Oct 31, 2015

Weekly preview

Short term view - the indexes should start moving lower.
Intermediate term view - correction for 3-4 weeks.

Ok FOMC is behind us, we have the last missing squiggles higher 4 points for the week.... now the indexes should move lower.
Intermediate term - the move since the August low printed 10 weeks higher so far which is a bullish 20 week cycle and after a correction we should see more to the upside. See the third chart too - history and cycles hint a continuation higher.
Short term - we have two waves higher with ratio between the waves 1,618. The question - is this wave 3 or C? Tom Demark setup was negated twice(last chart) and I expect the third setup to fail too so this is rather wave C than 3.

So the path with the highest probability for me is correction in November followed by one more leg higher. For the long term this translates into wave B of an expanded flat (see previous post cycles).

Short term - now the move looks finished... as I wrote I think it is C, but we will have the diagonal on the radar.

Intermediate term - a correction should be scary. Perfect target will be test of MA50/support around 1980/Fibo 50% retracement/the trend line all this around the end of November.
Alternate scenarios if I am wrong is if we see an impulse probably LD or the bearish scenario(red) and this is wave B of a zig-zag.

Long term - given the deep retracement of the the current wave the more probable scenario is flat namely expanded flat with new ATH. For a triangle we need a much deeper correction in November to test MA200 one more time.
If we continue to compare with 2010/2011 we will see that a strong surge was followed by a 3-4 weeks sharp correction. In 2011 it was even at the same time of the year - strong move higher in October and 4 weeks correction in November.

The Market Breadth Indicators - there is no strong signals for a top but a few red flags - probably a move in the opposite direction.
McClellan Oscillator - red flag - multiple divergences does not support the move higher.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - red flag - buy signal, but reached overbought levels. The current move should be finishing.
Bullish Percentage - buy signal.
Percent of Stocks above MA50 - buy signal.
Fear Indicator VIX - close to a level which is usually a bottom.
Advance-Decline Issues - red flag - moving lower for most of October. Obviously the rally is not broad based and a few stocks are dragging the market higher.

I think we have one shorter 40 day cycle and the next is already running at day 24. A correction for 3-4 weeks and it will be perfect.

I sticked to my cycle count and it looks that it works very good so far. In this case the last 18 month cycle lasted 81 weeks which is longer than the average length 65-66 weeks. Usually a longer cycles is followed by a shorter one and in the end you have average length again.
This means the 20 week cycles should be shorter or have average length. We are currently at week 10 and average length is 14-16 weeks which makes me think that a correction for 3-4 weeks in November will be the low of the current 20 week cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
The third setup is running. If we do not see a new high on Tuesday it will be negated too. I am skeptical that it will be finished and I think this is a sign that we do not have a trend.

Oct 25, 2015

Weekly preview

Short term view - the indexes should start topping next week.
Intermediate term view - after a top lower for 2-3 weeks

Who said October is a weak month for stocks..... I am bullish since the "3 day wonder", but obviously not bullish enough.
Focused on FED/FOMC I have forgotten about ECB..... the market just waiting for the next dose "we will do what every is necessary", PBOC joining the party on Friday cutting rates too.... CBs frenzy:)
Well I was wrong for the short term - all over the place signs that the first leg higher is finishing and than boooom ECB/PBOC blows away the nice pattern:). I am sorry, I could not calculate this. Corrections are tricky and mutate all the time especially when CBs interfere with the markets.

Interesting is that every index SP500,DJIA,Nasdaq,Russell,DAX has different pattern - the common is it is corrective and I expect all indexes to synchronize with one more leg higher, but the long term correction should not be finished.
Intermediate term - it is difficult to say, I expect more bullish outcome double zig-zag higher or more exotic LD followed by one more leg higher, but the bearish scenario (the next move lower to begin soon) should not be discarded at the moment. See cycles below for some thoughts intermediate/long term.
The strong move does not change my intermediate/long term scenario exactly the opposite even a stronger confirmation that this is not a bear market. The "3-day crash" completely retraced, move above resistance levels and MAs without any effort... CBs still control the market.

Short term - the bullish scenarios are shown. No matter bullish or bearish outcome we should see at least 100-150 points lower so we should position for a move lower and if I am wrong we will not be caught on the wrong side. I love it when both scenario point in the same direction at least for a while:)
It is too early to short be patient, next week is time to take profits.

Intermediate term - here is both bullish and bearish scenarios shown. I am leaning more to the bullish one. See below cycles for explanation.

Long term - testing MA50, RSI the trend line... if I am right we should see a pullback after an initial surge like in 2010/2011 (see the circled area on the chart)

The Market Breadth Indicators - looking toppy but not major top rather intermediate term. I expect topping action to start next week.
McClellan Oscillator - triple divergence.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - buy signal but reached overbought levels.
Bullish Percentage - buy signal.
Percent of Stocks above MA50 - buy signal, moved above 75.
Fear Indicator VIX - nearing levels for a bottom.
Advance-Decline Issues - shows weakness moving lower despite the strong move.

I wrote that there is some confusion about cycle so lets go through the different scenarios and combine it with EW and technical indicators.
- EW - if the move since 2009 is over you want to see a reversal signature which means an impulse lower saying a new move in the opposite direction has begun. The move lower from the top is only three waves which is a corrective move. Reversals do not start with corrective structure.
- Indicators - weekly RSI for example is reseting for two years and does not point to a top rather to a stealth move lower. I would say the market is digesting the huge gains with a huge sideway move. Compare it with the move in 2007-2009.
- Cycles - if you go back to the start of the bull market around 1980 you will see that the 9 year cycle has length 7 to 7,5 years.

And now the different cycle counts with EW pattern (vertical lines - dark gray 18 month cycle low, purple 4 year cycle low):

- 9 year cycle low in 2018 - which means bear market for 2-2,5 years. The EW pattern and technical indicators do not support it really and the cycle will be unusually long 8-8,5 years. Three red flags so this one has the lowest probability.
The only option is if wave 1 is a diagonal consisting of corrective waves...

- shorter cycles with 9 year cycle low in Q1 2016 - intermediate term bearish, but bullish for the long term. Zig-zag is running from the top this is B and C lower to finish the whole move with bottom January 2016. It is possible - 9 year cycle with almost 7 years length is perfectly normal. The indexes should turn lower NOW and do not look back. The problem is the move up looks too strong and does not really fit in this scenario. Usually you do not see such strong move in the last 20 week cycle for 18 month/4year/9 year cycle.... but lets give it a chance and see what happens in the next several weeks.

- bottom around October 2016 - August 2015 was 18 month cycle low and we need one more 18 month cycle low around October 2016 to finish a 9 year cycle with length 7,5 years. This means we are looking for a corrective pattern which will burn time... a lot of time one more year.
The corrective patterns which will do the job are flat or may be better triangle. We had one leg A lower now this should be a leg B higher from a triangle(red) or flat(yellow).
I am working with this scenario for several weeks and the strong move confirms it so far. Such strong price action is expected from 40 week(the bearish scenario low probability) or 18 month cycle low. So it stays the most probable scenario for me.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Second setup was negated this week. Despite the very strong move higher a setup could not be finished. As with the move lower (veeery strong too) this is a sign for me that we do not have an impulse and a new trend.

Oct 22, 2015


With the move higher today there is now another possible pattern Leading Diagonal (yellow). Double zigzag (green) is still possible, but the diagonal will fit better.

Oct 17, 2015

Weekly preview

Short term view - next week the indexes should turn lower.
Intermediate term view - lower for 1-2 weeks and than higher again.

This last 10 points higher were stretched in time longer than expected, but this does not change anything. Nothing new to add since last week. Perfect five waves higher, technical indicators divergences, market breadth divergences, close to resistance the break lower 2040... I can not imagine continuation higher at this point, I expect at least a pullback for 5-10 days.

Short term - now the move looks finished... ok a few points higher on Monday are possible.

Intermediate term - histogram divergence, MACD broke the trend line and is above zero. At the moment the more bearish scenario(red) looks less probable.

Long term - looking at the indicators the move looks corrective and not like the begging of a new bear market. In 2007 we saw divergences and price/indicators moving lower. Now we are seeing the price burning time and the indicators reseting for more than two years, RSI even hit 30 oversold level - it looks more like digesting the previous huge run and not like a reversal.

The Market Breadth Indicators - oscillators have divergences it is time for reset. No strong buy or sell signals for the intermediate/long term, short term looks like sell.
McClellan Oscillator - divergence after overbought levels hit.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - buy signal, in the middle of the range.
Percent of Stocks above MA50 - in the middle of the range with divergence.
Fear Indicator VIX - moving lower.
Advance-Decline Issues - divergence at overbought levels.

Day 38 of the 40 day cycle...

Week 8 of the current 20 week cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Price flip on day 8 and one more price flip to the upside, even so it looks better than the moves to the downside.

Oct 16, 2015


I have suspected a little bit higher is left, but not that the move will be stretched the whole week for 10 points higher. Nothing changed iv and v of 5 missing to finish the whole move from the bottom with target around 2030-2035.
The DAX has the same pattern five waves higher from the bottom with iv and v of 5 missing which we should see today.

Closer look..... it looks like impulse with iv and v of 5 which we should see today.

The last time I wrote about gold was that it is moving lower with corrective wave to 1100 and it is bullish above this level. Since than it has moved higher as expected.... and now everybody is bullish - "this move has different nature" ???, "major break out" ???, bear market over, every second article is about gold. May be, but I do not see a proof so far. I was bullish because every year there is a rally and cycles were pointing that it is time for the rally this year. See the chart below every year for 12 weeks.
I am skeptical and I do not think we saw the bottom. So the price action should prove me wrong - gold should continue to rally for another 3-4 weeks so that we have a bullish 20 week cycle topping at week 15-16 or later and price should reach 1240-1250 so that we have 1-2-3 move and not a-b-c.
If this does not happen it will be just another a-b-c corrective move for 12 weeks like every year.

Oct 10, 2015

Weekly preview

Short term view - next week the indexes should turn lower.
Intermediate term view - lower for two weeks and than higher again.

The indexes moved higher and we have an impulse finishing 3-3-5 sequence, which is a flat correction. At day 33 it is time the 40 day cycle to make a top, October is usually negative month for stocks, market breadth oscillators very overbought so everything points to a move lower.

Now the two options are - another leg lower begins or we will see a move lower which is part of the bottoming process/corrective wave higher.
I think we will see deep and steep move lower that should convince most of the traders that the "bear market" has resumed, but I think it is too early for the next leg lower. I have posted a chart historical comparison a week ago and nothing has changed since than. The move up is too short to purge bearish sentiment and the market breadth/technical indicators have not been reseted. Europe for example hit a bottom and moved higher for 1 week after a correction for 6 months. One week is definitely way too short for a retracement after a move which lasted 6 months.

I think the indexes will move lower for two weeks so that the pattern looks similar compared to previous corrections (2008 / 2010 / 2011) it was too early for a bottom at week 5. October is the most negative month for stocks. Ten days lower to finish 40 day cycle will look great, full moon 27.10, FOMC 28.10... all indications point to a low around this dates.

If you are long take profits no need to ride it all the way lower close to the previous lows. Use it to make some profits on the short side... and if I am wrong you will be on right side of the trade.

P.S. I was asked a month ago about China(SSEC) and now it looks like the sideway move is finishing with one last leg lower missing to finish huge A-B-C from the top (target 2700 +-50 points).
The point is it smells like tradable bottom in China, Europe and USA in a few weeks. Some will make lower lows other higher lows, but this is the point where you can take more risk to be long.

Short term - I do not know if there is 1-2 days left higher, but the next bigger move should be lower.

Intermediate term - indicators look strong breaking the trend lines and MACD the 0 line/RSI the 50 level. The pattern is corrective so we should see a move lower, but looking at Europe and China another leg lower for months has lower probability than some kind of intermediate term bottom.

Long term - no change. Interesting is all the moves had final two weeks lower... final effort from the bears. I think we will see the same now in the next few weeks from October.

The Market Breadth Indicators - oscillators McClellan Oscillator / TRIN / Advance Issues overbought the other indicators in the middle of the ranges. There is no strong sell or buy signals. I think the next low will be tradable low.
McClellan Oscillator - very overbought, it is time for a move lower.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - buy signal, in the middle of the range.
Percent of Stocks above MA50 - in the middle of the range.
Fear Indicator VIX - nothing, interesting moving lower.
Advance-Decline Issues - close to overbought levels.

Day 33 of the 40 day cycle... two weeks lower will look great to finish it.

Week 7 of the current 20 week cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Day 6 of a setup... I am skeptical that it will be finished, but let us see what happens.

Here is how China looks like.... finished A-B-C pattern and the index cut in a half is a good target for an important bottom.

Oct 6, 2015


It looks like impulse to me.... it is too stretched to the upside to be just a-b-c. In fact an impulse will fit best - from the August bottom 3 up/3 down/5 up with almost the same size makes nice flat correction.

Oct 4, 2015

Weekly preview

Short term view - pullback and higher.
Intermediate term view - higher in the next 6-8 weeks.

We have the few days higher, but after a plunge 50 points on Monday and now the picture looks a little bit different.... because we have bullish weekly candle the weekly charts look bullish and on top of this I think Europe finished the first leg lower which begun in March.

The markets are out of sync a little bit at the moment - Russell2000 with lower low, SP500 testing the low, Nasdaq/DJI with 61,8% Fibo retracement from the September top, Europe probably finished the first leg lower of the correction.
The move from the top in May is only 3 waves, the move higher from the low in August corrective 3 waves, and from the top in September again only corrective. Cycles(intermediate term) are not very clear. Technicals weekly and daily after the move on Friday look bullish. TomDemark Sequential - first on the daily chart the two legs lower could not finish a setup and now on the weekly chart we have a price flip higher at week 8 and failed setup - big red flag for the bears and confirmation that the moves lower are corrective.

This corrective moves down and up confirm so far my long term view that we will see a correction (but not the end of the bull market) and this is only the first leg lower. But it is difficult to make a descent forecast for the short/intermediate term because corrections mutate all the time.

I see two scenarios - the August low was an important low(18 month cycle low/yearly low) and now we will see a corrective move higher for at least 6-8 weeks. This scenario looks more probable because the weekly charts look bullish at the moment and I think Europe finished the first leg lower.
The second scenario is one more corrective leg lower SP500 making marginal lower low, Nasdaq/DJ testing the low before 6-8 weeks higher.
I do not see another scary plunge lower because the move from the top in September is corrective, technical indicators weekly and market breadth are beaten down... this is not the environment which precede a sell off, we are not in a mature bear to expect such think.(see the previous post)

Short term - the corrective moves make it difficult to say one more leg lower or not. From EW/Cycle perspective both are equally possible, the bullish weekly charts and Europe say green looks more probable, from historical perspective the red scenario will look better.

Intermediate term - with or without lower low I think the next bigger move should be a test of the 2040-2050 area.

Long term - 6 weeks later history repeats as suggested....

The Market Breadth Indicators - are around their bottoms, nothing like divergences, but the indexes did not made lower lows... so nothing convincing to say buy.
McClellan Oscillator - above the zero line.
McClellan Summation Index - sell signal
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - moved higher from oversold level but nothing interesting.
Fear Indicator VIX - lower high... even if the indexes make lower low expect divergence and lower high for the VIX.
Advance-Decline Issues - close to the middle of the range with higher low, but the indexes made higher low too.

I was talking about, that there is some confusion where to put the 40 week/18 month cycle lows. The chart below is another perspective monthly chart - many cycle guys are looking for yearly cycle low which corresponds to Hurst 18 month nominal cycle. Average length is roughly 15 months. The confusion comes from this sharp decline in October 2014 and it's amplitude (8? on the chart). It is well visible compared to the almost 9 months sideway move and some count it as a 18 month/yearly cycle low.
The options are - the previous cycle was 23 weeks long(not 15), we have a 18 month/yearly cycle only 8 months long or October 2014 was only 40 week cycle low and we have important low in August 19 months long cycle.
The choice is between cycle - 50% longer than the usual(23 months),only half size than the usual(8 months),3-4 months longer than the usual length(19 months). The most plausible choice is to pick the last option 19 month cycle low in August. The others are deviating way to much. I will work with this count now until proven wrong and the charts below are adjusted accordingly.
It is not perfect, it is a little bit stretched, but it is better than the other options.

I think we have half cycle low 24 days and now working on the next 20 days of the 40 day cycle.

Week 6 of the current 20 week cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Price flip on the weekly chart and the setup lower has not been finished. Big red flag for the bears. Time is very important. For me trend means a move which continues long enough in time and not how big a decline is even if it is 10% for three days. I think TomDemark Sequential and Countdown uses time to measures exactly this if we have a trend (or not) and how strong it is. This move fails the time test for a trend.

DAX it looks like finished structure from the top v/5/C and we should see multi week move higher.

Oct 2, 2015


Since the very beginning I am comparing the move with this four moves lower. Six weeks later I still think that we are not seeing anything new.
Maybe they do not look exactly the same, but you can describe all of them this way - scary sell off,rebound,sideway move, secondary lower low 8 weeks later. Only late 2008 looks a little bit different - much bigger and there is only 6 weeks between the lows, but at the end the dynamic is not much different.
Now many are forecasting that a bear market has begun, the indexes will drop like crazy.... maybe, but even than the markets are not moving in a straight line lower. History says something different.
Late 2008 is mature bear market not the best comparison we are not there yet. The corrections early 2008, 2010 and 2011 look better. Based on history I think we should see another 2 weeks lower with marginal lower low (worst case 1820-1800 the last support level the October 2014 low) followed by 6-8 weeks move higher to test resistance and MA50 like Q1/Q2 2008.