Nov 12, 2016

Weekly preview

Short term view - short pause and continuation higher.
Intermediate term view - if this is the right pattern we should see a lot of volatility and it could stretch until Christmas before we see the top.

So Brexit the "bad news" was bad 1-2 days, US elections "bad news" is bad a few hours... good luck trying to find logic. The market has it's own path and does not care about news, they cause only volatility.

In both cases I knew that the moves lower are only corrective and the next move should be higher, but this time I really messed up.
Almost 4 months watching a mess lower and I thought we are already in wave 2 because it is lasting for too long... well I was wrong.
Long term - no change I still think this final wave V of the bull market will be an ending diagonal.
Intermediate term - from the June low we need one more impulse higher to finish the first zig-zag from the ending diagonal. We have overlapping waves, the move should not be too bullish and we need time at least 4-5 weeks so that market breadth could reset from oversold levels. The perfect pattern is a wedge, but from June not from February. If this is the right pattern we should be in the middle of wave 3 of this wedge.

What if I am wrong? Other "popular" patterns?
- this is wave 5 of a wedge which begun in February.... I do not see waves getting shorter or getting longer so that we have a wedge or broadening wedge. Even if this is the pattern the indexes will move higher for a few weeks, finish the move from February and reverse. So not much different for trading. The problem with this pattern is that 1-2 weeks are not enough time for market breadth to reset.
- 1-2 i-ii and now iii of 3 to the moon - the only argument which I see for this pattern is.... it is easy you do not need to think much.
I do not see other indexes to support it - DAX,EEM and most important Nasdaq are telling another story. We had important 7 year cycle low and the first half of the cycle(18 month) should be very strong not the second half when it should make a top and move lower.
This scenario creates only more contradiction and questions without answers.... I would say this rally is bullshit (unless you ride it:)


TECHNICAL PICTURE and ELLIOTT WAVES
Short term - the rally so far is corrective two legs higher with the same size and small pause in the middle - this is a-b-c. If we have a wedge no matter from February or June we need one more leg higher to finish a zig-zag.


Intermediate term - this is from daily perspective. Moving higher for another 2 weeks, than lower until 14.12(FOMC) and higher until Christmas. This is roughly the path we will adjust it when we see how the moves develop and if the pattern plays out.
The green arrow is this iii of 3. It must shoot up higher... I do not think this will happen.
The red arrow is wave 5 of a wedge which begun in February. The top should come earlier.


Long term - no change, just wave 1 is not finished.


MARKET BREADTH INDICATORS
The Market Breadth Indicators - are pointing to an intermediate term low, but despite the vertical move, they are not really reacting and moving strong higher. Something is not right, probably the rally is not broad based. One more reason no to trust this rally. Despite this we should see them trying to reach overbought levels.
McClellan Oscillator - no bullish reaction so far around zero.
McClellan Summation Index - still sell signal.
Weekly Stochastic of the Summation Index - sell signal, oversold for months.
Bullish Percentage - turned up from the middle of the range, buy signal.
Percent of Stocks above MA50 - in the middle of the range.
Fear Indicator VIX - as expected building divergences for the next important top.
Advance-Decline Issues - turned up from slightly oversold level.


HURST CYCLES
40 day cycle low and a move higher currently day 5 of the next 40 day cycle.

With the strong move from the low only 40 week low makes sense. It is longer than the average length so the next 40 week cycle should be shorter 25-30 weeks (you can see it from previous occasions). This pushes the low for the 18 month cycle to second the half of April/first half of Mai.


GOLD - We are at 40 week cycle low, lower low with divergences, seasonality is bullish for PM making intermediate lows around the end of the year, the USD should be finishing wave D of the triangle and move lower for 2-3 months, selling climax.... it looks good for intermediate term low.
Gold is doing exactly the same what I have posted in the last "Long term update". I receive often questions about Gold probably expecting a low and the next huge rally higher from mega bull market. I think commodities made secular top and now we are seeing cyclical bull market until 2019 so no mega bull market and gold 5000. The correction should continue in the first half of 2017 and than another leg higher 1-1,5 years.
P.S. wait for a few days bottoming and divergences on the hourly chart.

10 comments:

  1. Thanks Krasi it looks like a lot of pain trades going on with reversal in momentum stocks (e.g., FANG) and incredible strength in RUT who's RSI went from <30 to 69 in one straight shot this week (massive short squeeze). If you have a view on RUT would be very grateful.

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    1. Yes the different indexes look completely different. Nasdaq weak FANG made a top, RUT going nuts.
      From the beginning I think RUT is making a simple impulse from the February low. The problem is this impulse is really walking on the razor's edge:) wave 4 is not overlapping wave 1 for 0,01 points:)))) less than that is not possible. Wave 3 is shorter than wave 1 which means wave 5 should be shorter than 3(177,58 points) and this rally should make a top below 1333,66.

      All this makes me not so confident, but still a valid impulse and I still see only this pattern. On the weekly charts I see possible RSI and histogram divergences so waiting to see a confirmation - high below 1333 and divergences on the weekly chart.

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  2. Wow, thank you Krasi... On the futures it easily overlaps with wave 1, which would imply this is wave 3 from June? this market is very confusing to me

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    1. Yes, sometimes the pattern or EW could be confusing. I keep it simple there is only two direction up and down:) When it is not clear look at something else - TA works fine. All indicators daily and weekly turned up, market breadth needs time to reset, so this move will last for a while 1-2 weeks at least before we see a top. Than we watch the patterns which I have posted on daily chart to see which looks better.

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  3. Krasi,

    Appears from the current technicals we should start selling off until the end of November. Your short term chart indicates similar action but doesn't show adequate time for sell down to properly mount a rally on the intermediate chart. What do you think?

    - kali

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    1. I do not see signs for a sell off. Pullback is ok, it could take time but I do not expect deep retracement.

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  4. Hi Kali, Just curious what makes you say we should start selling off until the end of November?

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    1. I feel foolish answering a question when I don't know much to begin with. My limited evaluation shows pull back till end of nov. I guess will see. Trying to learn as much as possible.

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  5. When do you think this final V diagonal ends? 2017 or later?

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    Replies
    1. Later Q2 2018... 2017 is too early.

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