Nov 10, 2018

Weekly preview

We saw another higher high as expected, but much stronger and this changes the intermediate term picture a little bit. Such price behavior feels as part of corrective structure.... I know what you will say how could it be so strong and corrective:) That is the problem we do not have "stable" price behavior we have erratic price swings which is common for corrective structures.

Either it is a-b-c or if we see one more high impulse but way too strong for wave i of 5. If I am right than the possible patterns are wave X from a complex correction or wave iii of 5 of ED. The indicators and market breadth just turned up from very oversold levels and it is too early for another reversal lower. I expect something like 50% retracement in the next 2-3 weeks and another leg higher.


TECHNICAL PICTURE and ELLIOTT WAVES
Short term - it looks like a-b-c to me... one more high for impulse can not be ruled out, but this will not change much the big picture. After that 50% retracement expected and the pattern will look like inverted H&S.


Intermediate term - retracement and another leg with the same size to the upside... either connecting wave X from complex correction or wave 3 of ED(last chart DJ better visible). ED is more common pattern than such complex combination of corrective patterns... we will see in a few months. For trading the direction for the next 3-4 months is the same so it does not matter.
RSI is respecting the trend lines - testing the upper trend line defining the down trend and it is time to pullback lower to more sustainable trend line.


Long term - a few months to the upside before we can think about a top.


MARKET BREADTH INDICATORS
Market Breadth Indicators - turned up and we have buy signals.
McClellan Oscillator - overbought levels, which is sign for a strength.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - buy signal.
Percent of Stocks above MA50 - moved up to the middle of the range .
Fear Indicator VIX - moving lower, expect another higher low for triple divergence.
Advance-Decline Issues - heading higher nearing overbought levels.


HURST CYCLES
Day 9 of the 40 day cycle. Most likely the retracement will mark half cycle low.


Week 2 of the 20 week cycle.


Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Despite all this selling we have two failed setups to the downside which was a warning for the bears. In contrast we have finished setup to the upside which means strength.


DJ is stronger than SP500 - it made higher low above the June low and retraced big portion of the decline 76%. One more leg higher with the same size and we will see a new ATH hitting the upper trend line.... and the pattern will scream ED.

40 comments:

  1. Isnt diagonal ending in USA Krasi.
    Go to 2575 zone to complete lateral and go to ath or go to ath to complete impulse and next go down.

    Eurusd and gold so lateral, see and no touch.

    Brent surprise... Go to 55-65 zone.

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    1. Looking market breadth and the indicators another lower low for US indexes is unlikely something up we will see what.
      EURUSD and gold with some sideway move b wave.
      Oil is not a surprise at all, according cycles important high was scheduled for 2018 and that is what we see.

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  2. You have the October drop as a 2nd wave of the rally that started in April but in the NYA index that October low takes out the Feb low. Wouldn't that mean we are dealing with a much bigger degree correction. How do you reconcile that? Thanks.

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    1. Either the red scenario is running, or 3-4-5 for SP500 and a-b-c X for NYSE complex correction.
      Both the next top and the important low in 2019 will be synchronized.

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  3. Hi, Krasi, a little confused of how you interpolate Tom Demark countdown. We failed to finish two buy setups which is bearish, not bullish, right? We just finished the sell setup on Friday, which means buyers out of strength.

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    1. This "sell setup" "buy setup" naming is misleading and wrong.
      The books do not give you an answer what to expect when a setup is finished - reversal or continuation with countdown. When the answer is SELL why there is countdown in the first place?
      Finished setup means strength and not exhaustion, countdown continuation of the trend.
      Only if you see 9-13-9 you can think of exhaustion wave 5, ot choppy moves and suddenly setup appears probably wave c and finished correction.
      For me in all other occasions it is strength and trend reversal.

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    2. Krasi, you are absolutely right about DeMark countdown. When it's finished, do you get a pause, continuation, or reversal? It's misleading to call it a buy/sell setup.

      It has to be used with other indicators or price patterns to indicate if a reversal is at hand.

      The high at the end of Jan and Sept were 9 counts. Also the recent high on 11/8-11/9 was a 9 count.

      But all 3 highs had price patterns that indicated the trend had exhausted. The 9 count is just to give you a heads up to pay attention.

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  4. Ok krasi... Going to ath on.

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  5. Hi Krasi, your charts and analysis are appreciated as always. I would value your opinion about crude oil. As you stated in July that we should see one more significant high before going lower for several months. What do you think whether we have seen the high? and has the lower leg already began? Thank you very much.

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    1. I think the leg up begun in June 2017 and finished at the end of June 2018. Then we have corrective pattern - big expanded flat 3-3-5 waves which is finishing(everybody is talking how oil is crashing).
      Now we should see corrective retracement 2-3 months and another leg lower... basically the same path like stocks and if the red scenario for the indexes play out even the same pattern:)

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  6. Krasi, thank you so much for taking time to response. Really appreciate.

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  7. That could be all of B today at the 382 retracement .If not we chop around for a few days before a spike low.

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    1. I edged into a long position today and will build or exit after we get the CPI on Weds. My hope is markets will rally off a CPI reading that reflects a smaller increase than previously expected due to the drop in oil.

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    2. More patience, the move lower should last two weeks not two days... and we have impulse lower anyway so more to the downside.

      CTHuey - now we should see something higher for a few days, but such trades are risky correction of a correction:)

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    3. Just a start to a position... I bought calls at the money for 60 day expiration, then sold calls just out of the money that are set to expire this week and next to hedge and potentially generate some more cash in the short term. Now that reporting is over I'm anticipating that buybacks will provide support for the market. So yeah, I can deal with some more downside, especially in the near term, but sideways motion for the next week will be optimal for my current position.

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    4. Based on the futures I should hit a sweet spot for this trade. The SPY calls I sold with $277 strike should expire out of the money today, and I'll start to see some gains on the December calls that I previously bought. If we see some follow through today, I'll add to my Dec/January calls and sell a few more with $280 strike set to expire next week. The calls sold will continue to hedge against near term downturns and will also pay as long as there the moves to the upside are moderate. The ratio of the value of calls bought/calls sold is about 3 to 1, and I'll continue to add to both positions with increased market direction. My intermediate trade thesis relies on a moderate year end "Santa Clause" rally, and this will remain my thesis until the market suggests otherwise.

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  8. Hi Krasi, In your long term update in July 18 you mentioned a significant low for gold and pm stocks at the end of the year. What are your potential targets for gold, silver and GDXJ for the downside?

    Thanks
    Neel

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    1. At the moment I expect the bottom in March/April next year.
      Gold 1110-1125, silver I do not know, gdxj 20-22 area... I have not really measured targets I will wait to see what happens in a few months, but something like that above.

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  9. Some are eager to buy:) I see this pattern at the moment - https://imgur.com/a/kYtGY1W

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    1. Do you mean we have another wave lower to finish a and then begin b? That means today tomorrow another wave down?

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    2. Exactly, so far SP500 is following the path shown on the chart.

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  10. I'm upside down to you Krasi , as I see a spike low today/tomorrow and then a good rally into next week ...so yes I'm eager to buy on that set-up...!

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  11. Got a spike lower so now we see how long the rally lasts....

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  12. It looks like the snp has just retested the recent lows.. should move higher now to fulfill the beautiful inverse H&S formation..which means 3000 coming soon..:)

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    1. Could be but we still have some gaps on spy/vxx/vix to fill before proper move up. I am also expecting a short rally over next few days, especially that dollar index looks like a short term top (checkout DXY or even better UUP - beautiful ending diagonal, bearish candle and rsi divergence) so stocks might rally triggered by lower than expected CPI + falling dollar + (dovish?) powell tomorrow. I would also like to take opportunity to thank Krasi for hard work - I have traded october - nov correction with decent profit and more importantly, minimum emotional involvement thanks to all the advice from Krasi.
      Have you accepted the trader position from that guy looking to add traders? :)

      Regards,

      Mily

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    2. I think the gap below 2700 on snp will not be filled.. there is perfect symmetry now with this reversal along with successful test of the low earlier this morning. Krasi’s intermediate chart should play out now with respect to the higher high...after that not sure, we’ll see. But definitely I agree with you, thanks to Krasi’s hard work it’s much easier to navigate the markets and he helps a lot with making investment decisions. Thanks Krasi!

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    3. It is too early, the indicators and market breadth do not look right and on the top of this we have impulse lower.
      Now we should see something higher, but the second gap close looks more likely.

      Mily - no I do not have the time for that. I just trade at intermediate term highs/lows when I can buy/sell and wait for weeks or months.

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    4. So much for a lower than expected CPI and a Dovish stance. Curious to see how this plays tomorrow...

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    5. I think we've got a small impulse up now so probably bounce up as per Krasi's pattern he posted in comments

      Regards,

      Mily

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    6. I love how precisely gaps were closed on SPY/VXX/VIX. Let's see what happens next, a-b-c up probably

      Regards,

      Mily

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  13. The red scenario looks much more likely, we may have not finished the retracement yet though. I mean, how can you have the 2nd wave of ED be the same in magnitude as the 4th wave of higher degree. Doesn't that go against EW theory.

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    1. I am not aware of such rules. I have seen the EW guys counting such things just to fit the count that this ED is the least problem.
      I do not focus so much on EW theory rules etc. and the pattern several moves ahead.
      Bunch of corrective moves I see two possible patterns and I track them. I wait the market to show it's intensions and try to forecast only one step ahead.
      I do not "tell" the market how the next step should look like and what the pattern is 2-3 steps ahead.... it did not work and generates only frustration and wrong trading decisions.

      Zig-zag higher I trade it period. The market will show how the zig-zag will look like, then we will know the next step. I do not predict any more just let the market do what it want to do.

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  14. Now the leg lower looks like corrective a-b-c too....

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    1. Can you elaborate? Is c over?

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    2. Yes, second impulse lower finished so probably a-b-c and higher to MA200 daily 2760-2770

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    3. These whipsaws are pretty wild.

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  15. With an abc down , does that increase the odds we've just seen wave 2 of an EDT?

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    1. No, in both cases corrective zig-zags are expected so at the moment we can not make a difference.

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