see a top today or tomorrow. I expect a new high.

Here’s the 2 hour chart for USD/CAD. It’s reached the previous 4th now (as mentioned earlier as the target) and should turn in this area and retrace about 62% to the horizontal line. Then it will turn back down into a third wave.

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Update Tuesday, Feb 2, Before the Bell

This morning we have a fourth wave down in futures. This will lead to a final fifth wave up to tag the previous high. Then we will head down into the fifth wave.

Currencies are all reversing. Eurdollar has done a full five waves up now and should retrace 62% down before heading up in a much longer third wave.

Update Monday, Feb 1 Noon EST

Here’s a 60 minute chart of ES (emini futures – SPX) showing where we are right now. We’re a bit short of the previous fourth wave, but certainly “in the area.” We have an abc corrective wave up overall from about 1810, with two waves of 5 waves each (almost). We would at least want to see a new high … and we want to be looking for a top. We could go up further, but it looks like we’re in the final wave up.

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Original Post:  Saturday, Jan 30:

“The Little Engine that Could” is a children’s book that was published in 1930, interestingly enough—right after the market crash. So I thought it appropriate to use the title here, for this wave that just isn’t going to make it very much higher, even though it’s chugging away with very good intensions.

We’re either completing a second wave or a fourth wave up. There are options as to where it will stop and that will give us more of a clue at to what it is. Usually, this would be obvious, but because of the truncation of wave 5 up, this particular wave is much harder to read.

Five waves down will signal a trend change. We may already have it (I believe we do—from May 20), but the next wave down, no matter what it is, will signal a trend change as soon as it drops to a new low. At that point, the fibonacci projections will become much more accurate, because we’ll know where we are.

Even so, I’ve posted a chart below of the possible downside targets, again based on where this wave up turns over.

Here’s a video overview of the market as at Saturday, January 30:

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.

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Above is the 30 minute chart of the SP500. We look to have completed wave 3 of the c wave at the end of the day on Friday. I expect us to start down Sunday in a 4th wave which should retrace about 38% of the c wave. Once that’s done, we should turn up into a 5th wave up to complete the c wave.

There are options in terms of the stopping point of this wave. My fibonacci extension (not shown accurately on this chart) points to 1980, but the previous 4th wave is at 1950. However, I place this fourth wave at two degrees lower. The bottom line is that we should turn over somewhere between 1950 and 1980. The point of turnover will help determine whether this is a second or fourth wave.

Here’s a 2 day chart of the SP500. It’s a longer-term look at the possible targets on the downside, depending on what this next wave down turns out to be.

If this is a fourth wave, the typical stopping point would be a 1.618 extension of the first three waves down (approx. 1631). If it’s a second wave, the third wave down will be at least 1.618 X the length of wave 1 (truncated), which should drop to at least 1508 and could possibly drop as much as 2.618 (1206). We’re going there eventually, one way or the other.

Here’s a chart of the euro/dollar (30 minute) showing the triangle. The euro has been running counter to equities in lock-step pretty much. When it heads down, equities head up. On Thursday night, we completed a first and second wave down and on Friday, continued down into the third wave. We’re now bouncing in a fourth wave of the third, which should retrace 38% of the third wave, or to 1086 before heading down into the fifth wave.

Longer term, I’ve been expecting it to head down to tag the previous low before heading up in tandem with the rest of the US pair  currencies, but I think now it will likely stop at the end of the fifth wave down, at approximately 1.0723.

I expect the eurodollar to head up as US equities head down, which means the US dollar should head down at the same time.

Here’s ES at the end of the day (one hour chart) on Friday. You can see that we’ve completed wave 3 of the C wave, as predicted. Sunday, we should start down in a 4th wave of the C wave, leaving the 5th wave up to a top (I measure the top at 1966 or so, which is a 62% retrace). I expect this to take two-three days this week to get there.

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History: The 1929 crash

I posted the 1929 chart a few months ago and now’s the time to bring it back to the forefront. I would expect a similar path moving forward.

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.

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.

In our current situation, we’ve had wave one down that’s lasted three months (May, 20, 2015 through Aug. 24). Then we had wave 2 up, which lasted from Aug. 24 through Dec 31, 2015 (approx. 4 months). I would expect the wave 3 sequence down (all the waves—the A wave) to last approx. 3 months. Next is the fourth wave (B wave), which should be at least 6 months, I think and then the final C wave to the bottom, which will likely last a couple of 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, the C wave which went on for more than 2 years. This might be the scenario we’re looking at going forward.