Jan 16, 2016

Weekly preview

Short term view - a few days up and down and bottoming starting next week.
Intermediate term view - important low in the next week or two.

Crazy week with a lot of reversals - we saw a bounce for two days, but it was weak and corrective. The waves had very clear structure so it was easy to call the next two days down and up - nice gains if you are a short term trader and traded the moves:)

Short term - Friday surprised me, probably we have a diagonal for wave 5 and we need one more move up and down to finish the whole move from the November high.
Intermediate term - so far from the top in 2015 I see only three waves lower, I suspect huge zigzag. Very bearish sentiment because of the two waterfall moves in a few months, selling fear everywhere. Market breadth extremely oversold levels comparable with the biggest correction since 2009 (21% in 2011). Despite all this we have so far only standard correction 6-10 weeks 10%-12% (see the cycle chart). For me it does not look and feel like a bear market (not a drop more than 20%, real bear market which cuts the prices in a half). More emotions than real results - no impulse, nothing more than simple correction.
Long term - there is several EW patterns and cycle counts, so the picture is not very clear... I do not think that bear has market begun or after this zigzag is finished the bull market will resume. I think we will see a complex correction combination - the first zigzag should finish soon than we should see a strong move higher for the connecting wave X, followed by another move lower which should be bigger than this 10%.

All this is wrong and I am wrong if a rally could not move above 1980 followed by another plunge lower. In this case we will have impulse lower which will mean that we have a reversal and the bull market is over.

Short term - only three waves lower so probably a diagonal. Europe have only three waves lower too, so we should see one more up and down before it is over.

Intermediate term - so far the moves consist only from three waves so the main scenario is a zigzag followed by a connecting wave X to at least 2000-2020.
The alternate scenarios are - green bullish this correction is wave 4 and wave 5 starts to new ATH, or bearish we have truncated wave 5 and reversal with impulse lower(need more waves lower to be confirmed).

Long term - no change, this is the scenario which I follow - combination correction.

The Market Breadth Indicators - are very oversold comparable with the biggest correction since the beginning of the bull market(2011), only in 2008 were the indicators more extreme. A lot of emotions, extreme bearishness, despite all this there is no confirmation that this is more than a huge correction because the 7 year cycle topped out.
McClellan Oscillator - extreme oversold with divergences.
McClellan Summation Index - sell signal, close to very oversold levels.
Weekly Stochastic of the Summation Index - turned lower, I expect higher low.
Bullish Percentage - very oversold levels.
Percent of Stocks above MA50 - very oversold levels.
Fear Indicator VIX - do not mirror the "panic", well below the August level.
Advance-Decline Issues - very oversold levels.
Put/Call ratio - extreme bearish levels.
NYSE New Highs-New Lows - very oversold levels, divergence with August.
Percent of Stocks above MA200 - extreme bearishness.

Not really clear just waiting like in August. I think we have a longer cycle lasting 21 weeks and the next 20 week cycle should begin soon.
I have marked all corrections since 2009. Interesting is that 80%-90% of the loses are made for 5-6 weeks and the typical size of a correction is 10%-12%. The current move looks and feels like a typical correction despite all the gloom and doom.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Buy setup was finished on the daily chart as expected. I think a buy setup will be finished on the weekly chart too.
Looking at the histogram it will take some time to see a reversal. Probably several weeks up and down in February(like September) and retest of the bottom before any substantial move higher.

Here is Russell2000 weekly chart - I can not be bearish looking the pattern and the indicator. It looks like clear corrective move - we have three waves lower so far with a=c. RSI is oversold at 30 and way too far from the trend line which usually means expect a snap back.
Even if it is a bear market EW and RSI are saying the first leg lower is finishing. Look at RSI in 2008 and now - two pushes lower to oversold levels and snap back to the trend line.


  1. Great analysis Krasi. Any thoughts on EEM and FXI? What kind of bounce do you see from these two? Thanks again.

  2. I think emerging markets have high correlation with commodities. Looking at EWZ/EEM I see the same patterns... At the moment sharp declines and oversold levels, but close to important bottom. I think we will see a move higher followed by lower low with divergences to test the current panic low. Commodities need one more 40 day cycle before a major low so I think we will see commodities/EEM bottoming early March and long term up trend.

    FXI... looks similar. Short term oversold probably up and down for a lower low with divergences. Intermediate term RSI on the weekly chart makes second low I expect divergences and important low. Long term I do not think the move from 2015 top is over.

  3. Dear sir,

    I have just gone through your blog.

    Really a very clear picture of index has been presented by you.

    Please keep up the good work & provide guidance to stock market enthusiast like me.
    By the way I am from India & I follow BSE Sensex index