View from the Top

Update before the bell, Nov 3, 2105

Overnight, the futures look to have completed wave 4 of this final wave so this opens up the opportunity to rise to a small new high to cap off this wave (wave 5 of 5 of 5). Cycle turn dates are today and tomorrow, Nov 3/4.

It also could be the start of a first wave down. That would be if it continues down to a new low from here. The waves are so small, I can’t make out if it’s motive. The safest entry is to wait for a confirmed first wave down and then a 62% retrace in 3 waves.

Update after the bell, Nov 2, 2015

Here’s the ending diagonal in the NYSE:

Today, the market overall added on only a few more points. For example, the DOW added 28 points to the previous high. That’s a minuscule number.

While I had thought originally during the day that all the major indices were finishing up ending diagonals, a thorough review is the wave structure shows that the NYSE completed an ending diagonal, which the other major indices completed a fifth wave. I have re-labelled the charts, as a result. I put us at the top of a second wave. The change today was very small and changed nothing technically in the major indices. We simply added on a fifth and final wave. Tonight, I’ll review the two indices that tell the story: NYSE and SP500.

Again today, volume was weak and the rally was confined to a few high cap stocks. Lower caps stocks (and the transports are lagging badly).

I’ve been somewhat concerned about the lagging NYSE, the highest cap index in the world. I’ve explained before that I keep tabs on it because it’s not subject to the animal spirits that the other US indexes, as you don’t trade it directly. Today, it finally reached the wave 2 retrace target. In fact, I think that’s what the move today was really all about.

The count in the NYSE now is a perfect 5 waves up in the C wave with an ending diagonal (a triangle that marks the end of a wave) that stopped right at the 62% retrace line (the horizontal line on the chart) from the top of the market. This suggests that the next major move down is a third wave. I have drilled down to the one minute chart for the ending diagonal and it meets all the EW rules.

One more chart from today: The SP500 (15 min chart). While at first glance, this appeared to me to be an ending diagonal, a review of the waves on a one minute chart shows that there’s one wave missing of the triangle. It is more likely simply a fifth of fifth wave. Now, overnight, we might see this wave extend a few more points, but both futures and cash indices wave counts suggest that we’re at the end of the line.

The big issue with countertrend waves (even in a 5 wave configuration) is that, at the end of the wave sequence, you can’t count on a specific length to a wave and that makes picking a top extremely difficult. This is not the case on the other side of the coin—with motive trend waves moving with the trend. They have to play by the Elliott wave rules (and they’re very strict).

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Original Post:  from Sunday night, Nov 1, 2015

Bottom Line: It appears that the second wave has finally topped. We’re waiting for confirmation that the trend has changed to down. We will have that confirmation after we complete one motive wave down and then turn back down to a new low after a 62% retrace in 3 waves.

Let’s look at what happened in the SP500 on Friday:

The 10 minute chart of the SP500 shows how we finished the C wave up. The larger pattern is a regular flat, which is a set of 3 waves in a 3-3-5 configuration. In other words, wave A and B are each in 3 waves and the C wave, which you see the top section of above, is in 5 waves. Last Thursday night, we were very close to a top and on Friday, we put in a very small final wave up after a fourth wave triangle.

Triangles in the fourth wave position foreshadow the end of a wave.

Above you can see labelled the final 5 waves of the fifth wave (of the C wave).

Let’s drill right down to the 1 minute chart in the SP500 to see what happened “under the hood” on Friday.

You can see the top and then I’ve labelled the waves down so far. It appears that we’ve completed the first half of the first wave in a motive fashion. This brings us to the end of the 3rd wave. Then we bounced in what may be the fourth wave. We need another set of 5 waves down to complete the full first wave down.

The first wave should end at the previous fourth wave in the other direction, which in this case is at SP 2058.84. In the ES, that number is about 2050. Once that’s done, we should bounce 62% in a second wave and turn down again. So, we have some work to do on Monday to confirm the change in trend.

Above is the one hour chart of the SP500 showing the entire regular flat (3-3-5) consisting of three waves (ABC). You can see the final 5 waves of the C wave complete. The entire ABC pattern forms the second wave (2). The third wave down should follow and it should be at least 1.618 times the length of the first wave down (1).

Above is the GDOW (Global DOW). I show this because it represents the bigger picture. The GDOW consists of a set of 150 large international corporations chosen from around the world. It clearly shows a first wave down of 5 waves and then a second wave up in 3 waves complete (or almost complete). The horizontal line represents the 62% retrace level, which is the preferred stopping point for a second wave. The third wave down to new lows should follow.

This index should set the trend for the US market. There are some who believe the US markets have only come down from the very top in three waves and that the next wave down will be a C wave, leading to a very large 5th wave up to a new market high.

The GDOW suggests otherwise. It’s hard to imagine the US market doing something different than the GDOW.

Above is a two hour chart of the regular DOW. Let’s take a look at the structure of the first wave down.

If I measure the length of the first wave down from the top, and then use that length to measure the third wave, we find that the third wave is exactly a fibonacci 1.618 X the length of the first wave. That’s a typical length for a third wave in a motive wave down.

In a full larger first wave (1), the fifth wave down is usually the same length as the first three waves. In this case, the fifth wave has exceeded that length. I’ve place my fibonacci measurement tool on the chart and you can see that the fifth wave is actually longer than 2.618 X the first three waves. This suggests we’ve had a capitulation move. That’s more in line with a first motive wave down that a corrective fourth wave with a fifth wave up still to go. In other words, it’s a very bearish formation.

Besides the structure of the GDOW above, this is another reason to believe that we are going to see a very strong third wave down to come.

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Making Your Decisions for the Longer Term

I got asked a question today in the comments section of the website about whether it’s important to look ahead much further than a couple of weeks. This is because I often cite my favorite mantra: “Trade what you see, not what you think.” In other words, trade based on how the market is moving now and not what you think is going to happen in the future. It was a great question. Let me re-post my reply here:

First off, we haven’t even done a first wave down yet. And then we need a second wave up to 62% to confirm the trend has changed. That’s part of the “trade what you see” part. The market has to show me where it’s going before anything else happens.

It was like dealing with the fourth wave we had on Oct 26/27 in the SP500. I thought it was the start of the large third wave down but then there was a point on the 27th with overlapping waves that it became apparent we were going back up to the top (turns out it was a fourth wave). That intraday signal in Elliott waves takes precedence over anything else you might have in mind.

That being said, it’s always important to keep the bigger picture in mind. We appear to have done one motive wave down from the May 20 market top and thena huge corrective wave up (reminiscent of 1929 (charts below) and 2007). If that’s the case, and we prove it through the unfolding wave structure, then I want to be able to take maximum advantage of it.

So … to some extent I agree that it’s early to talk about the date for the bottom (it will be much more important in a couple of weeks), but it’s good to have those dates on the table, as it helps me think about where we’re likely going.

For example, we’re looking at astro signals that forecast a December 11/12 bottom to the upcoming set of waves down. This important date is now coming from a couple of credible sources. If we know this and we’ve looked back at historical charts (in this case, 1929 and 2007), then we can make a fairly confident projection of where wave 3 down might end up.

History: The 1929 crash

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. I will show the 2007 crash below in the “What If” section.

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.

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 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.

Keep that December 12 date in mind for the bottom of the A wave.

Finally, let’s take a look at a big picture of the SP500 and project the bottom of the third wave down. I’ve drawn a couple of horizontal lines on the SP500 chart to suggest ending prices for the bottom of the A wave.

If the full wave drops 1.618 X the length of the first wave, the bottom would be at 1645.98.

If the A wave extends to 2.618 X the first wave (historically more likely), the bottom would come in at about 1367.84.

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“What if”—Without the FED

Above is the 2007 chart of the DOW. I’ve marked the motive wave down so that you can see the configuration compared to what should happen today and to what happened in 1929. Note that wave (1) came down in 5 waves and then we retraced to the 62% level. We Elliott-wavers thought we would turn down at that point, but qualitative easing had its effect on the market and up we went.

It’s interesting to note the correlation between the QE segments and the movements of the market.

Below is a chart of the various segments of quantitive easing undertaken by the FED, with their dates, so you can see how they applied to the DOW chart above.

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Cycles Analysis

This is my cycles analysis from Wednesday, Oct 28. Not much has changed from the cycles analysis from a week before that and if won’t have changed as of today (Nov 1). You can click on it to expand.

This cycles analysis uses Techsignal X from the Foundation for the Study of Cycles. I’m using data going back to 2002 this analysis of SPY (SPX) and displaying a compilation of all the cycles the software has found over that period. You can see how close-fitting it has been in the recent past. The fit with the current wave is quite stunning and therefore, something to pay attention to.

This analysis suggests a cycle top of October 13, so we are overdue for a turn down.

It shows a bottom to this set of waves down at December 7, 2015. There are Gann and astro projections for a December 12, 2015 bottom from different, very credible sources. I would suggest that these dates are the dates to watch.

I’ve gone a little deeper into what the analysis is telling me on a separate page. Here’s a more in-depth explanation of what this chart is suggesting. 

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The Panic Phase and the TPD (Turning Point Distribution) Principle

I provide the review of the TPD Principle one last time:

The TPD Principle describes a period in time of several weeks in which an array of cycles congregate, including gravitational, geomagnetic, and nuclear. It’s around this time that markets have historically topped. I was asked to include a reference to this in today’s blog post, which I’m happy to do. This principle generally refers to market tops (which we’ve already seen on May 20, 2015), but it’s interesting to note how many astro events we have occurring over the weeks surrounding the upcoming major turn in the market.

In his book, “the Universal Cycle Theory,” Stephen Puetz writes, “The TPD principle involves the eclipse cycle as well. The eclipse cycle normally peaks on the first new moon before a solar eclipse. Following that reversal point, it takes six weeks for sentiment to shift from euphoria to panic. Then on the first full moon after a solar eclipse, a panic-phase begins. A panic phase usually last two weeks—ending at the time of the next new moon.”

The dates:

Aug 14 , 2015 – First New Moon before the Eclipse (there is a New Moon happening at the same time as an Eclipse—Sept. 13)

***Aug 29 – Full Moon before the Solar Eclipse (peak of the eclipse cycle)

Sept 13, 2015 – New Moon and Partial Solar Eclipse

Sept 23, 2015 – Fall Equinox

***Sept 28, 2015 – Super Blood Moon Eclipse (start of panic phase)

***Oct 13, 2015 – New Moon (this would mark the end of the panic phase) – six weeks after the Aug. 29 full moon.

So … we are also due for a turndown based on the Puetz crash cycle.