Update: 12:30PM EST, Sept 9, 2105
Above is the SP500 as at the time and date at the top of the post. The C wave has extended and we’re expecting a flat. There are 11 different patterns that a fourth wave can trace out (the main reason I stay away from trading this wave) and the flat is the most common. It’s 3-3-5 wave combination and typically does a double top at the previous high, which in this case would be 1993.48 in the SP500. Timing for the turn is most likely tomorrow (Thursday morning).
Original Post (Sat, Sept 5): We’re very close to the end of our first set of five waves down. Technically, in Elliott Wave, completing a full set of 5 waves signifies a change in trend, in this case, to down. This post is intended to take you through to the end of what is a very clear pattern. I will likely do another post mid next week, once we get to the bottom.
I’ve tightened up my diagram (on the left) to concentrate only on the fourth and five wave combination as we unwind this rather traditional Elliott Wave pattern.
A triangle is a continuation pattern and is labelled ABCDE. In other words, if the trend is down, the triangle isn’t going to change the direction. The trend will continue in the same direction upon exit.
Triangles are 3-3-3-3-3 wave combinations. Each wave within it must be in 3 waves. I’m providing a chart below zoomed in (SP500) to show what technical analysts look for in order to determine whether the waves are motive or corrective. Waves in 3 are always corrective. Motive waves, however, are trending waves but must adhere to a strict set of rules in order to qualify. If they break even one of these rules, they must be labeled as corrective and will retrace.
After the fourth wave triangle is complete (I’m expecting this to happen over this weekend), we’ll have a final fifth wave down. Here’s an excerpt from the Elliott Wave Principle – Key to Market Behavior that describes that wave: “wave five is sometimes swift and travels approximately the distance of the widest part of the triangle. Elliott used the word “thrust” in referring to this swift, short motive wave following a triangle. The thrust is usually an impulse but can be an ending diagonal. In powerful markets, there is no thrust, but instead a prolonged fifth wave. So if a fifth wave following a triangle pushes past a normal thrust movement, it is signalling a likely protracted wave.”
In summary, this final wave must go to a new low, must at least be the length of the longest wave of the triangle, and can often be very long and dramatic. The bottom chart from 2008 gives you an idea of that length as compared to the pattern we’ve traced out so far, which is the same. These bearish 5 wave combinations of major bear markets are invariably the same, time and time again.
Let’s take a look at the bigger picture, with this chart of the DOW (above). You can see the massive drop so far, which has wiped out two years of upward progress (so far). We could see another large drop in the order of 1,000 points (or more) in the DOW to complete this final wave. But be careful at the bottom, because these final waves can result in a sharp capitulation move and then a very sharp and dramatic retrace, which you’ll see in the very bottom chart of the drop in 2008. Interestingly enough, it was at the end of August.
Now the SP500. This view shows the fourth wave triangle unfolding. I’ve drawn in the path from here. I would expect a turn down at the top of wave E at about 1964. In the SPY, the turn might be around 197.
The waves are not in proportion to how they might play out. It’s difficult to say how long the fifth wave will be, but it will be in 3 waves (a continuation of a 5 wave pattern, the triangle taking up waves 1 and 2). The fourth wave could end up being very small, and in fact, the third wave down from the top contained a running triangle fourth wave, which hardly retraced at all.
For those of you who follow Elliott Wave, or want to learn more, here’s a zoom-in shot of the SP500. There are several issues with this sequence of waves that make them all corrective, or each 3 waves. You can see I’ve labelled the waves abc to show that they’re corrective. I won’t go through them all here, but if you’d like an explanation, I’ve provided more detail on a separate page here. The point is that this is definitely a triangle. It can be nothing else.
The Nasdaq (above) sports exactly the same pattern and will have the same outcome. This chart points to the magnitude of the upcoming move. We must reach a new low before wave 5 is complete. In the Nasdaq, that will be a drop of more than 400 points just to get there from the top of wave E. I would expect a turn down near 4780.
The DOW above is no different. I’ve labelled the chart and drawn in the projected path (again, not to scale). The DOW must travel at least 1,000 points to reach a new low and may go lower still. I would expect a turn down at about 16,488.
Finally, let’s look at the NYSE as a whole (above). It’s slightly different, in that it shows a barrier triangle, which is even more bearish than the nicely balanced, horizontally positioned, contracting triangles of the other indices. With barrier triangles, the lower line is horizontal, but the outcome is the same.
Above is an indicator for the SPX (SP500) that I’ve taken from Time-Price Research. There are many more charts that pertain to timing the market through planetary influences. It’s very worthwhile checking out all the information that’s kept up-to-date on a daily basis. This suggests that the bottom of the fifth wave may take place on Wednesday, September 9.
The next wave up after we reach the bottom will be in 3 waves. I expect a dramatic A wave rise and then a short term top, before heading down in a B wave. You can see a September 26 date which might coincide with the B wave drop (not to a new low). Then there will be a C wave rise into a top in October. More about all of that as we get closer.
I’m posting this historical perspective in order to provide some guidance in terms of what’s in store for us (also from Time-Price Research). On this chart (the DOW from 2008), you can see the third wave down in black and then the final fifth wave down in blue. It’s instructive to note the length of the fifth wave in comparison to what had transpired to that point. Check out the similarities in the wave structure of the entire drop from the top. Note the dramatic rise when the final wave hits the bottom. Take a look at the three wave pattern after Aug 26, which is what I alluded to in my comments below the Astronomic Indicator chart above this one. Take a lesson from history—these drops typically follow the same path time and again.
Summary: I expect the market to complete the 3 way rise within the triangle (wave E this weekend) and possibly top on Tuesday morning. This would set up for a drop in Wave 5 to its conclusion. It will be a dramatic drop which will be answered with a dramatic rise at the bottom.