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Sunday, May 31, 2020

Grand Supercycle Waves [III] and [IV] and Social Mood

I have a special treat in today's blog post. I am sharing two of Robert Prechter's long term Elliott Wave counts to explain where we are likely at in the Grand Supercycle scheme of things and where we are likely headed from here.

Elliott Wave Theory is a theory of nature, specifically of how nature progresses forward in time. It governs mankind's progress and regulates our advancements and corrections in a predictable way.  It applies to all of nature. Nature is not random chaos. Why would mankind's advancing and regressing be any different?

Ralph Nelson Elliott's book, "Nature's Laws - The Secret of the Universe" published in 1946 was truly a ground breaking book. It was recognized that Fibonacci's laws, the Golden ratio, etc. were the governing mechanisms.  Without delving too deep into the theory, which is not the purpose of this post, I will say simply that nature prefers to advance in 5 waves and correct itself in 3.  This ensures that in the long run we are always expanding, nature's preferred course. As in the expanding Universe itself. The stock market is a perfect gauge to interpret where we are in the larger progress of mankind. That's why we count waves!

These waves play out on a large scale of time, regulated by Fibonacci sequences. Each 5 wave advancement is in itself consisting of 5 sub wave structures and so on. This is why you see me counting nested waves on the very small scale even intraday! 

The buying and selling of stocks is not a rational one.  Elliott Wave theory proposes that financial markets are a very useful "dashboard gauge" of where we are on the long-term structure. The stock market is sort of like the speedometer in our cars.

Perhaps the most important concept about Elliott Wave Theory is the idea that the theory is one of "social mood".  Social mood is not the result of outside events. Elliott Wave theory postulates that social mood is not exogenous, it is instead collectively a subconscious result of all our moods together. Its nature. We are connected in more ways than you think.  The theory states that social mood moves first, and our actions follow.  If Social mood is in a wave three of five up, positive aspects of our  human nature expand (such as buying stocks, being friendly and welcoming). When social mood contracts in 3 waves, negative moods and traits dominate (stocks get sold, business contracts, riots, wars, etc.).

Social mood moves first, actions (and our faulty explanations) follow. I will stress that outside human events have nothing to do with nature's advancing through the universe.  Our human nature, governed by Elliott Wave Theory, is what moves us to take actions.

This is very counterintuitive and is why the theory is dismissed out of hand.  Why of course the stock market dropped 12,000 points people will say! We are in a pandemic! No! The wave structure was counted to the top, mankind was due to start a very big negative social mood wave, and selling of the stocks was a result of that social mood.  We, as a human social unit, shut the economy down. We, as a society, got fearful and defensive. The governments finally acted at the end of wave (1) down not at the top! (another important point is that government actions always occur at the end of trends, not before!)

People will also claim that if that cop did not do what he did, there wouldn't be riots. Again, no!  Being human we need rational reasons for why things happen when really its just nature's course advancing us and contracting us in predictable ways.  My take is that we are on the verge of wave (3) down after a brief wave (2) respite and the mood will be more negative than wave (1) because wave (3) is almost always the strongest wave.  I propose there would have been riots one way or another. We always feel the need to rationalize on why mood is changing but you only need to know that its going to change no matter what and try to figure out when and for how long and at what degree.  Instead, we offer faulty explanations of why things are as if they were the actual cause of the mood change itself.

This is what makes financial headlines so ridiculous. China fears cause market to tumble! Pandemic hope cause markets to rise! No! These are just silly fodder!  Housing crisis causes 2009 Great Recession! Portfolio insurance (1987) - bad! Causes overnight market crash! Again, No!  Social mood moves, markets crash (or advance), then we invent excuses or reasons for why it moved. We interpret the results as a reason of why. Free yourself from this way of thinking!

Think of the car speedometer example above, the speedometer doesn't move first, we make it move. We press on the gas first, and then the gauge tells us how fast we are going, and the odometer tells us how many miles we have travelled. Elliott Wave theory is kind of like that. Social mood moves first in waves of 5 and corrections of 3, and our speedometer (stock market waves) follows those waves of mood.  Kind of like how we get fat. Our fat metabolism gets screwed up (insulin from carbs), we gain fat mass, and then we overeat because we are getting fatter. We get slothy because more food energy is diverted to the fat.  Therefore we don't get fat because we overeat and are slothy. They instead are the results of getting fat. 

The pandemic response was a result of our (predictable) changing mood to a large degree of negative mood trend - proposed Supercycle wave (a) down. We voluntarily, as a society, contracted and got fearful.  We (social mood) caused the lockdowns. The riots are no different.  Its a real life example of where social mood may be and its another example that the proposed Supercycle wave (a) down is going to be tremendously negative.

Elliott Wave theory is actually very liberating in this regard.  When we let go of the fact that nature is in command, we can be more at peace within ourselves.  That may sound weird, but once you accept the theory, it helps you liberate your mind so you will not consume yourself when things do what they do. Social mood theory explains why we are in a massive credit bubble. Social mood theory explains why that most assuredly will completely collapse.

Besides Elliott himself there is no other person more responsible for the continuing advancement of Elliott Wave theory for the past 50 years than Robert Prechter, founder of Elliott Wave International and The Socionomics Institute.   The man is a genius and has never stopped working to interpret and provide insight to where we likely are in the grand scheme of things.

His founding book along with Robert Frost, "Elliott Wave Principle - Key to Market Behavior", first published in 1978, is the book I read that introduced me to Elliott Wave Theory. It was comforting to know that nature is responsible for our social mood and it explains why things occur as they do. It explains that mood moves, and events happen as a result. He meticulously explains the wave structure, how to count, how the waves move and how it relates to Nature's laws.

I adhere to his interpretation of where the long term counts are. That's one reason I use his wave markers notational structure also.  (If you see brackets [ ] around a number, its actually supposed to be a circle but Stockcharts doesn't let me make my own custom built numbers).

I am an Elliott Wave International affiliate and I highly encourage you to click my links to the left and explore their site and become a free club member. If you buy one of their excellent products I then get a commission if you signed up via my links. But that's not why I am a hardcore fan of Prechter and EWI. Simply put, there is no better long term analysis than his.

Where Mr. Prechter went slightly astray (and I because it was convincing at the time) is that we misinterpreted the then beginning of primary wave [5] in 2009. He had postulated that the orthodox top of Grand Supercycle wave [III] was in the year 2000 and that 2007 was a [B] wave (in any event it was a (B) wave just one degree lower) and that Supercycle wave (a) was forming a 3-3-5 expanded flat and that the flat would break deeper down in cycle wave c of supercycle (a). Therefore the original interpretation was that the 2009 low was merely Primary wave [1] of cycle wave c.  It didn't happen that way.  The credit bubble expanded even more...the 2009 low is now counted as the end of Primary [4] and the beginning of Primary [5] of cycle V of Supercycle (V) of Grand Supercycle wave [III].

Therefore the proposed top of Grand Supercycle wave [III] is not the year 2000, but 2020.

2000 - 2009 was an expanded flat just as he had postulated at the time. Except it was still part of the cycle wave V that started in the 1970's.  It was still part of Supercycle (V) that started from the Great Depression of the 1930's. It was still part of Grand Supercycle wave [III] first started with the founding of the United States.

So if 2020 marks the top of GS [III], what is next?  Well, the theory tells us that Grand Supercycle wave [IV] follows [III] and is already starting.  A grand supercycle wave is a very large multi-decade or even a century-long affair. You and I will likely not live to see the orthodox end of GS[IV].

Grand Supercycle wave [IV] "corrects" part of GS[III]. Specifically in wave counting, wave fours (of any degree) typically retrace into the price range of the previous subwave four of lesser degree. This is no doubt true on both the large scale of things and often the smaller too.

Being a corrective wave, GS[IV] can take many forms. It could be a multi-decade 3-3-5 flat. Or a combination wave. However, we can postulate that at minimum, it will consist of three (a)(b)(c) Supercycle sized waves.

Regardless, EW guidelines suggest that prices of the GS [IV] will at some point in its structure revert  into the previous price range of Supercycle (IV) of [III]. The price at the top of that range is 377 DOW. Yes the 1929 peak is the top range of GS[IV]'s corrective target.

As I said, we won't be around to see GS[IV]'s orthodox ending (but we might see the price low ending) which may actually be in the distant future.  But we don't need to. We must first start counting with the first corrective wave of GS[IV] and that would be Supercycle wave (a).

Supercycle wave (a) is likely going to take the shape of a sharp Cycle-sized a-b-c, 5-3-5 zigzag downward.  Therefore going further, cycle wave a of (a) of GS[IV] would itself consist of [5] primary waves downward. Each primary wave [1], [3] and [5] would itself consist of (5) Intermediate sized waves down which is what you start to see on my charts.

This is where my charts do not quite align with that of Robert Prechter's and EWI (at the moment anyway). He is counting at 1 wave degree higher for the recent market drop.  He and EWI, have the March 2020 low as Primary [1] down and that this rise is Primary [2]. He is likely correct, but it may be rushing things, we just don't know at this point. My wave degrees are one degree lower however for the time being it doesn't matter because both counts postulate that wave three down is almost upon us. My wave (3) is of Intermediate size, EWI is of Primary size which judging by scope of proposed destruction, is probably correct in the long run.

These charts speak for themselves. They are EWI's specifically Robert Prechter's work. I use them as fair use to spread the cause of Elliott Wave theory.  I have seen none better in my lifetime. I humbly ask Robert for permission if he happens to read my blog every once in a while.

This first chart shows GS[II] and [III] and all the subwaves. You can say that Cycle wave V extended from the 1970's (credit bubble). You can say that cycle wave V is the bubble wave. The mania wave.
His next chart is most brilliant. It adds an extra social mood gauge - it melds the producer price index to stock prices to create a smoother picture of the long term counts. What people pay for things (everyday items that people need to live - producer's price index) and what people pay to speculate (stock prices) melding together to create an elegant long term structure.  Both of those elements together is perhaps a better indicator of the long term wave structure and where we are at.

The difference between the 2 charts and where they diverge in the sub-counting is that the financial speculation aspect (stock market) is a monster cycle wave V of (V) of [III]. We've been blowing this bubble hard since the 1970's. But they both imply the top of GS[IV] has arrived.

Can you see the blue virgin space at III of (III) of [III]?
I updated my weekly chart. This is a fuller count of things since 2000. Note the alt: a count.  

And please sign up with Elliott Wave International through my links! Its the least you can do I just used their charts afterall.

Incidentally I use the Wilshire 5000 as my main counting index. Therefore my subwave counts invariably differ from EWI which is just fine. However, I find Prechter's long term charts so compelling, I adopted his wave labeling numbering system.

And its hard to argue against GS[III] topping out in 2020. The formation of this country was its beginning. Will its dissolution mark the end?

Friday, May 29, 2020

Elliott Wave Update ~ 29 May 2020

The VIX keeps diverging. Higher stock prices, higher lows for the VIX.  Its certainly being stubborn. But it probably will not diverge forever if stock prices keep rising.

The VIX is a great social mood gauge in my opinion.   Its aptly called the "Fear Gauge". However I like to think of it more as a "state of agitation" gauge.  When the VIX is high, social mood is literally ripping apart being pulled in all directions with great underlying forces. There is great uncertainty and doubt. These upheavals occur during changes in mood at major degrees of trend. The greater the VIX reading, the greater the trend change indicating the highest of degrees.

The record VIX readings recently at the (1) low greatly supports the social mood count that Primary wave [5] of Cycle V, of Supercycle (V) of Grand Supercycle [III], is over and a trend change to a long term down -  Supercycle wave (a). Hence the primary count that the rise since the March 23rd low is (2) not a rise to new Wilshire highs.

When social mood gets ripped apart, society fragments. But nature prefers generally calm and order (steady VIX) or else we would have wiped nature (and ourselves) out a long time ago. So agitation peaks and society gets ripped apart, moods change, but nature still requires a reversion back to the mean.  I think that's why you can almost always count the VIX in a nice impulse wave going back down rather than up (make sense?). I stopped trying to count an expanding VIX upwards, its a mess. However, when it attempts to revert to the mean (calm, order), it generally does in a very countable 5 wave structure. Its probably just nature's way.

What is the mean for Cycle wave V since the 1970s' low(s), is a 20-25 VIX reading considered the mean? Sub 20? I haven't had time to research it but you get what I am getting at.  What will the mean be for Grand Supercycle wave [IV] (which may last 100 years) be? Will the mean for that be 30? 40? I suspect we will be permanently in a slightly more agitated state so-to-speak.

Does the VIX breakaway gap up ever get closed again? Or is that a permanent marker for us to ponder? Is the new VIX mean now reset higher due to the trend change into a bearish Supercycle?

It is proposed that bearish Supercyle wave (a) has started. This is serious stuff in the Elliott Wave world!  The VIX readings have supported that notion.

What am I getting at? Well, to share some thoughts on the VIX for one thing. For another, to point out that the diverging VIX might break down if the market goes higher. And if it does, we probably will have lost the divergence it has been displaying which can be typical at the end of wave moves.

And finally, if this is a social mood transition to Supercycle wave (a), the new mean of the VIX was probably reset to a higher level.  Your low agitation state of being will probably not revert to the same level of calm we have been experiencing for a large part of Primary [5]. Heck, we are already seeing riots.

Again, the counts are at a big disparity, there is room to argue for either side. It still doesn't change the higher degree count that this is wave (2). We are just arguing over the when and where for the moment.
Count 1. VIX divergence holds, market tumbles badly (my preferred scenario).  A potential Head and Shoulders topping pattern has formed. Today's price action was certainly strange yes? How much do you think the NY Fed via their proxies pumped into the market today timed with Trump's speech for maximum effect? LOL!

The way the waves jerked all around you would think we were at the end of a long downtrend not trying to hold an uptrend near the top! (Incidentally that is EXACTLY what the FED did by blowing UMPTEEN trillion on merely wave (1) down! What did it buy them? Do they really think they can alter nature's natural course in the long run?)
Count 2: VIX likely breaks down along with eventual higher market prices.  I squiggled notes all over it sorry!

I'll have more later.

Ok, here is another observation about counting waves...they are more purely counted intraday the longer you get into the trend. You can see this effect with the chart below. Note how everything is now more smoothly chugging along impulsing higher at the end of C of (2)?

And the turn down doesn't count well as an impulse. Its ragged probably because it has after effects of the previous trend. Its a transitory wave.  This occurs on the large scale as well.  Remember the wave 1up in 2009-2010 I showed a few posts back? Internally that was messy but ultimately it had 5 waves.

Same goes for (1) down from all-time peak. Its awfully messy but it still makes out better as an impulse wave down rather than not.

And here in wave (2) up, wave A was a sloggy mess for the internal structure, but ultimately its a 5 wave move. Now as wave C progresses, the intrday squiggles count very nicely (when they are not mega-gapping which is all too often!)

And the proposed transition wave (i) lower today is a counting mess. But ultimately it looks ok as an impulse 5 wave move on my 15 minute chart above rather than a 3 wave move lower.

And the mess today stopped impulsing higher in a smooth manner. It looks like Fed panic pumping in a coordinated Trump speech move to get the markets to finish the week above the 200 DMA (S&P above 3000, DOW 25000 etc....)

It also tried to break down the VIX chart which almost worked.

Sunday night will be interesting.

There is room for a gap up, but it will have to sell off quickly for the count to be correct.

(Note the 200DMA was raised to 30,495 after market close.)
And finally, Elliott Wave International (click my links to left and join for FREE!) Friday update alerted me to the NDX 100 may be in an ending diagonal pattern.  I applied this to my NASDAQ Composite I have been showing as 11 waves. (11 waves is a 5-3-5 zigzag which is why 11 waves is a corrective count).

These are very bearish structures if they pan out. The rising wedge move counts as 5 overlapping waves and the internal structures usually resemble (a)-(b)-(c) "three" rather than pure impulse. Why? Because its tired. Its pushed so far and fast that it loses the ability to make impulse structures yet struggles on often attempting to "overthrow" the top wedge line before collapsing deeply and swiftly back usually lower than where the structure started counting.

I have charted ending diagonal triangles a lot in the past, some pan out, some don't.  In this case since we are proposing the top of wave (2) one needs to heed the pattern!  But you have to always pay attention to them because the penalty for ignoring can be swift and deadly!

This supports the notion (2) is almost over.
And finally again, the weird intraday waves made me think of triangle waves with one of the waves being complex (usually "d"). Or when the final plunge occurred I thought finally the trend was down but it reversed and went the opposite way higher. That made me think thats how an "E" wave behaves. You think its the new trend (down) and then bam! It does the opposite.

So looking at the Composite above and the potantial for an ending diagonal which needs a push higher, I do perhaps have room for another Wilshire high and still make the count work using today as triangle waves (which is what they felt like - getting jerked around).
Or even a gap down Monday that recovers and chugs to a new high would also fit the triangle action.

Triangles can form in wave four positions when the market tries to get somewhere in price and time and it can't. Therefore waves sometimes morph into a contracting pattern to give it energy to spring in the direction it wants to finish.  The triangle wave "[e]" then becomes the new count point of wave [iv].

The market has become good at hiding them because everyone looks for them. 
Finally moved back below the green line which is what wave [iv] of A did.

If wave C goes higher its running at about 1/2 of A in price. Maybe not quite.
CPCE 3 day moving average ticked up thereby confirming the continuing divergence.
Yay! Go Gold!

Thursday, May 28, 2020

Elliott Wave Update ~ 28 May 2020

I think wave (2) is over.  We have a potential 5 waves completed for C.

Maybe the market goes higher still, but as I have been saying for many days and week(s), if this is wave (2) it has been an awesome wave (2) and it need not go any higher.
Don't know why I didn't see this potential count yesterday, probably too focused on the 78.6% Fib marker and virgin wave spaces and yadda, yadda, yadda.

So we'll see. But I really like the count, and the structure "looks right".  Waves [ii] and [iv] alternate nicely. Even waves (ii) and (iv) alternate. The VIX has been stubbornly diverging as well as the CPCE as mentioned yesterday so we have to respect what they might be telling us...That (2) is likely over.

Incidentally, in this count, wave [v] cannot really go any higher because [iii] is not allowed to be the shortest wave by rule. Currently wave [i] is obviously the longest and wave [v] is shorter than [iii] so this is a valid count. If the market goes higher, I can't just extend [v]….that won't work in this case. The count here would have to be reworked.
I'll have more, just wanted to get that out there.

Its a bonus when you can map your count on the daily. Wave C has a countable subwave structure.
Nasdaq Composite counts as a solid 11 waves up which is a corrective structure.  Even if I wanted to make this an impulse wave up, I have trouble finding an impulse counts that makes sense.
CPCE.  The Wilshire has now retraced 72.9% of its decline. The CPCE 3 day moving average is back in the exact setup as it was at the peak, mainly at an extreme and now diverging for 7  days vs 6 days at the peak. Obviously this is not an exact timing indicator.  However it does provide support to the notion that wave (2) may be complete along with the diverging VIX.
Wilshire monthly. Last wave two of significance was in the great crash of 08-09.  The monthly RSI setup is at about the same spot that wave 2 of (C) of [4] was.  With tomorrow being the last day of the month.  Again, not a timing indicator, but that it shows the market is certainly not oversold and has rebounded sufficiently in (2).

And note the volume surges. That's likely a telltale sign of a Primary [5] of V peak. It dwarfs all the previous by far.

Wednesday, May 27, 2020

Elliott Wave Update ~ 27 May 2020

We may have just experienced the "upside surprise" or "third of a third" of wave C. Tomorrow's opening will be telling.

On the flipside, we have wave C = .382 Fibonacci x A.

Literally, within 5 Wilshire points. The target was 30,891.43 and the day high ended at 30,885.80 [Update: The chart got changed to 30,887.28]

But the top 2 primary counts are diverging greatly at this point. They always do if this was the "third of a third" up.  If I label today's high wave (2), and this turns out to be the "third of a third" spot of wave C, the divergence between the 2 counts is significant.

So we'll let the market decide the outcome. We do however have a diverging VIX still. (but that will collapse if the market is running higher in [iii] of C.)

Here is the C = .382 x A count:
Along with negative divergence in the VIX we can say the same is happening with the CPCE chart.  They support the idea that (2) is over or nearly so.
And here is the other count I mentioned above:
Formation of a new blue virgin space?  The rest of the trading week should give us plenty of clues. We could still gap down a bit tomorrow and then chug higher much like what happened today. Or, a gap up and partial close would preserve our proposed "blue box virgin space".

Note the diverging VIX still. However the VIX should finally collapse in price if this is the correct count below.
A closer look at the potential blue box virgin space for wave C of (2). The box can partially close, but at least a sliver must stay open to meet the criteria.  Note the expanding market internals as it surged upwards. That behavior fits the "third of a third" spot. 

If you were watching the market, the surge felt like a surprise didn't it? Its supposed to!

There is still a chance we have merely reached [i] of C but this implies C has way longer to run and likely much higher after the wave [ii] plunge. So this count is lower probability, also due to the technical damage that would likely occur and lost support levels. If the market plunges deep, likely (2) is over, not this count.

But, these are the things we map out ahead of time just in case.
And obviously DOW closed over 25,000 and SPX closed over its 200 DMA and over 3000. Maybe that will trigger the trading programs to buy, buy, buy and give us the rest of [iii], [iv], and [v] of C price move higher.
I'll be back for more and pile stuff here at the end of post.

Dr. Fauci. I bet if we mapped his comments for the past 5 months they would largely follow social mood swings.  Pooh-poohed the virus while market was travelling to all-time highs in February. 

Jumped on the death and destruction bandwagon as social mood plunged.

Now says maybe we won't have a second wave of virus afterall (after numerous warnings to the contrary.)

I am just waiting for him to give the "all-clear" and that should mark the top of (2). We probably are not there yet and some of the country is still locked down. But everything is mostly scheduled to be all opened soon beginning of June.
Gold count hanging in there still! I gotta believe!

Tuesday, May 26, 2020

Elliott Wave Update ~ 26 May 2020 [Update 745 EST]

I like to count the VIX also. It doesn't correlate with overall long term counts in any sense, but the big moves are usually countable in some way. The main point though is that the VIX typically diverges at the end of trends. It shows divergence at the moment. It diverged greatly at the market bottom (VIX peak)

This is the "opening shot" of wave (1) down. And we needed the relief rally of (2) up. My sense is that anger is now taking over as the dominant negative mood trend and will drive the turn to take prices down in wave 1 of (3) down. 1 of (3) down should finish lower than (1) down.
The real question is, will public mood experience a 20 VIX any time soon again?  I say this because if wave (2) has peaked, and if the next wave is indeed (3) down, we won't see a 20 VIX probably for a long, long time.

Will the social mood breakaway gap get closed even for a brief period?

Primary count is that Intermediate wave (2) is tracing wave C of (2). There are enough waves in place to consider it over.

For the sake of simplicity, I relabeled the triple zigzag count to a simpler A-B-C convention for Intermediate wave (2). If (2) ended at today's high or has 1 more thrust, I could label it either way. If it runs further, we should be using the A-B-C convention.

On May 15th, I identified the simpler count:
On May 18th, I identified some potential wave relationships using Fibonacci relationships between wave C and A which is common.  The key to this A-B-C count is that there should be a decent relationship of price and time of wave C to wave A and B. In other words it should have the "right look". Today's big move higher probably now makes this an acceptable "right look". So we can label it A-B-C.

Today's thrust is short of the first relationship. Wave C = .382 x A.
Squiggle would consider either today the peak of (2) or one more thrust up to a new high closer to the Fib relationship.
What if wave C needs to run higher to where wave C = 1/2 of A?  (Note: 1/2 is not a Fib number but it is a common relationship and it happens to lie near the 78.6% Fib marker).

Note how I like to identify the "blue virgin space" of a 5 wave structure? This is where things are traded at only once in the entire structure, usually right down to the very minute.

If wave C requires to run higher in price, we can help identify its "third of a third" by identifying the Blue box virgin space.  Today we have a potential blue virgin space. If it remains open (even just a hair open), we can say this would be our "three of three" spot. Note wave A's virgin space. Its a similar setup.
Squiggle of the above:
If today's virgin space completely closes, yet wave C needs to run toward the 78.6% Fib where C = 1/2 of A, then we can assume that the virgin space will be created just above today's peak price.
The squiggle for that would probably go like this:
There are even more variations such as today was the peak of [i] of C of (2) and we will see a deep pullback for [ii].

This would imply that wave C has much longer in time and price to run perhaps to where wave C =.618 x wave A.  This is lower probability because the technical damage that would be inflicted. Wave (2) has run long and high enough in both price and time.

But, its an example where as a wave counter you must have all options on the table before hand so that you are not caught flatfooted.
And yes the magical DOW 25,000 and S&P 3000 markers were surpassed today along with the 200 DMA of the SPX and we got that out of the way...
Our Gold count has run out of room. It needs to rally hard and like right away...
And the Nasdaq Composite was nearly red today despite 500+ in the DOW.

Curious pattern here. 3, 5, and 11 wave structures are considered corrective.  An 11 wave structure could be considered a triple zigzag....

Saturday, May 23, 2020

Weekend Stuff and Alternate Long Term count [Update Sunday 1300 EST]

Here is perhaps an important chart with regards to the top long term alt count of wave (5) to new all-time highs in progress. The main point is that it will likely follow a channel toward its peak and it will probably be relatively fast.

(NOTE: this is NOT the primary count, this whole post is an exercise of a "what if" long term count scenario. The primary count is that the all-time high will remain in place and we are in a wave (2) rebound that will burn itself out soon if it already hasn't.)

There is already a potential channel that has formed. This current channel projects a wave 5 of (5) peak this summer, earlier than August as I suggested last night.

Note how this channel compares to the channel I made on the 2009 wave (1) chart below. Very similar.

Here is the 2009-2010 wave (1). I show this because if wave (5) is in progress I propose it will share some features of wave (1).  Mainly that it will likely be in a tight up channel as wave (1) did.  Also note how wave 1 of (1) gained 50% of the prices for the entire wave (1).

In our current scenario of wave (5), wave 1 of (5) has already gained probably 61.8% of prices. Wave 1 and 2 of (5) will have taken significantly less time also. Waves 1 and 2 of (1) took 86 trading days. Our proposed waves 1 and 2 of (5) took only 38 trading days and likely gained more of a percentage of wave (5)'s price. Also note wave 2 of (1) was a shallow retrace much as the current proposed wave 2 of (5).

So in those regards, if this is wave (5), its a rocket-shot so far and I suspect it will stay that way until its over.  It need only gain 1 point higher than the previous all-time high to consider complete.

One other comment about wave (1) is it had a similar VIX drop throughout as to be expected. Wave 3 of (1) peak took the VIX finally back to a 20 reading in October and wave 5 of (5) peak to the 15 range.

Again if this is wave (5) in the current market, everything (price, time, social mood rebound) is accelerated as compared to wave (1). Its almost as if the market knows it only has a brief window of time in which (5) must be completed. Then its over.
Throwing some charts up since we are off Monday, I'll update this as we get through the weekend.

Virgin Space of Primary [5].  This weekly is the long term primary count. I'll show the alternate down below. First I wanted to show you how the market determined the Virgin trading space of Primary [5].
And zooming in even more....There are actually 2 virgin space candles that day, incredibly the higher candle was covered...The lower one was not.

And some have been asking for an alternate long-term count.  I figured now would be the time in case we get market action that does not fit our wave (2) count.

Well its obvious to me what the long-term alternate count would be but here it is anyway. I don't like it, it totally screws up my wave 5 of (3) subcount, etc. Its not a true channel either, the true price channel was broken. And my gosh, the size of the wave (4) expanding triangle is just ridiculous! But its a crazy market yes?

I will say this though, it has a few things going for it such as the D wave in (4) has that triangle in it which makes it a solid "three" wave structure from "C" to "D".

Also wave (4) retraced into the price range of subwave 4 of (3) which is a normal occurrence so it also has that going for it. And the E wave absolutely convinced everyone the market is headed straight to hell which is what a triangle E wave (in a corrective situation) is supposed to make you think.

Sentiment-wise, virtually no one expects a new peak within a year (including me, I'm sticking with wave (2) up count). But wave (1) only took about a year + off the 2009 low.

And well, the NASDAQ is within spitting distance from new all time highs so its not that crazy I guess. If this chart comes true, I would expect (5) to come fairly quickly as within 5-6 months from the (4) bottom. About August 2020 at the latest.

We have destroyed a lot of the economy there is no getting around that. The debt has exploded probably to an unmanageable level. We will see massive bankruptcies. There is no time for a meandering wave (5) and there is probably no room for deep price retraces (just like wave (1) in 2009).

Retail is trading this rise off the bottom and will get stuck with holding the bag.
Here is why I don't like the alternate long term count: Breadth. We had a breadth "event" that was enough to trigger an amazing wave (2) but we did not have a true Zweig event which is what I believe it would take to get all the way to new highs for the entire market - which is why I track the Wilshire 5000.  But, we'll see. If it were to happen there would be a lot of divergences between asset classes and markets.

And it would be the most overpriced market in the history of markets! (it already is if you think about the underlying economic destruction that has occurred and will occur.)

I know this is just the NYSE, but its a good proxy. (And no, I think the NYSE would not make new highs even if the Wilshire did)
What would the wave count be for this proposed (5)? I think it would look very similar to wave (1) rebound off the 2009 low. A very fast affair with the subwave 1 being the longest and strongest. It took about 18 weeks for 1 and 2 to develop for (1), its taken about 40% of the time for proposed (5) waves 1 and 2 to develop. Therefore if this alternate long term count panned out, I think about 5 months to the peak of (5) maximum. Say August 2020. And it would be totally handed off to retail.
There is a big difference though from 2009 and now. In 2009, there was 10 years of resistance to fight through after 2 crashes. The market took many years to make a new All-time high. In this case,  we crashed directly from the peak in a swift manner. The 61.8% Fib marker is where the bulk of the resistance is at for this market now and so far it has managed to trade above it for a week. The reason is the Fib marker aligns with the middle of the preceding trading ranges for the past 2 years and it also happens to be the peak of (3).  There is not 10 years of prices trading above this point as there was in 2009. 
So be ready for anything.  Next week should provide some key clues on all the count possibilities.   
I really hated posting that, there really was no need to muddy things up. But as I have said before, you have to be ready for anything and that's what I'm trying to do here.  

What would it take to get prices up that high again? I believe it would take another 90% up day all around in both volume and breadth or damn near close to it.  That would likely come at (iii) of [iii] of 3 up if it were to occur.

And of course the VIX gap at 18.5 to 21 or so (I forget) will have been closed.  Maybe society needs one more calm period, even if ever so brief, before the true storm that is sure to come.  Social mood rules the waves...

Bottom line is this: In either case of the primary count or this proposed alternate scenario, the market is going to crash again anyways. Its just a matter of timing and social mood.