Update: Approx 11:20 EST, November 13
The larger, previous fourth wave is at about 2017 SP500 so I suspect that’s where we’re headed. Or close by.
Update End of Day, November 12
What might be playing out is a leading diagonal, which would mean we’d next want to see a second wave which would retrace at least 62%. https://worldcyclesinstitute.com/leading-diagonal-2/
Not sure yet where we’re going, but this option is back on the table after today’s action. If this is, in fact, the pattern that’s unfolding, it would mean we already topped on November 3.
Original Post (November 11):
“Waiting for Godot” is a well-known absurdist play by Samuel Beckett. It’s the story of two characters who wait aimlessly in vain for the arrival of someone named Godot. Hopefully, we’re not waiting in vain, nor aimlessly, of course!
But this has been a long, frustrating wait, nonetheless.
Bottom line: My prognosis hasn’t changed. We are in the last small leg of a C wave in a large countertrend move that will turn to the downside within the next few days.
Cycles and Astro: November has lots of turn dates for equities, the dollar, and other currencies for Nov 10/11 and we have a new moon on Nov 11 plus we’re at the tail end of the minor lunar standstill, which happens every 9.3 years (the last one in 2006).
We also have a bunch of unexpected solar flares and sunspots erupting this week.
Short Term Charts
A look at the SP500 from yesterday shows that we’re in a final fifth wave. What is disconcerting about this wave is that is has an odd structure and did not come down as far as we would expect it to. So, the market is doing the usual frustrating thing it usually likes to do! Let’s zoom in …
Here’s a 10 minute chart of the SP500 showing the wave down, what I’ve now come to the conclusion is wave 4 and should retrace to the previous top at 2116 or so. I’ve drawn in what appears to be a triangle, but it also ends up in an ABC configuration.
Many of you know I’ve been flirting with the leading diagonal idea which came from the configuration of the futures market. It is not an option in the cash indices and so I’ve discarded the idea. The horizontal line at 2058 shows the level of what could be counted as the previous 4th wave of 1 degree smaller, so we haven’t come down very far at all. Fourth waves typically retrace to the previous 4th wave or 38%. So, this is a minor 4th wave or finishing wave.
Overnight in futures, there were points where it appeared it could roll over, but by this morning, it appears to be well on its way to a top.
Currencies and the Dollar
Above is a daily chart of the SP500 (top) and then a daily chart of the US Dollar (middle) and finally, a daily chart of the euro/dollar (bottom), which is flipped vertically to show how it inversely lines up with the other two indices. I have been watching these three indices for months now.
Years ago, Robert Prechter talked about “all the same market” in that when deleveraging of debt became the key factor in the markets internationally, they would all start to move together. I have been watching the Dollar chart (middle) start to line up with the US indices and get more and more aligned over the past few months.
What appears to be happening now is that the dollar is short-term topping and this should cause the US equities to turn down. I think this is why we’re seeing the equities about to turn now.
It’s no secret, if you’re an Elliott wave counter like I am, that the euro and other dollar pairs are about the turn. Their waves and virtually complete. The big picture is that I’m seeing the imminent turn of all the dollar pairs. In fact, we appear to be in the last wave down today.
Keeping this in mind, it seems to me that the US equities market may top as the currencies bottom (or top, in the case of the dollar).
Two Alternate Scenarios Going Forward
As motive as this C wave is, it does allow the argument that we have just completed a third wave up. The argument would be that this is a larger degree fifth wave we’re completing to a new all time market high (an ending wave to a market top would need to be in 5 motive waves).
In this case, we would need to complete a 4th wave down next, which in the SP500 would drop 38% of the length of the C wave. In the SP500, this level would be 2024. It would be a wave in 3 waves.
There are a couple of reasons I consider this scenario unlikely:
- Because of the structure of GDOW, I’m of the opinion that the US indices have completed a first wave down. As I’ve stated above, it’s unlikely the DOW and other US indices would do something completely different that the Global DOW, which has clearly finished a first motive wave down and a second wave up in three waves.
- An ending wave of 5 waves includes the first wave up. All these waves must be in 5 waves to qualify. The first wave of our regular flat corrective structure (since August 24) is clearly in 3 waves.
However, I plan to watch the waves down closely to see how they unfold. They should tell the story.
There is one other scenario. We could also complete a C wave down to a new low below Aug. 24 and then start a fifth wave up from there. Because of the structure of the GDOW, I think this scenario also unlikely. If we were to also look a fundamentals, in terms of the strength of this market, I would have to argue that it reinforces the unlikeliness of this scenario. It would take another QE situation to help make that happen. The FED, quite frankly, is out of tools to make that big an impact on a dying market.
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 and a half months and finally (which I explain a little further in the cycles section below), 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. *
* I haven’t recalculated the target numbers based on today’s action. They won’t change substantially.
“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.
This is my cycles analysis from tonight (Nov 3, 2015). You can click on it to expand.
Above is the long wave in SPY. In the analysis tonight, this wave returns the highest percentage of trade wins of the 25 cycles the program finds, trading both the bottoms and tops of the cycles over a period of 12 years. I show this to give an idea of the larger cycle running through SPY (and the SP500) and where we are tonight in relation to it.
This chart uses a compiled display of all the cycles the program finds.
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.
This analysis suggests a cycle top of October 19, so we are overdue for a turn down.
It shows a bottom to this set of waves down at December 8, 2015. There are Gann and astro projections for a December 11/12, 2015 bottom from different, very credible sources. I would suggest that these dates are the dates to watch.
Looking Ahead Even Further
You can see on the above chart that we bounce after the December expected bottom. The cycles analysis shows a bounce that lasts through mid June of 2016. This would be consistent with 1929. The fourth wave bounce in 1929/30 lasted 22 weeks, which is about 5.5 months. From December 12 to June 12 is, of course, 6 months. This suggests a similar scenario to the 1929 drop.
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.