Short term view - we should see a move lower in the first week of November.
Intermediate term view - waiting for a bottom followed by a rally in November.
Another very choppy week.... again nothing interesting and waste of time, but I have one idea which looks good.
In the comments I was asked if wave lower is already running. For a few weeks I think that we have stealth 40 week cycle low in September (the 50 points plunge) and wave 2 lower is running. Why? - First overlapping waves, for DJ we have already overlapping between supposed wave 1 and 4. Second because of cycles - since the 2009 low I have not seen two longer 20 week cycles in a row in one 40 week cycle. Usually you have one longer and one shorter cycle and you have 40 week cycle with average size.
The problem is that the move lower definitely consists of corrective waves. You do not need to be expert to see the mess we have.
I was thinking about diagonal lower, but the second low was just slightly lower with a long shadow.... I thought maybe a triangle. Than again in comments someone pointed out that descending triangle is a bearish pattern and I have looked yesterday NYSE chart... now I think the "triangle" is in fact diagonal (see the NYSE chart).
The alternate scenario is because of the "political drama" in the US, the market becomes nervous and we see a spike lower to cause fear before a bottom.
TECHNICAL PICTURE and ELLIOTT WAVES
Short term - closer look of the patterns. The more bearish pattern (red zig-zag) does not count very good and does not make sense. It is bullish (bull flag), but it will overlap with the previous wave higher which is bearish.... where is the impulse and the bullish pattern????
Short term it is difficult to say if the indexes will continue lower and make a low on Wednesday(FOMC) or bounce higher(FOMC) and make a low around the elections. With the rally from the low on Friday the second option looks better.
Intermediate term - I would like to see the wedge to overshoot a little bit and overlap with the top of the first wave higher at 2110. This will confirm that the wave higher is finished.
Long term - RSI looks to support the idea that a wave lower is already running.... worst case slightly higher high with divergence.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - the message I see is that we are nearing a bottom.
McClellan Oscillator - multiple divergences.
McClellan Summation Index - sell signal, nearing zero.
Weekly Stochastic of the Summation Index - sell signal, oversold levels for weeks.
Bullish Percentage - sell signal, close to a level where a correction bottoms.
Percent of Stocks above MA50 - slightly above the oversold level, ready for a divergence?
Fear Indicator VIX - some fear and level like 20 will be good for a low. I think it has started building divergences for an intermediate term top.
Advance-Decline Issues - in the middle of the range.
You can see that from the 2009 bottom there is no single 40 week cycle consisting of long+long 20 week cycle (average is 14-16 weeks length). The pattern is usually long+short(something like 19+12 weeks) or long+average(20+14) or average+average(14+16). You need shorter cycle because the length of the 9 year cycle is 7 years.
That is why I think we have stealth 40 week cycle low in September and this is the first 40 day cycle of the next 20/40 week cycle.
Now we wait for a confirmation - a rally making lower high.
NYSE - it looks like clear pattern to me.... diagonal lower.
McClellan Oscillator - compare with the previous corrections. The indicator is spending several months in the red area(below zero), the first trough (the arrow) says correction is around the corner, than we have another three troughs with divergence.
It will be very very unusual if the move lower just continue for another month or two without a retracement first and reset of the indicators from oversold levels.