Intermediate term view - I think a more complex move is running there is more upside, but the low will be tested and exceeded.
Monday was the "15 minutes of fame" for this move, a lot of media coverage, my colleagues explaining me how bad it is:) and as always when all media start talking about a decline/rally the move reverses and moves in the opposite direction.
Now long term it is not over, I think the big picture points to a bigger correction continuing at least until mid 2016, but it will be more complex than the most expect. It will not be so easy - crashing and continue crashing, or we have 10% sharp correction time for a rally and new highs.
- EW - it easy to say sell off wave 3 this is wave 4 and now wave 5 lower to follow.... I think it is not so easy "wave 4" does not look finished and if we see another 20 points higher on Monday to finish the move up it will hit 61,8% Fibo from "wave 3". This is not normal for wave 4 especially after such a plunge, it is rather a-b-c moves... see Russell 2000 below too.
- Cycles - usually help us to find out where we are in the picture... but now there is different options not only for the long term but for the intermediate term too. I am reading different cycle guys and they have different views too. For the moment we should follow only the daily cycle until we have more clear picture.
- Technical indicators weekly pointing to a bottom of a higher degree. We need time... months for the oscillators to turn up, test of the bottom, than to turn positive.
- Market breadth - with the price action from Monday market breadth joined the TA indicators and the move is comparable with the two sell off from the bear market in 2008, the flash crash 2010 and the biggest correction so far 2011.
- Tom Demark - the setup lower was aborted at day 7 and we have price flip... another red flag that this is not wave 3 lower.
It is not easy to make a forecast in this environment crazy moves everywhere - stocks,forex, PM, crude oil... but let's go through different scenarios:
- full crash mode - plunge, pause, followed by crash and burn f**king bulls:) I know many bears are pissed off and the "bear prophets" are out there again explaining me about the end of the world.... you will say why not - see China. Well the difference is vertical move up is followed by vertical move down. The US indexes do not have vertical move up, we had distribution for 8-9 months and when it is over follows the sell off to finish the move because no more buyers are left. I do not think that we will see something similar like in China more likely a correction in a bull market.
- correction is over now or after a retest of the lows and happy times ahead buy the dip - yes minimum requirements were met, but I think the long term cycles has topped out and this correction will take time to play out and this should be only the first leg. Although at this point I can not exclude the option that some strong indexes like Sp500 or NASDAQ could make higher high, but it should be a corrective wave for expanded flat nothing more.
- complex corrective wave which will take more than a year - this is my preferred scenario. We already have 8 months distribution and stealth correction since May, now with the three days plunge it is just visible for everybody. I expect the lows to be tested in October before the second leg higher of the correction begins.
Strong moves crude oil and gold miners. Important low is expected, but the strange is that the USD has begun daily cycle higher and I think there is one more leg higher before turning lower again. The question is, is this wave 4 crude oil and gold miners wave b/5 for the wedge which I have shown???? They will look better with one more small wave lower.... but there is no guarantee.
TECHNICAL PICTURE
Short term - this "wave 4" takes too long and it is too deep so I think we have a-b-c w-x-y moves.
Intermediate term - I think we have an A-B-C move, the break lower 2044 will be tested and than one more leg lower in October to finish the whole move from the top. The alternate scenario is that we have impulse lower... next week we should see confirmation for one of the scenarios.
Long term - significant correction with target MA200/the support zone/the start of the wedge - completed this week:)
I have circled moves lower which I think are similar to he current one. If history repeats we should see up and down for weeks and intermediate term bottom in October followed by the second leg of the correction.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - serious plunge lower to levels which we usually see close to important lows. Now it will take time for the indicators to turn up for a while than to test the lows with divergences.
McClellan Oscillator - seriously oversold and moved above zero. The relief rally is not a surprise.
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - seriously oversold and move up from the bottom.
Fear Indicator VIX - with move to 53 this is not only a correction it is a deep correction in a bull market.
Advance-Decline Issues - seriously oversold and move up from the bottom.
Put/Call ratio - a lot of bearishness.
HURST CYCLES
There is discussions if October 2014 is 9 or 18 month cycle low and now where is the current intermediate cycle low? Some says it was this week and we have the low for the year others it will come in October when the low is tested. So I will concentrate on the daily cycles until we have clear picture.
After such plunges the cycles are shorter(compressed in time). With 33 days it is long enough(even for a normal cycle) so the probability is much higher that we have already daily cycle low and much lower that we will see lower low next week.
I suspect the next daily cycle is running already with expected low in October. I am curious if it will be lower low or higher low.
I have reverted back to my old chart. Now waiting to see where to put the low for the year.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Price flip and setup higher... the setup lower has not be finished which is a big red flag that the move lower is not a wave 3.
Russell2000 - in contrast to SP500 it has finished the small ED v/C and we can count perfect finished wave lower. What I see is two waves lower with roughly the same size. The odds are much higher that we have corrective move and not an impulse. This is another hint that we do not have "wave 3" on the SP500 only a-b-c. With impulse from the low(should be a) we should see b and c testing the break out lower 2044.
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