Big Momma: The New York Stock Exchange
I’ve mentioned before that whenever I have a question as to what’s going on with any of the US indices, I pay a visit to the chart of the NYSE, which always gives me the real story, without the animal spirits of traders. This time is no exception.
In a previous post, I stated that I expected the C wave of this fourth wave, to drop to a length at least equal to the A wave. That’s about the minimum length we need to expect from this current wave down (a target of about 11,700). Below is the chart showing our progress:
Above is the four hour chart of the NYSE. When there’s uncertainty in the US indices, I usually come back to the chart of NYSE, which almost always gives me great insight into what’s going on.
I refer to this index as the Big Momma because the SP500, Russells, the DOW, and other sub-indices ultimately move in parallel (more or less) with this index. Altogether they represent the largest cap exchange in the world and, of course, the US Dollar is integrally influential.
For many months now, I’ve been saying I expected a large C wave down to finish off this large corrective fourth wave. The 11,724 line would result in a pink C wave that’s the same length as the pink A wave down from January 29. That would be a minimum level for the C wave.
More likely, the C wave is going to drop to the 1.618 X extension of the pink A wave. That level is at almost 11,000. That should instil some real fear in the market!
However, the waves down are oversold and there’s quite a bit of RSI divergence, so I’d expect a relier rally first and then another wave down to that lower level. The rally would most likely go back up to the 62% retrace level, which right now is at the level of yellow B (~12,644).
Where’s the Fear?
Keep in mind, that we haven’t seen any real fear, and I believe that will be the real mark of a complete fourth wave. So all of this supports a bit more downside and then a three wave rally, followed by a larger wave to a new low below the bottom of the red A wave on this chart.
We need this fourth wave to stir up the underlying fear that’s out there and have it manifested in articles and headlines in the mainstream press. Only then will we see a fifth wave to a new high. So this factor also tells me we have more work to do on the downside before we can contemplate a final rise to end this 500 year rally.
Elliott Wave Basics
There are two types of Elliott wave patterns:
- Motive (or impulsive waves) which are “trend” waves.
- Corrective waves, which are “counter trend” waves.
Motive waves contain five distinct waves that move the market forward in a trend. Counter trend waves are in 3 waves and simply correct the trend.
All these patterns move at what we call multiple degrees of trend (in other words, the market is fractal, meaning there are smaller series of waves that move in the same patterns within the larger patterns). The keys to analyzing Elliott waves is being able to recognize the patterns and the “degree” of trend (or countertrend) that you’re working within.
Impulsive (motive) waves move in very distinct and reliable patterns of five waves. Subwaves of motive waves measure out to specific lengths (fibonacci ratios) very accurately. Motive waves are the easiest waves to trade. You find them in a trending market.
Waves 1, 3, and 5 of a motive wave pattern each contain 5 impulsive subwaves. Waves 2 and 4 are countertrend waves and move in 3 waves.
Countertrend waves move in 3 waves and always retrace to their start eventually. Counrtertrend (corrective waves) are typically in patterns — for example, a triangle, flat, or zigzag. Waves within those patterns can be difficult to predict, but the patterns themselves are very predictable.
Fibonacci ratios run all through the market. They determine the lengths of waves and provide entry and exit points. These measurements are really accurate in trending markets, but more difficult to identify in corrective markets (we’ve been in a corrective market in all the asset classes I cover since 2009).
To use Elliott wave analysis accurately, you must be able to recognize the difference between a trend wave (motive) and a countertrend wave (corrective). There’s very much more to proper Elliott wave analysis, but this gives you the basics.
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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 C wave down that was expected has been a very difficult one to predict and trade. I believe the problem stems from the fact that NDX and SPX are moving more or less together, but the requirements for this leg down are completely different from an Elliott Wave perspective. Both have to be satisfied and so the waves in the SP500 are not quite what one would expect (if the expanded flat scenario is correct):
- NDX is in a fourth wave of an impulsive wave structure up from 2009. It requires a fourth wave down to the previous fourth wave (or at least close) at around 6200 NQ/6164 NDX. It must be in three waves
- SPX, if it is tracing out the C wave of a flat, requires a wave down in five waves. We currently have a three count, but one that could become a five count with a strong rally to around the 62% area and a subsequent drop in waves 3 through 5
As a result, I'm seeing a bit more downside to complete the current wave down and then a turn up into a strong rally. This rally should rise in three waves and give us a very good short opportunity to somewhere near the 2350 area in ES. This will create fear, which we're currently missing. It should also result in a final turn to the upside to trace out wave five to a new high.
There's an option, of course, and that's the running flat that I've had as an alternative. If it's indeed the pattern in play, we'll turn up immediately into a five wave to a new high. For several reasons mentioned in this post, I think this is a lesser probability (and running flats are quite rare).
The Chart Show is likely to be an important one this week in terms of both the short term and longer term market projection.
Summary: My preference is for a B (or second) wave up to the 62% retrace level and then another deeper drop to somewhere near 2350. If this is indeed a flat, we should end up with 5 waves down when complete. In the meantime, we're looking for a bottom to this current set of waves; it doesn't appear to be in place.
The option of a running flat is still on the table, but I count it as a lower probability alternative.
Once the c wave (down) has bottomed, expect a final fifth wave to a new high. That fifth wave up to a new high will be the end of the 500 year bull market.
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Thanks, Peter. I’ve learned more about EW charting here than anywhere else.
Well, that’s a nice comment! Thank you. (I work hard at this, so this is a nice pay off)
And I as well!
Spot on analysis of the current market.
Pay attention people!
Some AWESOME trading oportunities just ahead.
See y’all at the Chart Show! 🤗
Hi Peter. I have just been following a short while but trying to pick it up. I just wonder in your NYA comments at the top if you don’t mean a retrace to B at 12,644 rather than 11,644
Correct. Thanks for catching that, libby. I’ve changed it.
request for clarification re NYSE forecast…”The rally would most likely go back up to the 62% retrace level, which right now is at the level of yellow B (~11,644).”…on Friday the NYSE closed at 11,976.95…should it read “yellow B (~12,644)”?
Changed, rotrot. Thanks for checking my work!
appreciate what you do…just demonstrating that some are paying attention…be well!
Tuesday, November 6, 2018…mark it on your calendar…election day in the US…day before the FOMC two day session…it may be an important day for the stock market…
Peter: when the market finishes the 500 year bull market, it will then be a mass deflation , am I correct? what do you think the government will do then? instead of staying in deflation they will create another inflation attempt that will cause hyperinflation ; is this the outcome you see in the future? Thank you so much for I don’t have much knowledge about cycle and eager to protect my retirement.
There will be deflation, yes. The government will be powerless to do anything about it. They’ve been trying to inflate since 2009 and haven’t been able to. I would stay in cash, not in a bank, unless you know it to be extraordinarily safe.
“stay in cash, not in a bank, ”
Are you suggesting a brokerage instead? Or the mattress?
Ultimately, brokerages have to park their cash, or their clients’ cash, in banks as well. I imagine some of these brokerages have thought this through and found less systemically vulnerable banks to use. But it would seem near impossible to escape surprises to the downside.
My recent article on banks: https://worldcyclesinstitute.com/banks-the-devil-you-dont-know/
All of the hyper-inflations in modern history were in currencies that were *not* the world’s reserve currency. I will only start worrying (again!) about hyper-inflation in the US when the Dollar has lost its status. That is not the case presently. There currently is no alternative (bracing for the crypto HODLers assault….). No disrespect to Peter’s view intended.
As per you going to 2840 area and then 2340 area? Am i reading it correct,
If you cant trust bank, how will you trust USD, When you say cash do you mean cash equivalent like gold/silver/food/may be land.
peter: thanks for the reply, how will that be possible to take all the money from the bank and put it at where? stack them under the mattress? it doesn’t seems practical, even gold and silver, how much you can store them ? I listened your interview, it seems everything will go wrong in the not distant
future, with climate getting colder , food shortage, and disease spread , economic failing ………almost no way to escape and survive. so what to do? comment? it makes me feel very depressed.
Peter …… Thought you may like this article on China…… Regards, Richard https://foreignpolicy.com/2018/10/15/chinas-great-leap-backward-xi-jinping/
Interesting article and fits the traits of this cycle turn. I will have to finish a little later …after the open. Thanks, Richard.
that is a spooky read
Great Call on the lower low needed (and HT to the Elliot Wave rules)
We actually hit the downside targets in ES and NQ, with NQ completing an ending diagonal, so the direction is now up into a fifth and final wave, by the looks of it. Top around the end of the year, I would guess.
Thanks Peter. For SPX then are you calling this a Running Flat then?
That comment may have been a bit hasty. Some of my charts are down at the moment, so in fact, there may be no change to my original prognosis.
I was specifically referring to this note in your weekly blog post for the lower low. Your last comment seems to suggest this is no longer correct.
As a result, I’m seeing a bit more downside to complete the current wave down and then a turn up into a strong rally. This rally should rise in three waves and give us a very good short opportunity to somewhere near the 2350 area in ES. This will create fear, which we’re currently missing. It should also result in a final turn to the upside to trace out wave five to a new high.
Your last comment clears this up, thanks.
I had a technically challenging afternoon and had charts down at the end of the day. I don’t really see much of a change in my overall prognosis. Like Verne says ….
I was looking at the 16 heavier weighted stocks vs the 15 lower weighted stocks in the dow . the lesser weighted stocks have still not broken the oct 11 lows while the heavier weighted stocks have now broken the june lows yet the cash dow as of yet has failed to do so.
what im seeing is very much the same as your chart of the NYA . Much lesser stocks and a different index yet the same market .
BA appears to be moving the dow today .
No opinion on anything just noting a few things.
What im seeing is fairly simple : the stocks that move the dow are what is being sold and the lesser weights are holding up so far anyway.
23765-23672 lower support and below that 22913.
10 day trin not giving any signals
NYA lower support at : 11732 ( maybe I made an error )
I see your 11724 .
Looking to me like this is about the elections .
Its a 3 wave decline
all I have
I exited remaining short trades today and am holding some long calls from bear call spreads. It looks to me like we have a completed wave down and the long tail suggests we have an interim low. It now remains to see just how much gas the banksters have left in the tank. I am expecting we now see a furious ramp higher in either a B or a second wave. I still do not see anything resembling a selling climax and am thinking any ramp higher will be corrective ahead of more downside this month.
This is not a timing call although I have a strong opinion here. All I can say with great confidence is that the 10 day TRIN (ARMS INDEX) has closed the past 6 days at 1.12, 1.09, 1.15, 1.11, 1.15, and 1.15 (Today). Over that span, the DJIA has declined almost 900 points with absolutely no fear displayed by the TRIN numbers (real world sentiment, by the way, showing what people are actually doing with their money rather than what they say or think the market will do). Did we see a low today with the dramatic rally off the lows late in the day? Not if the 10d TRIN retains its ability to sense market capitulation—not by a long shot. At the very least, we should see a 10d TRIN at 1.30 at a low and it could, of course, go a lot higher than that!!
Peter G…the voice of reason…with you, although my methodology is a bit different…be well!
Peter G I fully agree. The abscence of real selling pressure is stunning.
I am not even talking about fear-induced selling pressure as we clearly at this time have absolutely no capitulation spike from VIX. What is puzzling is the apparent lack of margin call selling which at this point SHOULD already have been triggered based on margin exposure at the highs. This is quite an anomaly and stinks to high heaven. Something here does not quite add up.
Having said that, very deep pockets indeed stepped in and deployed a tremendous amount of capital to produce that gigantic candle shadow today, one of the biggest I have seen in some time. Clearly the banksters are “all in.”
Is their purpose to forestall margin calls?
If we take out today’s lows tomorow, I also know one thing for certain.
It is going to get ugly…and do so in a very big hurry….stand by…
A number of quant gurus, including Chris Cole of Artemis Capital, have written about the freakish goings on in the volatility sphere, and particularly the “Synthetic Short” vol trade. This is something very few market participants are aware of. As I look at the way VIX traded yesterday, and the way it is trading this morning after that huge reversal candle yesterday,
I think it is “spinning” quite an ominous tale…
Thank you Joe for sharing your very interesting comments..it definitely is all tied together..
and I agree..in and out was the only way to make money this year and going forward for the near future…but look likes the possibility of some huge trades coming up…:)))
Do you have ay additional thoughts on the Mars Uranus sub-cycle That is due November 7th?
A few of you had mentioned Nov 7 (happens to be day after mid term elections) as a potential low date. Is it possible that we can see a turn on 7th as a high rather than a low ? New moon re-asserting itself ? We have 3 trading days left – we got very close to 50% retrace and may get all the way to 62% retrace by 7th !
I think one more flush followed by a manic move up to complete this elusive B OR second wave. And then… the BIG KAHUNA! 🙂
My! Oh, my!
That was quite a show the banksters put on today was it not?
Next week should be MOST interesting!
Have a great week-end everyone!
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