The above chart is the 5- and 10-dma for the NYSE Advancing Issues indicator. Notice that the moving averages are making lower highs even though SPX made a higher high. This is bearish divergence, as it indicates that fewer stocks participated in pushing the index higher
You can see my wave count on the daily chart above. I believe we are in Wave4, which is either half-way or fully complete. I am favoring the "complete" bias because there have been 5 distribution days in the past month. I've posted multiple times about distribution days, and in most instances, the distribution led to new lows.
Another factor is that Wave2 was an ellongated sideways (11% retracement) correction that lasted 9 weeks, while this Wave4 rally has been fast and sharp (21% retracement), lasting 4 weeks. This is a normal alternation of corrective waves, so it makes sense that Wave4 spans a much shorter period.
However, the market will always do the opposite of what most people think, and I'm seeing some similar analyses on the web. Because of this, I would not be surprised if we drop a bit, and then rally to a marginal new Wave4 high before starting Wave5 in earnest.
Notice the trading range for today is nearly at an all-time high. This is happening after a prolonged and persistent rally, indicating a climax top. Anyone who still thought they were going to call a top must have been washed out by now. This is obviously the hardest time to go short, but I believe it is right.
There is heavy resistance at .8805-.8820. The Weekly and Monthly R1 pivots lie in this range, as well as a very long term resistance trendline (see chart above). Coupled with the ending diagonal on the 1h chart, I am hoping that the series of stop runs is over, and that .8840 will be safe!
The above chart shows the USD wave count since it bottomed in March. I believe Wave4 is underway, which implies a thrust to 82-83 before reversing into Wave5. This would then be followed by a long correction.
I gave the USDX chart to help interpret this EUR/USD chart. Notice that price formed a triangular pattern, which many people will watch to help determine the EUR's next move. It is currently breaking to the upside, which I believe will cause the crowd to go long. However, from the perspective of USDX, we still need one more high on the index (meaning one more low on EUR/USD). This also makes sense because the final low is normally registered with MACD divergence, which has not yet occured.
It looks like price may be forming an ending diagonal. This would imply a slight correction followed by one last new high, and then a sharp drop.
Notice the 5-wave drop from 1.2296 followed by an irregular flat 3-wave ABC rally. I took advantage of today's rally to short, as price should stay below 1.2300.
The above 8h chart shows the wave structure over the past few months. I believe that Wave4 ended at .7693 (as an irregular ABC flat). Wave5 has since taken price up to .8738, subdividing nicely into 5-waves. At .8738, Wave-v exactly equals Wave-i, a common relationship. Notice the strong RSI and MACD divergence. If I am right about this top, we should see lower prices quickly.The 1h chart highlights Wave-v in detail. Notice that it too has a clear 5-wave rally, indicating that the longer term waves are near their terminus. Within Wave-v, I noticed a very interesting price relationship, given that Wave-(i) is extended: at .8738, Wave-(iii)+Wave-(v) is equal to Wave-(i). I think this means that .8738 is a significant level, and it is safe to place a stop above that point.
Notice the 5-wave decline from 1.3080. This means there should be a 3-wave rally followed by futher declines. I will try to exit my long position on a rally to complete Wave-c. The green descending trendline is the upper bound of the triangle, so this should provide additional overhead resistance.
Notice the triangle pattern that is forming on the VIX. Triangles are corrective patterns that normally occur before the terminal thrust of a trend, which is an uptrend in this case. That means we could see one more thrust up to a new trend high. Obviously, this would likely imply a new low for the stock market. Monday's market action will be telling about what comes next.
Notice on the daily chart (above) that MACD divergence is confirmed. This is similar to the divergence which formed between 1/22/08 and 3/17/08 (which preceded a two month rally). Also, today was a bullish follow-through day because the SPX rallied more than 1.7% on higher volume than yesterday. According to William O'Neil (Investors Business Daily), this increases the likelihood that the rally from 740 has staying power.
Yesterday's drop was also a nice bull-breaking correction. One would have expected to see massive volume, but instead it was below average and just slightly higher than Wednesday's pre-holiday volume. It seems that it was meant to scare bulls before prices resumes uptrending.
The elliot wave count indicates that the nearly 2-year uptrend is almost complete. We are in Wave-v of Wave-V from .6534. Notice that the daily trading ranges are becoming very big, characteristic of a top. I believe the pair will break to new all-time highs, and because there is no overhead resistance for EUR/GBP, some nice panic buying should occur. It will be hard to time it, but when the 15m candles start having their biggest ranges ever, the market is too lopsided, and near an extreme.
Notice that so far, it looks like we have 3-waves down from 1.3080, with WaveC subdividing into 5-waves. The last down wave seems to be an ending diagonal, and RSI/MACD divergence have formed. This indicates that a bounce is in the cards short term. If this brings price back above 1.2800, I will be confident to stay in this trade. Otherwise, I will try to exit on a smaller rise.
Retail investors are once again barely net short, and volume has been very low on this recent drop, so I think the odds are in favor of the rally continuing.
There are several interesting things about the above charts (the top one is EUR/USD 2h, and the bottom one is USD-index daily). Notice that the EUR/USD traced out what appears to be a truncated ending diagonal. This is confirmed by the clear ending diagonal on the USD-index chart. This implies higher prices very quickly because price has broken out of the triangle.
Second, notice that price rallied in 5-waves after breaking out of the ending diagonal. The indicates a trend change. Price has since been in the process of correcting this move. I think price will break 1.2800 because of the head and shoulders formation and because many stops are probably below there. A target for the low of this move would be 1.2710, where Wave-c=Wave-a, but I am buying a bit higher so that I don't miss the expected follow-through up move. My stop is below the Wave1 low, as a breach of this level indicates that my analysis is wrong.
Notice that price appears to be forming an ending diagonal. If this is the case, I imagine that my current stop would get triggered right before price blasts off. To avoid this, and to capitalize on the potential of one more dip, I am placing a long entry at the lower trendline. My stop is below the 50% fibo of the entire 2000-2008 bull market, so I should be safe for the short term.
I believe there is a higher chance, however, that price stays above 1.23, as the EUR/USD diverged with the USD index. Retail traders are also net short EUR/USD. We just need a catalyst to send this pair higher.
Take a look at the chart above. It sure looks like a nice breakout to start a new uptrend, right? Well, I can also see an ending diagonal formation, which is terminal. The last leg of an ending diagonal can sometimes overthrow the upper trendline in order to fake investors out and then reverse. I think this scenario is valid as long as price reverses quickly and/or stays above 723 on SPX (by the way, the above chart is an inverted SPX chart). Flipping the chart allows one to maintain perspective on a move. While sentiment would have you believe that we are headed down forever, the above chart is heartening. The Wave count shows that we should be near a top (bottom in SPX) and MACD is diverging with price. I think the key lies in a quick reversal tomorrow.
Notice on the daily chart (above) that price has been in a range for the past several weeks. Note the 5 accumulation days, where the market closed up on higher volume. William O'Neil says that when you see 5 distribution days in an uptrend, you should get ready for a decline. I posted about this phenomenon several times this year in real time (see here, here, here, or here). I don't see why the reverse logic shouldn't hold true, i.e. 5 accumulations days in a downtrend would portend a sharp rally.
Also, notice that MACD has diverged with price, and that this final down wave may be an ending diagonal. If price resolves these patterns as normal, we could be in a for a very strong rally very soon.
Now, I have to say, this is contrary to what many people are expecting over the near term. I am reading a lot about expectations of a crash to below 800 or so. Well, if everyone's expecting that, who's going to sell to push prices down???
The chart above depicts a longer term Elliot Wave count. Since 1998, oil has enjoyed a 5-wave bull run culminating in July 2008. Recent price action has since corrected 64% of this up move in just a few months, without a major countertrend rally. It is due for a bounce, the only question is when.
The bear trend is definately reaching exhaustion, as MACD is diverging with price and volume has been downtrending. I think $42.50 should prove to be strong support for a two reasons: first, it was the Wave4 low back in 2007, and second, Wave-c = Wave-a @ $42.34. Add to that the fact that commercial traders are more net long than anytime since the January 2007 low, and you have a recipe for a nice bull move.
Notice that price corrected the initial upmove from 1.2333 in 3-waves without making a new low. This is corrective price action, so I think price will break out to the upside very quickly. This will either be Wave3 or WaveC from 1.2333. I believe it could be a very strong upwave given that retail traders have recently flipped to net short and commercial traders are still very long EUR. Price should not take out 1.2333 for the scenario to be valid.
Notice the irregular Wave4 pattern where price action shakes out bulls and bears. This has been followed by what I believe to be a 5th wave ending diagonal. Notice that MACD divergence is very clear and that volume has been downtrending in the past several weeks. This evidence makes me conclude that these low prices are not going to be around for much longer.
It operates in the home health care service (visiting nurses and personal care), which should benefit strongly as the boomer generation retires and ages.
It meets each criteria in the CANSLIM screening process:
- Current earnings growth: 140%+
- Annual earnings growth: 80%+
- New: it is making new prices highs as the rest of the market is near it's lows.
- Supply/demand: the small 8m share float will allow it to rally quickly as investors realize its fundamental strength
- Leader: 12-mo relative strength is in the 100th percentile
- Institutional ownership: 40% of float is held by institutions, indicating support for the company, and which leaves enough room for new institutions to bid up the price.
- Market: the S&P 500 index posted a follow-through day on 10/16/08. There have been some distribution days recently, but as long as the market holds the recent lows, the uptrend is intact.
The chart above shows AFAM's picture perfect breakout from a double-bottom base. Notice on the breakout day, volume was 50%+ greater than average, showing strong institutional buying into new highs. Since I missed the correct buy point at $43.20, I have to sacrifice a bit of upside. However, I like the base and the stock enough to enter at a higher price. I will adjust my trade size in order to risk as much as I normally would had I gotten in at the correct price. My stop is 7-8% below the correct entry price, around $40.
If the overall market holds up, this stock could continue it's strong breakout rally.
It looks like the rally from 113.60 is impulsive (5-waves), so perhaps that insane selloff last week marked a capitulation low. After rallying to 131, EUR/JPY has been correcting the rally in a pretty choppy fashion. I think a 3-wave flat is forming, indicating that price should undercut Wave-a to complete the pattern. Wave-a = 1.25*Wave-a @ 119.90, where the 61.8% fib lies. There are two pivot points at 119.56, so I am placing my stop below this zone.
It looks like a 3-wave decline has unfolded from the July peak. Price has carved out a brutal and extended correction with few bounces. However, notice that WaveC formed as an ending diagonal. Volume has been dropping throughout WaveC and MACD is showing strong positive divergence.
Also, COT data shows that commercial traders are extremely long natural gas. See this link for a COT chart (select "Natural Gas", "Commercial Hedger", and "Two Years" in the drop down menus). They are more net-long than they were last winter when price started it's strong spring rally.
There could be one more low, but I think if price rallies above the upper descending trendline, it will head up to $41 or even $45.
Notice that price has been carving out a long and painful ending diagonal formation. These are so annoying because prices stay at depressed levels for an extended period of time and trend slightly downwards, providing no relief. An ending diagonal is composed of 5 waves, 4 of which have completed thus far. A 5th wave drop that undercuts today's low (and possibly the 10/10/08 low) would complete the pattern and lead to an explosive, unrelenting rally to 1050 and higher. Today's rally washed out the bears. One final decline would washout the remaining bulls, and undercutting the 10/10/08 low would respark the "crash" fears.
However, there is also some good evidence for this rally sticking. Notice that there have been 3 high accumulation days (higher volume up days) and only 2 distribution days since 10/10. This is pretty constructive. Also, see the following chart:
Notice that only 4 waves have completed from the 141.73 top. I think one more down wave is necessary to complete this downtrend. Completing this wave would also finish a larger 5-wave downtrend from 169.96. One more low is necessary to washout the last bit of longs before a rally. This would also create divergences on the oscillators.
I am not sure where Wave-v will end, so I am placing two entries in between the range which I expect will contain price. There is a HUGE confluence of support at 118-120:
- 119.60-70: 61.8% fib of the move from 88.94-->169.96
- 119.60-119.80: previous resistance highs
- 118.41: Wave5 =Wave1 (Wave1 is 169.96-->147.01, Wave5 is 141.73-->now)
- 118.16: Wave5 = .618*(Wave1-->3)
- 122.15: Wave-v = .618*Wave-i
- 118.83: Wave-v = Wave-i
I would like to believe that price made a bottom on Oct. 10th, but the Wave pattern is indicating otherwise. There was a 3-wave rally from 132.26 to 141.73. Then price dropped in what looks to be a trucated 5-wave rally. Over the past few days, a choppy upward consolidation was carved out, and finally, price is starting to break down again. I will try to go short as price temporarily corrects upwards.
There is significant resistance at 137, and I will short in that region:
- Wave-a highs
- 61.8% fib of the drop from 138.55-->134.89
- Weekly pivot point
- Channel resistance
My stop is above the labeled Wave2 high.
On the 1h chart above, you can see that price has formed a mini Cup & Handle pattern, and is breaking above this level. It is also breaking above the first resistance trendline. I think a double-zigzag is forming from the Oct. 10th low, so I will sell if price gets to the next resistance trendline, around 103.75.
Notice the 3-wave correction that has thus-far ensued. WaveC is roughly equal to WaveA, and price was supported by the 78.6% fibo. As long as price stays above 133.35, a new uptrend should have started. I noticed that the SPX dropped on lower volume today, so hopefully it is just retesting the low and will now bounce upwards. This would support the EUR/JPY pair.
I also noticed that retail short interest for USD/JPY increased as the pair dropped, which means that perhaps retails are beginning to switch to the obvious downtrend. This is bullish for USD/JPY and thus EUR/JPY.
Wave3 of 5 has finished, and I sold halfway through the Wave4 correction. There could be one last rally for Wave5, and then a decent downwards correction. I will try to buy this correction.
The ending diagonal scenario unfolded nicely and price has now started to trend upwards, breaking the bounds of the ending diagonal. This should portend a strong upmove, and stronger equity markets should support the currency pair as well. It looks like a series of 1st and 2nd waves has formed thus far, so I would expect the Wave-ii of WaveII at 136 to hold. I will continue to trail my stop as the trade unfolds in my favor.
Notice that price is carving out a bottom as MACD and RSI both show postive divergence. The rally from 134.14 was retraced in 3-waves, but did not make a new low. Now price is rallying again, breaking the downtrend line. I am moving my stop to below the Wave2 low at 134.80. If the stock market picks up, the EUR/JPY should rally strongly from it's oversold state.
I think the stock market could bounce near term, which should support the EUR/JPY. It has had a major selloff since it peaked at 170, but thus far, it has occured in 3-waves. I will try to call a bottom around 134 as there is a confluence of strong support in this region:
- 133.95: 78.6% fibo
- 133.87: WaveC=WaveA
- 133.80: trendline support
My stop will be below the Wave2 low around 130.
Notice the lowest study on the 15y weekly chart of SPX (above). It shows how far the current price is from the 4wk moving average. At today's close, the market is further away from the 4wma than it was at the worst of the 2000-2002 bear market. As Will Rahal pointed out, a regression to the mean would seem likely at this point.
No one is bullish anymore. With all the expected support levels broken (1060, etc.), it is hard not to be bearish. I think (and hope) that this will support a rally.
Notice that 5-waves have formed from the $5.68 top. The indicates that we should see an upward correction at this point followed by another trend low in the next few months. Right now, MACD divergence has formed, but is not yet confirmed. My plan is to sell a decent portion of my holdings on the anticipated rally. I would imagine it could rally to the 38.2% or 61.8% fibs around $3.20-$4.20.
Fundamentally, TISI is strong, as it meets the rigid CANSLIM criteria. It is also forming a decent Cup & Handle base that should lead to much higher prices as the overall market bottoms. Notice that, generally speaking, volume shrunk into the bottom of the cup. Volume then began to increase as price recovered, forming the right side of the cup. Price has made a slightly higher high, which is not ideal. However, most recently, the volume has dried up as the handle wedges downward.
The safest way to trade this is to wait for a follow-through day in the overall market (+1.7% on higher volume), followed by a close for TISI above $40.55 on much higher volume. My stop will be 7-10% lower, and my initial target will be $48-50.
Notice the 5-wave rally from 184.46. I believe that this is Wave-A for a correction up to 215. Price has since dropped to correct this 5-wave structure, in what appears to be 3-waves so far. I am buying around the 78.6% fibo and Wave-2 low, which should support prices at least temporarily. My stop is below 184.46 on the belief that this level will hold.
I think after today's stock market drop, lawmakers will realize that the broader economy is suffering from the financial crisis, so a surprise package would make sense at this point in the near future. This should make GBP/JPY rally strongly
After a steady decline to .7850, price has corrected in 3-waves. However, the EUR failed to stay strong for long, and seems ready to continue it's downtrend. I want to go short with a stop above the 50% fibo. If I am right about this, price should stay below .7980, as I think this is the Wave2 high.