Update Friday, April 15, Before the Open
On a small term scale, I think we’re set up in a second wave this morning in SPX and other indices, which means more up. We only corrected a little bit. We appear to be in an ending pattern, but what is it is questionable in some of the indices. I can see possible triangles and ending diagonals ….
Above is a two hour chart of IWM (Russell 2000). It’s traced out a very obvious ending diagonal and just has the throw-over to complete. This is a small caps stock base and should give a pretty good indication of what’s happening overall.
Here’s the two hour chart of the SP500 so show how close we are to the double second wave top, which I think is the ultimate target.
Above is the 15 minute chart of the SP500. I can see the triangle here, too, except that I’ve kept my original labels, which would suggest an ending diagonal was perhaps in a throw-over.
Above is the 15 minute chart of the DOW. I’ve drawn what could be an unsatisfying triangle with a final thrust. I can find this same pattern in the other indices, most notably the Nasdaq.
Note that just about everywhere I look at individual stocks, we’re in huge second and fourth waves spikes. This whole market is about to turn.
Update Thursday, April 14 11:50AM
Above is 5 min chart of SPX showing the small ending diagonal being traced out.
Update, Wednesday, April 13, ~12:20PM EST
Revised chart of ES showing the ending diagonal:
Above is the 60 min chart of ES (SPX futures). ES is in an ending diagonal, not a normal 5 wave ending wave and here’s why:
Previously, I had labelled the wave up from 4 on the chart ( from ~2025) as wave 1. That was fine, as it appeared to be in five waves. Then we turned down in a b wave and up to a new high in a c wave. This configuration now makes the first wave up a 3, not a 5. So, it’s obviously not a motive wave. It now becomes wave 1 of an ending diagonal. Wave iii on the chart is a 3, as well. You can see the double spikes down near the bottom of wave iii, but the fourth wave of that wave iii, although there, is really small. So this wave has the appearance of a 3 … and that makes it a 3 in EW lingo.
Now we’ll have a wave iv down, which should overlap wave i. So while I set a target for this wave iv of 2058, it will likely go a little lower so it will overlap wave i.
Hope this makes sense. It’s a good lesson on what to look for in determining patterns and how a 5 can turn into a 3.
Update, April 12, 2016, Before the Open
Futures have now completed the first wave up, the second wave down, the first wave of the third wave, and the second wave of the third. The march to the top tick continues.
Above is the 60 minute chart of ES (SPX futures). You can see the progress on the count. We’ve losing some steam as the lower the retraces go, the lower the final target is. The waves up from here will determine where we eventually end up. Typically in a final wave, they tend to get progressively shorter as the pattern unfolds. We’ll have to wait to see what happens. If the market drops below 2012, (the previous fourth wave) the chance of a new high will diminish greatly.
Original Post: We’re now looking for the top tick (or pip, if you’re focused on currencies). I think we’ll see it this week.
In any event, this 2nd wave is almost over. The next cycle turn date is April 13,14,15 for US equities.
We’re expecting some sort of geopolitical (or financial) event this week. There’s lots going on.
- Italian banks are on the verge of defaulting, Greece’s problems are beginning to surface again.
- Yellen has called for a special meeting with Obama.
- The US Congress is supposed to pass a new budget by April 15, but nobody is budging and there’s no plan.
The dollar controls the market and it’s at a major turning point. Watch it closely for the signal of a turn down in equities. (More on this in the video).
The direction is still up. But not for that much longer.
We’re still in the the final fifth wave of the C wave. The structure of the move up in the SP500 is questionable. I’m going with the start of an ending diagonal, as I explain in the chart below and in the video. While we may see a spike in the indices in this fifth of fifth wave (the throw-over), it should be short-lived and I would expect a dramatic turn down, with waves that should revert to the beginning of the ending diagonal relatively quickly. I don’t have an upside target for the SP500 (because of the possible ending diagonal) but I do have one for the SPX futures (ES).
The short story is that equities and currencies all seem to be heading for the same top tick (or pip) all together!
Now with SPX, if it’s a simple 5 wave ending wave (although I see subwaves in 3’s), it’s projecting a top at the previous 2nd wave (the truncation area). I explain the ramifications of this below (and in the video).
As I mentioned last week, the VIX has flashed a sell signal for equities, so a turn down is imminent.
There’s a lot of information in this post to digest. I hope I’ve made it clear what I’m expecting. I’ve been saying for some time that the markets are all moving in tandem as one (due to deleveraging debt worldwide) and I see everything lining up for the turn. I actually pointed this out last September.
It should be a very important week, one way or the other.
Here’s a video overview of the market for Monday, April 11, 2016:
Market Report for April 11
|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.
Above if the 60 minute chart for ES as at the above time. This final wave up looks to be in the expected five waves. I’ve revised the overall count structure for ES to align with the SPX. You can see we’ve done a what looks like a running triangle for first set of waves of the fifth wave, and we’re working on the final fifth wave up. We appear to have finished wave 1 up, 2 down, and are starting on wave 3 up. If it’s 1.618 X the length of wave 1, it should top at ~ 2080. The fifth wave is also usually 1.618 X the length of the first wave, and given a 4th wave of a 38% retrace, this would put the top at ~2105.
One of the keys to my projection is the fact that ES traced out a clear 5 waves up (wave i), which means that we should see a full five waves up to a new high. We’ve also had a second wave down to approx. the 62% retrace level. Wave 3 up should follow.
This is an important development, as I’ll explain in the next chart below.
Here’s the important chart of the week. This is the daily chart of ES (SPX emini futures). You can see that the 2100 level (approx.) is the previous 2nd wave top. In bear markets, very often the second wave is a two-pronged affair and this seems to be the case here. It foreshadows an enormous third wave down. It also corrects out the truncation idea (which I was never all that comfortable with, because it left three waves down (in all the waves, not just the first wave)). It’s been very hard to reconcile the count, as anyone who’s been with me for a while knows.
My projection for a double second wave top makes the count and structure work perfectly, as it should.
What’s interesting is that the Nasdaq does not have the same issue. The Nasdaq traced out a double top (at the second wave level, where the SPX indices seemed to truncate) and so it does not have to correct to the previous high. In fact, it’s lagging. The Nasdaq always leads and it’s telling us that the path is down.
We will top very soon. I don’t know if it’s this week or not (we’ll know soon enough). There’s a cycle turn date this coming week (noted above) and another one at the end of April. One of these will be the turn point.
We’re coming up to a life-changing opportunity.
Above is a 30 minute chart of SPX. The final fifth wave is in the final stages. I don’t have an ending target, as this appears to be an ending diagonal. We may have one small down wave and then an up wave. The top will be sudden and should retrace to the start of the pattern (about 2022.oo).
Above is the 10 minute chart of the SP500, so I can focus in on the wave structure of this final wave up. From the fourth wave bottom, we have a wave up in 5 waves. There is no overlap, so this suggests a simple 5 wave ending wave. However, none of the subwaves are in 5’s. They’re all in 3’s. Now, if you look at the most recent wave up (wave i on the right), you’ll find it’s also in 3.
These threes lead me to believe that we’re looking at wave 1 of an ending diagonal complete and that we’re working on the third wave up. OR … we’re going into a normal third wave, that interestingly enough (based on the length of the first wave) projects at top at 2120 (1.618 X the first wave), which is exactly the previous higher degree 2nd wave top (see my next chart below).
If this is an ending diagonal, this final wave will go up in three waves to a top and turn. If it’s a normal 5 wave ending wave, it will go up in 5 waves, of course.
Above is the 4 hour chart of the SP500, showing the possible double 2nd wave top waiting to trace 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).
It’s typical in a bear market for second waves to trace out a double prong (and 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).
A Major Inflection Point: Above is the weekly chart of USDCAD. I have been following this for some time, and called the bottom of the third wave, expecting a retrace (although unsure as to how deep it would be).
The larger pattern is an ABC corrective wave, but the C wave is in 5 waves. We are completing the 4th wave of this pattern, which should reach the 38% retrace level (shown by the white line) before turning down into a fifth wave (similar to the euro charts below).
Once it turns and heads up, it will head up in a fifth wave to a new high, a very lucrative trade. The euro, Australian dollar, dollar, and Canadian dollar are at similar major inflection points.
Above is a 4 hour chart of USDCAD. I have been watching this first wave down unfold and thought it had met its downside target, but it’s obvious we’re not quite done. Fourth waves retrace to the previous 4th (or 38%). They typically must reach at least 38% before reversing.
While we’ve reached the previous 4th wave level, the 38% level is slightly lower (lower white line). The pattern we’re in is an ending diagonal, which should do a “throw-over” (a spike down past the lower trendline), which would allow it to reach the 38% retrace level.
This currency should turn with EURUSD, the US dollar, and the US equities, as I’ve been mentioning for some time. In this case (currencies), we’re watching for the top pip—in the case of USDCAD, the bottom pip. It’s not far away.
A Major Inflection Point: Here’s the daily chart of EURUSD showing the major corrective pattern from the low of March, 2104. I have been advocating for some time for a retrace to at least the 38% level, and I’m fairly sure we’re finally going to get it. Although I’ve been able to anticipate and call all the major turns, it was two weeks ago that the white C wave we’re in now turned decidedly corrective, as well. However, this current C wave should continue up to either the previous high (yellow A) or touch the 38% line and then turn down. Note that at that point, the white C wave would be exactly 1.618 X the white A wave.
On the chart, I’ve labelled my preferred top as (4)?. But I’ve also labelled yellow 2 (in case we don’t make the 38% level), although I now consider this a much lower probability.
The eventual turn (at either level) should send up down into a very large 5th wave. It should turn in tandem with the US equities.
The US dollar should do the same thing but in the opposite direction (up).
Above is the daily chart of GDOW (Global DOW) showing the current count. It looks to me like we’re tracing out a second wave after an ABC lower part of the wave. I think we have one more small leg up. This wave will likely stop very close to the 23.6% retrace level (or 76.4%) from the bottom of the wave. This should lead to a very large and strong third wave down.
I do not see a path to a new high for GDOW and, in my opinion, this strongly lowers the probability of a new high for the main US indices.
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.