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Saturday, June 6, 2020

Elliott Wave Weekend Stuff [Bear & Bull case examined]

[Update Sun 8:15PM EST] Well I guess the "all clear" has been sounded, No more "wall of worry". He even counted the amount of days the stock drop lasted. It only took a positive future open for MarketWatch to post this. It struck me as a very excitable article heading and extremely confident.


[Update Sun 1330PM EST]  For the current primary count shown on the 15 minute chart and hourly below, the maximum wave [v] of C could go is Wilshire 32,909.  Any higher than that and wave [iii] would be the shortest which is a hard rule violation.

It could however go to 32,902.6 which produces an interesting number. That would be the point where wave (2) would have travelled 10,946 points from the March low.

10,946 happens to be a Fibonacci sequence #.  So far the Wilshire has travelled intra-day 10,764.9 which is within 1.65% of 10,946. So that's pretty interesting.  So the count has a very small window if it needs to finish its bullish business...

[Update Sun 9:30 AM EST] - Added the VIX and CPCE falling bearish wedges down below (with overthrow - or technically underthrow - along with the NASDAQ rising wedge with overthrow.]

An alert reader emailed reminded me of the term "buying climax" and the BPSPX chart. It fits with possibly what we saw on Friday. NYSE index is contrasted in the chart below. The gap up doji candle form would fit that description.  It also fits the description of exhaustion. Early morning high, and prices get beat back down. End of wedges = exhaustion.

Buying climax + exhaustion = hard reversal. Well that's the way its supposed to work anyway...

We'll see soon enough.

Also note how much the NYSE is diverging in retrace effort with a range of other charts. It peaked in January not February.
Seen via Zero Hedge
[Update 1130 PM EST; Corrected all the spots and charts to show that wave C = .618 x A @ 32,759, not 31,759. I somehow kept mixing that up in my notes and kept repeating the error. Fixed Friday's hourly chart also]

I'll review the Bear and Bull case in this post. First up is the bearish case that wave (2) up has likely peaked or will shortly Monday. Then later, the Bull case will be posted beneath.

WAVE (2) HAS PEAKED OR WILL SHORTLY MONDAY AND REVERSE.
Its been talked about on this blog that wave C was running about 1/2 the time and price of A.  It pretty much worked out that way to a June 3rd peak. However the ratio of 1/2 is not a Fibonacci relationship in any way.

But the relationship of .618 is a very meaningful relationship.

So far wave C has run nearly a perfect .618 x A in both time and price. .613 for price, .615 for time.

(Side note: Every Robinhood trader and Institutional guy knows of the .618 retracement marker - but only Elliott Wave uses wave relationships based on Fibonacci. The obvious "oh look it is at the key .618 retrace spot" hardly ever works for final patterns in retracements as a result...but wave relationships between related waves - such as C to A - or even a wave 3 to 1 - are very meaningful.)

Virtually everyone absolutely expects (CPCE will tell you that!) for the market to go higher still.

The bear case again:

1. We have a perfect Fibonacci ratio A-B-C in both time and price (.618) that has wave A and C touching in a channel which is common for a zigzag.

2. We have a bearish wave 5 wedge pattern in both the NASDAQ composite and the 100 with a daily overthrow candle.

3. We have a surge in volume. NASDAQ composite set a record on Friday on its new all-time high. These volume surges happen (most likely) at the end of major waveforms, not somewhere in the middle. Now of course they could get even more record-er, but hey, I'm just reporting what I'm seeing.

3. The Wilshire had its second biggest volume day ever (the biggest was in the collapse from Feb - Mar). This also could indicate a frenzied surge to wave (2) peak.

4. We have absolute major non-confirmations among the NASDAQ and the rest of the indexes. Yes, everyone knows that in 2000, the Composite peaked 2 months after the Industrials...just like now. Except this is one wave degree higher thus the non-confirmation is 4 months versus 2 with every index at this time not just the industrials.

5. We have complete capitulation in equity call options. Rarer has readings been this extreme on the daily and the 3, 5, and 10 day moving averages. Literally everyone on the "good news" day went all in and stayed that way over the weekend. The confidence is stunning.

6. Friday's peak came on supposedly "stunning" positive economic news. The President quickly took a victory lap which is his prerogative.  However 2.5 million jobs gained compared to 21 million lost the month before is like a small subwave in EW counting.  Its like losing 10,000 at a casino one day, and the next day you go back and win $1100.  What are the odds you go back 9 days in a row and keep winning $1100 and recoup all your money?

7. My mistake (and likely many others) is that too often people look for rollover events that happen at other spots in major wave structures.  We look for divergences and slowing momentum and such.  Those waning things do exist a bit in the peak advance/decline readings are getting smaller and smaller on each surge attempt.  So some things do match our proposed wave (2) zigzag.  But there are no absolute 100% reliable indicators, which is why we count waves first and foremost.

The problem here is that wave (2) is a rocket shot after a record drop and the market may end at everything "peaked". It may end on the volume surge, not a waning and diverging set of indicators we have always relied on. It may end at the 3, 5, 10 day moving average of the CPCE at an extreme low. If this is the case, then the way everything sits right now, matches that possible scenario.  If the market continues higher we will likely get those waning and rolling over indicators. It may happen, but they might not at all.

Regardless the point is a wave (2) this huge is expected to end on the best positive news possible. That is the psychology of waves. At the end of a bear wave everyone is like "we are going to hell" at the top "we are on the way back!" Will the news get any better this summer?

And a cool chart for ya. Look, it was known wave (2) had some likely power because by the time of wave [iii] of A, it triggered a very good breadth thrust event. It wasn't a "Zweig" event (less than 10 days) but 14 days was pretty good.  There has been only one event so far at beginning of wave A. Wave C can be said to have a surge but it did not start deep enough to be considered a breadth "event". (It is obviously strong enough to carry prices this far though)

Wave [ii] of C marked where it is partially because it makes the most sense on this McClellan. Its been the deepest pullback so far.  The only virgin space in the structure is in the middle of [iii] where it should be (except for Friday's gap up which, even if the market is in wave 3 of (5) of [5] to new all-time highs, is likely a false virgin space that will get retraced. That will be explained in the bull section.)

Heck, even this oscillator is wedging and negative divergence with wave A.  The CPCE is in a falling wedge along with the VIX. So we have falling wedges in VIX and CPCE with overthrow at the bottom. We have rising wedge on the NASDAQ with overthrow at the top. We have a McClellan's oscillator doing the same damn thing - and with overthrow too! Its just too weird.

Again, I'm reporting, you decide. Its up to the market. The bull case will be presented below a bit later.
I don't just pull these wave markers out of my butt. There is some work in the logic of it all. Things are again aligning almost better than ever. Of course having planted "C" a few times too early, just motivates to work harder to get it right.

You see where [i] of C is? That structure is awesome (its back to being subwave labeled the way it was) which is why wave C was called at that peak. 

You see where ii of (ii) of [ii] ended that day? The Key pivot? This blog warned that a surge to 31,907 was coming. It did come didn't it?  The .786 retrace Fib of wave (2) was a perfect ending. Didn't end that way, the relationship between C and A had not been fulfilled in any meaningful way and the A-B-C channel for (2) was not yet touched to the upside. That was a wave failure counting and ignoring channel guidelines.

But now that it has all come together, maybe wave C peak sticks....

Wave [iii] cannot be the shortest. Therefore there is really little room for [v] to make a higher high. However, 32,759 would be a perfect .618 C x A
VIX pattern, log scale. 
Composite record volume.



THE BULLISH CASE

Refuting the items cited above, and others...

1. The perfect A-B-C Fibonacci relationship is an unfinished structure.  It will keep chugging higher to make wave (2) look ridiculous (it almost does now except the DOW) to the point that it shouldn't be considered a wave (2). It'll have to be something else.  That something else could be wave (5) to new all-time highs.

This implies wave (4) of [5] was the gigantic expanding triangle all along. The "D" wave is a striking three wave structure, yet no one wants to make it a "D" wave.  This 3 wave structure was my failing in February when I was looking for waves 4 and 5 of (5) of [5] to a true peak. They never came. I saw the W-X-Y (4) - EWI counted it that way - but its didn't seem right.

2.  All those bearish wedges - are bullshit. NASDAQ, the NDX, VIX, CPCE , and even the McClellan's is all there to fool you.  They won't matter, because they are not wedges.

3. Volume surges are just that and will likely stay elevated for a few more weeks. They will get more record-er-er.

4. The constant 70- 80% or more up days all around is a sign of a surging wave 3 you dummy. The peak RSI on the hourly is right where its supposed to be. It'll wane, but not yet. The CPCE will also start to wane and diverge. You'll get your signals to match 3 and 5 of (5) peak eventually.

5. The NASDAQ non-confirmation will be confirmed soon enough by plenty of indexes.  However we as bulls do you give the fact that there will be a lot of indexes all over the place that will not confirm in the end. The Industrials probably won't make a new high in the end. A lot of foreign indexes probably won't be making a new high.  The bulls admit this will probably be so. But on a global scale you dummy Dan. It will be a total global smash-up.  But until then, we have unfinished market business!

5.a. Oh, NASDAQ 10,000 would obviously be on the menu...maybe that's what's been driving this bus all along. NASDAQ 10,000 filled with a bunch of overpriced, overhyped tulips, I mean worthy tech stocks!

6.  The VIX will close, it always gets closed you dummy Dan, even you said that yourself. It will likely only be a brief respite. A kiss to how things were. A kiss goodbye to relaxation and calm. And then welcome to the new normal again - permanent state of higher agitation.

7. There will be plenty of people bailing at the top.  You will get glaring divergences all over the place between waves 3 and 5 of (5) of [5]. You will get your Grand Supercycle peak. Probably July. February was too cold anyway.

8. As far as it ending on positive news, It could be more false hope news. After all July is still when people are getting unemployment enhanced benefits.  It'll take a quarter or two to really show the destruction that the lockdown and rioting has brought. Until then lets buy stocks and pretend they are tulips!

9. The overall theme of (5) of [5] to new peak is that it is a race to the top.  The window of opportunity to new market highs will exist only for a short period of time. Mood is already deteriorating badly. Fundamentals have already collapsed, it is just being ignored for the time being. Mood might wane some more, but then it'll intensify after the peak.

10. GRAND SUPERCYCLE WAVE [III] PEAK is our modern version of the "Tulip Mania" of the Grand Supercycle wave [I] peak all those centuries ago. If we make it to 5 of (5) of [5], the valuations will be in extra-extra- nosebleed territory.  In fact they already are in nosebleed territory. And still we will justify it! They justified the price of tulips! We are in essence doing the same. We thought they were crazy. But aren't we also? Cognitive dissonance on a global scale has never been greater.

So yes, there we go. A year from now I propose it all won't matter too much, because we are counting the last wave(s) anyway whether it is (2) and then (3) down or 3 and 4 of (5) to new all-time peaks.

Or will we have only 3 waves to an almost peak??? That is the 2nd alternate long term count, and no need to visit that count just yet.  (Ok, its a 3-3-5 Primary wave flat count after the February peak of [5] - March low = 3 waves down. June high = 3 waves up, then 5 waves down to at least March low or lower to form 3-3-5 Primary flat pattern.  Primary wave [A] or [W] of cycle wave a.)

But it all ends bearish. It all ends at least back down to the March lows one way or another.  Shoot, the expanding triangle count makes it final yes?

It is an elegant structure I will admit. And wave (4) revisited the price range of subwave 4 of (3) - I talk about that in the next section.
One reason I count the Wilshire is because it makes better waves generally. If you look at the SPX and DOW, you have gaps all over on this C wave and you lack the subtleties that the Wilshire provides. 

Take the blue virgin space. The Wilshire has only 1. Well it has 2 if you include Friday's gap up but the wave guidelines of nested "three" peaks and "four" price lows suggests that every wave subwave four should be visited in price range by the next higher degree four.

So in that regard, wave iv of (iii) of [iii] should be revisited in price by either pink (iv), green [iv], or the bigger Minor 4. My guess is that it will be the Minor 4 because pink (iv) would have to retrace too deep to look correct. it might be Minute [iv], but for the same reasons it would look better to achieve higher prices first. We are just guessing on probabilities here.

Then wave 4, which should alternate from wave 2 in form, would likely be the wave 4 that revisits the .786 Fib, or 31,907. 

However it shouldn't close the virgin space. That would be too deep. It might close it partially but a sliver should remain open. 

So wave 4 would shake out all the overoptimistic bulls in wave 3 and then need only chug to a new market high in 5 of (5) of [5]. That is where we see peak optimism of the summer and we'll see all our waning indicators and divergences. Trump will probably gloat and that will be the sell signal.
Here is another look. Using channel lines (much like I did on the bearish charts above) we can guess that we are looking to confirm wave (iv) low and then [iii] of 3 peak. Then [iv] pullback, then another surge to [v] of 3 peak.  The next Fibonacci relationship of wave 3 = .786 x A is 34,089 which would manage to close the gap down and likely close the VIX gap.

Then a sharp drop in 4 back to the area I spoke of, and then 5 to finish it out.


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