Apr 22, 2018

Weekly preview

Short term view - bounce and lower again.
Intermediate term view - I do not see important low, some corrective pattern is running probably triangle and it will continue until the summer... June.

We saw two days higher and some jumped on the bullish bandwagon wave 3. I have warned last week every move higher has been sold not a single day has closed at the high for the day - this week was not different green candles with upper shadows... not very convincing at all. I wrote it is corrective move and three days later we have the confirmation with overlapping.
Looking at different indexes we have the full spectrum - Europe/XBI impulse, NDX/RUT strong but only 3 waves, SPX/DJI a-b-c but weaker, XLF/EEM some crap lower low likely.... not helpful at all looking for a common pattern.

I can not see important low and broad-based strength. I do not see a sudden reversal and sell off either. What are the options after a corrective move - another sell off and lower low, diagonal(bigger one) and another zig-zag for a triangle.
Looking at the bigger picture with three corrective moves and a pattern to fit most of the indexes(I mean the direction up/down at the same time) I will pick a triangle. And to be more complicated it could be bearish or bullish(see the weekly cycle charts). In both cases I expect this sideway move to continue until the summer probably mid June, then we will see how the pattern looks like and we will know what is happening.
At the moment I like the bearish triangle more because cycles will look better and RUT supports this pattern(see the last chart).


TECHNICAL PICTURE and ELLIOTT WAVES
Short term - so far only a zig-zag higher two legs with the same size and if you dig deeper the 10min chart both legs up look like zig-zags itself too. If I am right we will see corrective move lower and another move higher.
Do you see how MACD and RSI broke their trend lines? This is a early warning that a move is over and not to expect 4 and 5 higher.


Intermediate term - currently preferred pattern is a triangle, see the weekly cycle charts for a better perspective. Some are bullish and count this as wave D... we will see this.


Long term - the histogram is resetting higher.... it will take weeks to move above zero. Until then I do not expect continuation lower... wait until the summer if you are bearish.


MARKET BREADTH INDICATORS
Market Breadth Indicators - not very strong, but positive and pointing up.
McClellan Oscillator - at zero.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - buy signal.
Percent of Stocks above MA50 - in the middle of the range.
Fear Indicator VIX - 13-15 is the new area for a low, get used to this.
Advance-Decline Issues - turned lower with lower high.


HURST CYCLES
Day 14, the indexes are heading lower for a mid-cycle low of the 40 day cycle.


If you make a step back and look at the 4 year cycle(purple) with three 18 month cycles we have some room for interpretation. I was expecting sideway move and 18 month cycle low in June. Than we saw the sharp sell off and I thought the alternate count with 40 week cycle low looks better.... and since then we have sideway move, which makes both scenarios possible.
The problem with the bullish one - I fight all the time with the cycle guys that SP500 makes shorter cycles, but 4 years cycle with length less than 3 years(Feb.2016-Oct/Nov.2019) this is too short even for me.
Second the bearish one making important low in Oct/Nov and the bullish one a high around this time.... usually we see a low in this time of the year
The indicators MACD/RSI look pretty bad broke their trend lines and it is taking way too long to recover.
This hints and RUT make me lean towards the bearish scenario, I like it more.

Bearish case - we have 40 week cycle low in February the next one is very weak causing only a sideway move for a bearish triangle. The first 18 month cycle was longer than the usual length 65 weeks so the current on(at week 33) should be shorter another 25-30 weeks or a low in October/November. Wave D a low for the current 20 week cycle end of Mai, the triangle finished in June and decline begins until October/November for 18 month cycle low.

Bullish case - my initial count with 18 month cycle low in June is right and we have triangle for wave IV until the summer, then final rally and decline begins until the end of 2019.
RSI looks pretty bad it broke the trend line and stays there it takes too long to recover this is not wave 4 price behavior.


Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
The next sell setup which was interrupted at day 6. No signs of strength. The histogram made a tower and turned lower.


RUT not easy to count... the rallys in 2017 were strange with corrective waves, the move where wave a is, is strange it is not part of the previous move up, then I though diagonal just to see the indexes continue higher with zig-zag b, followed by huge sell off. You do not see a top with zig-zag, huge sell off with impulse ok this should be a reversal... just to see a zig-zag testing the high.... real mess.
This week I thought why not 3-3-5 expanded flat for wave 4 form Feb.2016. It fits perfect explains all the mess, you have nice wave 3 with five waves and the three waves testing the high are part of ED. This is the best count for me. It needs exactly the same waves like SP500(bearish triangle) for finished pattern. At the end this will be mix from the patterns I have suggested in the last two months - RUT stronger with ED and SP500 weaker with multi month corrective pattern.

21 comments:

  1. Thank you Krasi for sharing you analysis. I use cycle, RSI/MACD in my system as well. I still think Feb fits best as the 18 month cycle low. The weekly RSI was at a very high level when we dropped, and it's possible for RSI to make a new low with price at a higher level. I always check the RSI readings whether it's above or below 50 at cycle highs and lows as a gauge of strength. In my book, this upward action could still be considered strong as we're still hovering above 50, so I won't have a preference for the bear case. However I'm open to both and still waiting for confirmation just like you :-)

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    Replies
    1. This is from analysis perspective... it is for educational purpose why I came up with this conclusion:) I saw only one guy with similar view everybody is either mega bearish 3 of 3 or expecting wave 4 and 5.
      From the perspective of a trader it is different. The oscillators histogram/RSI on the weekly were smacked down so it will lasts months to recover(already running March-April very likely May too) and price moving up even if it is corrective pattern. Now they turned up, the histogram already with two bars up. So in the next 2-3 weeks we should see a low for a triangle or what ever it is and strong rally(the bullish case) or the indexes will do nothing May/June just to see the indicators recover(the bearish case).
      So I am long and waiting to see what the market will do - in the bullish case nice profit in the bearish case small profit.
      Simple, isn't it:) I am open too, I do not care about bullish/bearish anymore.

      Do not get fooled by the amplitude, SP500 do not have 18 month cycles with length 100+ weeks.

      Delete
  2. Now we have impulse lower, bounce is expected and another wave lower. This move will last at least until late Friday even early next week is possible.

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    Replies
    1. "This move will last at least until late Friday even early next week" Do you mean another wave lower can be even early next week? Thanks.

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    2. The whole correction lower could stretch easily until next week.

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  3. Thank you for the clear analysis! Now it looks like some short term bottom? What's the rebound height do you expect? spx 2680?

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  4. Thank you Krasi, for your excellent posts! What do you use to project the level of this expected bounce? Fib levels, pure experience - or something else? Just trying to learn.

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    Replies
    1. Fibonacci levels, MA50/MA200, previous lows/highs, congestion zones - usually you will see two/three of them pointing to the same area.
      Currently all of them pointing to 2680-2695 and no wonder the futures hit the middle of this zone 50% retracement.

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  5. The rebound is so weak... It looks like another impulsive move down is almost there?

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    Replies
    1. Yes, it is possible that he rebound is over there is impulse lower too.

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    2. Now what's the target for the current impulsive move... until next week? spx 2600?

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    3. It is developing faster as expected 2630 tomorrow... unless it mutates to double correction pattern.

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    4. It's deeper than 2630. Really looks like only first wave of impulsive down...

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  6. Morning Krasi! Since we reach your target much earlier, have you changed your impulse target/options, or we still go down till friday/early may? are you more inclined to think we have a double correction, or the market will stall around that level for a few days and then do up? thx!!

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    Replies
    1. This is difficult question I am trying to find an answer whole day:) the truth is we have to wait.
      Short term one more low will finish a zig-zag pattern exactly as I wanted to see it the problem is , it has developed so fast that all indicators, cycles etc. need more time to the downside.
      I see two options at the moment:
      - low today/tomorrow, finished zig-zag and another leg higher, which fits better with the bearish triangle.
      - low today/tomorrow bounce and another zig-zag lower(the same pattern like the last move up two zig-zags in a double zig-zag) this will satisfy the indicators,cycles. In this case there is high probability that this is wave E triangle to finish wave IV and at last to see this wave V to 3000.

      Based on EW you can not say if correction will mutate to combination or not, cycles/indicators say more time to the downside.... so I am waiting and I will not rush to make a decision.

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  7. And do you have a short/mid term view on bond, ie tnx/tlt? this thing seems to be on the brink of some downside, but i can't decide if it's more a double bottom story or a downside breakdown. many thx and good luck!

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    Replies
    1. Bonds are making a low and yields a high. TNX another week to finish the final fifth wave currently in iii of 5.
      Now when I think about it.... could it be that TNX makes intermediate term top in a week and SP500 double zig-zag lower to finish wave IV for intermediate term low? This will fit perfect.

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  8. Agreed, this would fit perfect...which is what scares me :)
    how a double zig zag down into next week would look like? besides, any idea at what level the market would bottom today/tomorrow before a bounce?
    if we go for the wave iv low by end of next week, that means capitulation, and in that case the market need to go around 2500... scary , but also a great buying opportunity!

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