Update

I am busy in the next 10 days so no posts this weekend and the next one.


The indexes moved higher as expected, but now the move lower from early November is confirmed corrective only three waves which opens the door for different combinations. To add more to the confusion the move higher so far is three waves too, Russel2000 looks more like impulse lower and correction higher and the DAX looks like huge impulse from the bottom in September which is finishing and correction should be expected.

Intermediate term I can not see very bearish scenario which is expected given the bullish cycle and seasonality.... and reversals does not start with corrective moves. Below are two charts with all possible scenarios which I can see at the moment.
- The "bullish" scenario - simple impulse or ending diagonal. It looks simple and the obvious choice.... I saw it already on many blogs. Such an impulse will finish wave 3(or even 5) or C from the bottom in 2009. If you are a bull you do not want to see this "bullish" scenario because you can argue that there is a finished pattern and the bull market is over. You want to see the indexes to continue with the corrective mess and when it is over we can say without doubt we have a corrective pattern running for 1,5-2 years the 7 year cycle has bottomed and this is definitely wave 4 with more to the upside in the next years.
- The "bearish" scenario - we have zig-zags up and down and this is either expanded flat or triangle. This patterns look "exotic" compared with simple impulse higher. On the other side if you remember the long term cycle charts, which I have posted, one of the scenarios was 7,5 long cycle with expanded flat/triangle and if we want to see a synchronization with Europe/DAX we should expect move lower and than higher. So in the end maybe this idea is not so exotic...

The impulse looks obvious, but I think the expanded flat is the pattern which will fit perfect.... not so important because eventually all patterns should make higher high around 2160-2180 (exceptions is triangle, but I think it has very low probability). The important implications are for the long term pattern.



The bullish scenario impulse or ending diagonal. The price should move above resistance 2090 and continue higher if this is what is going on.
You can argue where to place wave 1 and which pattern is running, but it does not matter at all, the outcome is exactly the same.... ok the high 20 points higher or lower, but it is the same for me.

If the price could not rally above 2090 the move higher will be only three waves and than the possible patterns are expanded flat(green) and triangle.
If we see another zig-zag lower with the same size the price will hit support and 50% Fibo retracement at 1990. This should finish wave B probably from expanded flat alternation is the move to continue lower which should be wave C of a triangle.

Weekly preview

Short term view - bounce higher for a few days.
Intermediate term view - the correction to continue for another 2 weeks followed by a deep retracement.

The indexes turned lower as expected.... not a surprise when you watch the right pattern:)

Nothing new since last week. I think the correction is not over, but we should see a bounce higher soon for a few days.
When it is over and we have finished structure - impulse or zigzag, we will know which pattern is running. For the moment the flat has highest probability.


TECHNICAL PICTURE
Short term - move below support 2080-2085, test of the broken support level and MA50 and continuation lower. Classical reversal and technical analysis.
Now RSI is oversold and the price far from MA50.... so I expect a bounce higher to begin soon.
Intermediate term if flat is the right pattern we should see an impulse similar to the red path.

Intermediate term - preferred pattern is flat (red). In this case we should see a wave 1 lower. Alternate if we see higher high probably much larger expanded flat.

Long term - no change

MARKET BREADTH INDICATORS
The Market Breadth Indicators - turned lower and issued sell signal. Many of them were flashing "problems ahead" for a while so it is not a surprise.
McClellan Oscillator - in oversold territory, bounce higher?
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - in the middle of the range.
Fear Indicator VIX - as I wrote last week narrow BB(low volatility) precede strong moves higher.
Advance-Decline Issues - heading lower...


HURST CYCLES
Day 34 of the 40 day cycle.

Week 12 of the 20 week cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Price flip on the weekly chart and setup at 6 negated. On the daily chart setup at 6 and high probability that it will be finished. This is bearish.... confirms so far the idea for wave C of a flat.

Weekly preview

Short term view - one final push higher and than a reversal.
Intermediate term view - lower for 2-3 weeks after a reversal, at the moment I think we have the second wave of a flat.

This time I could not spot the right pattern. It is a double zigzag, but at "a of Y" I saw two waves higher(the first from the August low) with a mess in the middle and I though this is the first zigzag and we should see a pullback 2 weeks in October. This was the wrong pattern the second zigzag was running already. Corrective patterns are tricky and often you have the right one when it is close to completion.
One important lesson - a short signal was never triggered. The price stayed all the time above MA50 on the hourly chart, no lower high or higher high with divergences. As I wrote many times trading system rules always take precedence over forecasts.... no exceptions.

What to expect in the future:
- EW says we should see a wave lower for either flat correction or a triangle. Surprise pattern will be higher high after a pullback - maybe a larger zigzag for expanded flat or impulse higher... somehow it does not fit with the bigger pattern and cycles, but will see first how the next move looks like.
- Cycles - we have strong bullish 20 week cycle. Usually in this case the next one should make higher high. The problem is the 4 and 9 year cycles are pulling the prices lower. So I think the next 20 week cycle should top earlier but with prices close to the previous high. The cycle guys call it M pattern because the cycles of higher degree are dominant and the chart looks like double top or deep retracement.
- Some thoughts - I do not see a reason why the big boys should start a sell off in the November/December period. I read a lot "this is low quality rally". Maybe but the big boys will not miss the opportunity to write some nice numbers in their books for 2015. Take for example 2007 the start of the scary bear market - negative November followed by deep retracement in December and we will worry about bear markets later. I do not see a reason why this time should be different.

Based on the observations above I see two possible scenarios - preferred move lower for 2-3 weeks in November to finish the 20 week cycle and deep retracement in December(at least until FOMC) and second one with higher high. We will know more when we see a move lower, how deep it is and how it looks like.


TECHNICAL PICTURE
Short term - still above MA50 probably one more push left higher... I do not lower high or higher high. Minor support is now the 2080-2085 area and break below it is confirmation that something to the downside has begun.
The area 2000-2020 is support and in the same time 38,2%-50% Fibo retracement. I think any move lower should find support in this area.

Intermediate term - how a flat should look like(red) and surprise 5 waves higher(green).

Long term - adjusted for a flat, one more test of the support zone and MA200.

MARKET BREADTH INDICATORS
The Market Breadth Indicators - in the upper ranges, but not heavily overbought or with divergences. Many are not following the prices higher...
McClellan Oscillator - even more divergences.
McClellan Summation Index - buy signal.
Weekly Stochastic of the Summation Index - reached overbought levels, which is usually a signal that a move in the opposite direction should follow.
Bullish Percentage - buy signal.
Percent of Stocks above MA50 - turned lower.
Fear Indicator VIX - bottoming??? Very narrow BB which means expect a strong move soon.
Advance-Decline Issues - in the middle of the range does not follow the indexes for weeks. Probably a few shares are dragging the market higher.


HURST CYCLES
Day 29 of the 40 day cycle.

Week 11 of the 20 week cycle. If we see a confirmation for a flat correction I will swap the chart with the one with shorter cycles from the previous post.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Sell Setup has been finished, but still there is no price flip to signal a reversal.

Intermediate term

The indexes continue to climb, SP500 retraced more than 90% and I think the intermediate term pattern has changed. I was expecting the move higher to reach the previous highs even make new highs but I thought it will take more time and it will be more choppy double zig-zag(it does not feel right any more). With this retracement I think other patterns are more probable. The cycle charts with the patterns updated below.
The longer cycle 7,5 years - we have already second leg for a flat(90% or more retracement) so the pattern which will "eat" time is triangle.
The shorter cycle 7 years not a zig-zag instead a flat.

I thought this shorter cycle 7 years with a zig-zag(now flat) has less probability... until you go through different markets. Look at China, emerging markets, precious metals - either my analysis are wrong or cycles/EW patterns of different markets are synchronizing for an important bottom early next year January-February.
For me all this smells like huge inflationary wave hitting the markets next year. I do not what the trigger will be.... the USD finishing its wave higher and EUR/USD hitting massive 15 year cycle low? Another QE?

The good news is both patterns are different and it should be easy to find out which one is running - a flat needs an impulse and a triangle only corrective 3 waves. Pay attention to emerging markets and commodities they should outperform the major indexes.

Taking into account other markets it does not have higher probability. This scenario is still possible. Maybe commodities and emerging market sniffing the coming inflation first and the major indexes following a few months later.

With the current retracement and in the light of the other markets I like this scenario

China - the pattern has not changed, but it will take obviously more time and synchronize with emerging markets/commoditoes

EEM - I posted a chart long term ago(where the circle is). I do not follow EEM, but it is a pleasant surprise to see that it follows the scenario simply perfect. It works for a long time so no need to change it. One final push lower will be great.

Gold - I have adjusted the cycles to the Hurst nominal model. It looks like the bottom will be earlier in Q1 instead of Q3 2016. Some gold miners probably made a bottom and many look like will finish a huge EW pattern from the top with one final push lower... so this cycle count looks good to me.

Silver - similar picture, interesting is that both 4 year cycles are running steadily so far with average length 63 weeks for the 18 month cycle (67+65+59)/3=63,6 and (53+73)/2=63. Many think that the bear market finished in Summer, but I do not see a reason why the last 18 month cycle should be only 39 weeks and not something like 60-65 weeks.