Nov 9, 2016
Update
What should I say... the pattern was right as always - relief rally and more to the downside.
Do not listen to the "experts" explaining you how the market was wrong about Brexit or the elections.
This rally which started 3 days before the elections was a bad sign for H.Clinton - to repeat for n-th time when the market
pushes in one direction before news/event it moves in the opposite direction after the news.
Now to the charts - it is very difficult pattern, but for the first time since the top it looks like something and it fits perfect with cycles.
It looks to me like complex zig-zag W-X-Y - one zig-zag lower (the low early September),huge flat for wave X until yesterday, the plunge today is wave a of Y and we need one wave higher "b of Y" than drifting lower for "c of Y" for one more zig-zag lower.
If I am wrong Brexit will repeat - the pattern is finished and the market will turn higher. Of course everything is posible, but the pattern and cycles will look.... unfinished. For Brexit we needed an impulse lower and we had it. Now we need zig-zag.... if we do not see the market drifting lower the whole beauty will be gone:)
Very beautiful chart showing the psychology of a correction....
In a zig-zag(correction) you have two waves lower A and C with a pause in the middle B. One wave takes time(more often A) and the other... you can see the fear(more often C).
It is about psychology - the more common case the market is drifting lower for a while (wave A) no one believes in a correction, but than there is no more buyers and boom wave C bloodbath and fear.
The opposite case - the market is shocked bloodbath and fear (wave A) everybody is scared and sold, a bounce follows but the market continue drifting lower because there is no buyers they are still scared (wave C).
The first zig-zag from the August top illustrate the first case and now it should be the second case - bloodbath sellers already sold, but buyers are still scared which should cause a drift lower for a while.
P.S. the markets are faster than I write. Obviously this is not the end of the world:) and "b" is already running.
And as reference SP500 and the Brexit I think everything repeats so far.
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Krasi,
ReplyDeleteVery interesting few days. The big drop never happened during trading hours and the market seems to take an incredibly powerful move upward. Taken me by surprise the strength of this move.
Do you still believe we will start selling off around 2160-2170? It almost appears we may start a new run with wave 3 underway.
Thanks
Kali
Yes, this recovery surprised me too. There is two options this is iii of 3 or in a downtrend there is such powerful but short living rallies.
DeleteWave i lasting a month and ii of 3 lasting three months?!?! strange. So far RUT and DAX despite the strength two impulses higher with the same size and small pause in the middle this is a-b-c. It feels like a rally in a down trend.
I do not chase such rockets. I will wait the dust to settle down. If it is iii of 3 it should continue higher. If it is a-b-c the indexes should stay around this levels for a few days showing exhausted buyers.
Krasi,
ReplyDeleteWhatever the current picture, the dominant trend should be downward going into feb/march. Don't you agree? The move today with DJ breaking all time high was again very surprising :) this vertical move is very perplexing...
Kali
DJ was the strongest index it dropped only 4% so after the reversal yesterday higher high was not a surprise any more.
DeleteSuch vertical moves are unsustainable it is the same like dropping vertically lower - exhausting the buyers/sellers too fast.
The probability is much higher that the 18 months cycle is topping than this is iii of 3 to the moon.
Nasdaq does not look good, emerging markets do not look good, DAX needs just one more wave v of 5 to touch 11k for finished wedge from the bottom in February. I do not see support for strong and long lasting rally. DJ by the way is the only US index which looks ok with a wedge pattern.
But do not expect reversal and plunge lower even higher highs are possible on most markets. It should take a few weeks, market breadth indicators need to reset.
This is my problem how the pattern will look like - not so bullish, but moving higher... wedge? wave 5? expanded flat?
Despite the strong rally SP500 shows only a-b-c higher.
Thank you so much for your input!
ReplyDeleteI am very excited to be entering a short position :)
Kali
See the new post... suddenly I had an idea and it looks very very interesting.
Delete