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Saturday, July 18, 2020

Failure Friday?

In early June, the Wilshire 5000 (the total U.S. market) had traced a textbook A-B-C zigzag to W (June 8th peak) for a deep retrace (87.3%) to form an apparent (at the time) wave (2). However the NASDAQ Composite was on a mission to make a solo all-time high. The Wilshire therefore traced another zigzag to accommodate the time needed for the Composite to finish its pattern. The Wilshire was required by Elliott Wave rule of double zigzags to make a marginal higher price than the first zigzag. It dutifully did so.

The first Wilshire zigzag is 3 waves as it should be. The second zigzag is 3 waves as it should be. The first zigzag's job was to retrace in price which it certainly did. The second zigzag was to buy more time to allow the final bullishness of the Grand Supercycle topping process to finally expend itself in the form of retail traders buying the top of the Composite in a frenzied flurry of insane valuations (and blow it through the top of its ten year price channel for good measure).

At the end of Friday that is how things stand.

The Composite's Primary count is intact. The Wilshire's primary count is intact. And now they may be in complete bearish alignment.
If prices go higher once more in the Wilshire 5000, this has major implications for the Wilshire 5000's wave structure(s) and has the potential to reverberate to the highest wave degree.  Another move higher would implicate that the entire Wilshire structure is not a double zigzag but indeed a 5 wave move to attempt new all-time highs. It may get higher and still fail, but it probably would be considered a 5 wave move regardless. This has implications...

Think about that for a second as this is an important point. If the Wilshire (total social mood itself!) indeed wants to attempt to challenge its all-time peak, it will form 5 waves from the March low to get there just like the Composite did.

And Friday was a day it could have done it. But it didn't. Friday was the day that prices pushed to the absolute extreme in every way possible without yet making a 5 wave move up from the March low "official". There is literally no more room to spare. Should the Wilshire decide to make a higher price peak Monday, then it has committed itself to attempt to gain the last bit in prices to form a new Grand Supercycle wave [III] peak.  Because after all, that is what [v] of 5 of (5) implies. We might as well extrapolate that all the way to the GS [III] peak.

Now that's not to say that even if prices pop up Monday it won't end in dramatic reversal fashion as everyone and their mother has charted the bearish wedge to do just that. But it doesn't make sense to even try.

Therefore, here is a repeat of Friday's first chart. Yes, it gets dramatic here because that is what another price move up implies. Even if it fails in the ending diagonal wedge.
So that is what is being proposing here. That Friday was the day the total market (social mood) gave up the Grand Supercycle chase.  That is the day, and in the most dramatic fashion possible if your an Elliott Wave nut (like me), it decided it just can't do it anymore.

Failure Friday may be the day the market said "No more!". And thus we are left with our perfect little wave counts of having the Composite peaked, and the Wilshire's perfect little double zigzag to accommodate and thus the rest will be history.

But of course that also implies that Monday is a bearish day as prices are really hanging high on the Wilshire.  We have no idea what the Sunday overnight session will do.  But the main point is the market has maxed itself out in prices and wave forms for a "corrective" up from the March lows. Another move higher Monday implies it wants 5 waves...and that's ok because the market is always right in the end and our alternate counts will track things as best as possible.

Here is a blast from the past (ok May22). This is when the blog first proposed a possible 5 wave move to new highs in a tight channel. Except prices are in danger of falling out of the channel at this stage. The DOW  -1800 point down day in June really hammered things technically (and caused overlap in the NYSE which is not forgotten) and the market has yet to shake off its affects.
The Composite did well though!
Let's end this part of the post with this thought: The CPCE may have been "triggered" last Thursday and Friday.   With probably nobody having placed major shorts on the market (shorts have been squeezed like a wet Nerf football), and with all retail longs fully loaded and with fully loaded calls, what better way for the market to punish the most possible?

C'mon you can think it. Yes, the dreaded mega-gap down and gallop! It breaks a million stops, refuses to hand shorts a logical chance to "jump in", and it wipes out the value of every long call out there. Just saying, things are really that hairy... the VIX is higher than in June.

Ok, we have no crystal ball, only wave count probabilities and here are the top 3 Wilshire counts:

1. Preferred Count: Gap down and gallop lower in a drop worse than the one that occurred in June. We can see the "news" now: "Market throws Temper Tantrum for Congress to Pass Next Stimulus Bill". Take that headline to the bank if prices do throw a tantrum which they should do in the 2 of the 3 counts.

It was just explained in Elliott Wave Terms why this count works and how the Wilshire (and DOW, and NYSE, etc.) are now in possible complete bearish alignment with the NASDAQ Composite.
Alternate count(s). See how the waves change from W-X-Y (corrective) to 3-4-5 (impulsive)? Again, Friday was the day it could have crossed the Rubicon (even a little bit) but it didn't.  But again, the market is always correct no matter what happens.

Wave 5 failures of Minor or Intermediate degree probably don't exist.. But if it were to occur anywhere it would probably be in this market!  

2. Ending diagonal wedge. Why bother? We already seen the gap up last Monday in the Composite and hard reversal, is the market going to do that twice in a row? My gut says no.  But we have the count just in case.
3.  Five waves up to close the gap down. This is the count that attempts to "get there". It'll probably close the mega-gap down from February and make a decent attempt for all-time highs. And then it'll exhaust itself anyway.
So you see all 3 counts are bearish counts in the end, we are just splitting hairs and timing...

Lots of good  charts in Friday's update so no need to repeat here.

VIX. Yes, despite higher prices (Composite, SPX, etc.) the VIX is higher in price than in June. The move down the last 3 days looks like a forced march. And the theory that it retreats back in 5 waves is holding up....
Market collapse early this week would be a good place for Gold to finally stretch its legs upwards. Just a guess.
I might add some more here tomorrow or later.

Basically, when charting a potential major collapse of the modern financial system as we know it, one needs to have a rough outline. The rough outline is that cycle wave a probably finishes lower than 2009 low perhaps forming a neckline. How it gets there is why we count waves.  

But if Supercycle wave (a) of Grand Supercycle wave [IV] is a 5-3-5 cycle-sized zigzag, then we are looking at 5 primary waves to get to cycle a which is what this chart shows. 

A super-sized head and shoulders.

One can only make a logical guess for time, but it should be much faster going down than it was going up (11 years from 2009 low).  Lets put it at a Fibonacci 5 years for now.  Basically whoever gets elected President is going to oversee the majority collapse of cycle a.

Its amazing the world has gotten itself into a position where a price move back to just the 2009 low will apparently wreck everything beyond reason. Really? Only 11 years ago and we cannot tolerate that? Well that tells you how horrible the underlying rot must be. 

The decades of mal investment, corporate greed, and fiscal promises that everyone knows can never be kept, needs a good flushing out every once in a while.  That's what social mood waves do. They expand toward grand peaks (and the greed and fraud is of epic scale), and then retract in cycle-sized waves that humble us all again. Its the natural order of things. Lets hope we don't tear ourselves apart in the process. But we probably will anyway.

If everyone believed in wave theory, maybe we can have some empathy for our neighbors in the end knowing we really only got caught up in "the madness of crowds" just like they do at every Super-sized peak. This is no different, is just a really, really big peak...
NASDAQ Composite's total volume ratio's again shown on 1 weekly chart with pretty colors. Again, my interpretation is that an inordinate amount of volume flow is being directed at the NASDAQ Composite's other 2400 stocks (less the 100) to keep the index afloat. Keep the Composite afloat keeps the other indexes afloat. This is probably the actual mindset of people that work for the Fed.

But it must be true. You can't have the QQQ's run up in price without making sure every other Tom, Dick, and Harry stock in the Composite gets run up also (and they are).

The "big 3" indexes tracked are of course the Dow Industrials, The S & P 500 and the NASDAQ Composite.  And when talking about the Composite, most refer to the subset of NASDAQ 100, the darlings of the index.

But the rest of the Composite needs to keep pace with the 100 darlings. And so they do. However the total volume to do so is becoming glaringly alarming.  Is this proof that the Fed is actually pumping volume flow to the Composite less the 100 ? (I suspect retail is piled into mostly the 100 volume flow).  

Or rather (probably closer to the real explanation) is this distorted total volume flow just a function of the trading computers shifting flows towards the rest of the Composite as a result of the 100's being runup to the heavens?  I suspect it is a function, or more like a side effect, of the algorithms that control the computer trading and high frequency trading.  The computers are trading the markets seeing the 100's get runup and their "programming on the fly" has ascertained that the rest of the Composite requires volume flow.  But the volume ratios are getting more and more distorted and one can assume the HFT computers and all their fancy algorithms are a real danger here. If flow blows up and then stops completely who the heck is buying the Composite less the 100? or the 100 for that matter?

What happens then?

This blog is probably the only one analyzing this phenomena to this extent, but if anyone else has any ideas on what's going on, please email me.

Something is probably going to blow up. It may already have.

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