Custom Search

Tuesday, July 21, 2020

NASDAQ / Wilshire Tied at the Hip

Its important to express coherent thoughts in this post so as to avoid the usual rabbit hole distractions. So the main thoughts will be separated by numbers. 

1. There is strong evidence to suggest that the Wilshire 5000 (and SPX, its twin) are not in 5 wave moves to a new Grand Supercycle peak.  Rather, the Wilshire (as was suggested last week) is tracing a double zigzag pattern to accommodate the time required for the NASDAQ Composite to finish its peak.

2. The Wilshire 5000 wedge is probably not a true ending diagonal triangle.  A true EDT would be in a 5th wave position.  If the Wilshire is tracing a double zigzag, then the wedge is the product of sluggish wave movements that reinforce the idea that the price moves over the last 7 weeks have still been corrective since the March low. However, a bearish wedge is a still a bearish wedge and it can all have the same outcome regardless no matter if we call it a 5th wave or not.

3. As was suggested last week after the Wilshire broke above its June high, the Wilshire (and SPX) were/are now "tied" at the hip or in alignment with the Composite. If the Composite needs to peak, it will drag the Wilshire right along with it.  We seen this price action yesterday! The e-minis actually wanted to selloff overnight but the Composite had other plans.  After a sluggish start yesterday the Composite churned higher and the Wilshire and SPX (and DOW) were forced to follow along. And they did.

4. Today the Composite made yet another important all-time high. As a result, the Wilshire too made a new recovery high. The indexes are simply tied to the hip at this point.  Obviously the Wilshire is the entire market but its being driven by a narrow range of stocks that cross-reside mainly in the Composite (and of course members of the SPX/Wilshire). If the Composite requires new highs, the Wilshire will keep dutifully tracing it's zigzag pattern as best as possible to allow the Composite to do so. Its the same stocks in the Wilshire after all. If Apple goes up it affects the Wilshire/SPX. This is why the DOW and NYSE is making different waves. They are like bystanders just hanging out waiting.

5. When this blog suggested it was "over" was largely due to the fact we thought the Composite had peaked and therefore the rest of the market was finished also. It didn't work that way. Calling for a big gap down open made sense in that regard and it felt like the right call.  In fact at one point Sunday futures wanted to agree. But the Composite wasn't done, so the Wilshire wasn't done.

6.  There has been no strong wave evidence that the Wilshire and SPX are spurring on 5th wave events to challenge all-time highs.  The DOW is not even yet above its June high. Yes prices are going up but it if the Composite peaks, then (in theory) the Wilshire and SPX are finished also. That was the main theme last week and influenced the wave thinking but it still hasn't changed.

The overall counts of the Wilshire 5000 and Composite. It appears there is one more squiggle missing in both patterns. See where 1 goes on the Composite?  It should have been there the whole time if you look at the old count, there was overlap there and we had an expanded flat as part of wave (iv) of 1. 

This works much better and although wave 3 is a lumpy mess, the squiggles work better. The big open gap makes sense as "third of a third spot".

So if wave 2 on the Composite is an expanded flat, now wave 4 should be a simple zigzag. This now accounts for the final (hopefully) wave to a new high.  Yes wave [iv] overlaps [ii] but one could make [iv] a triangle and its orthodox wave marker wouldn't overlap.  The overlap is a warning though.

Now look at the Wilshire. Lumpy mess since [w] of X. But into the February gap down all the same.
Now here is a split screen and just using simple wave channels on the 5 minute chart. We probably are missing one more high although its not required. However, if it pans out, we may have nailed the coffin finally on the 2020 market.

If we gap up tomorrow, keep this wave chart in your mind. We would get simultaneous peaks in Composite, the SPX and Wilshire and everyone will be shitting themselves happy and for sure the whole market is heading to new highs and the Composite will go to the freaking moon on Elon's rocket.

This feels right because things are getting hairy. The disconnect is a yawning chasm.  Everyone knows it except the Robinhooders, and all those millions of passive investment funds and pensions who inject regular weekly allotments in a fixed pattern. It doesn't matter, we are all greedy at this stage.

The market is very ripe for destruction. The trigger is almost at hand. Last night futures were so sure of themselves they galloped way above where the cash index wanted to be. That is bullishness!

These are warning signs!
Again the volume internals on the Composite. If the Composite makes another high tomorrow, these will likely be even more extreme. These ratio extremes aren't "healthy" market mechanics and I doubt it can go on too much longer.  The last 4 days have now been persistent.
Keeps hugging that channel line.  If its loses the line, its hard to say where next support is.  Probably [a] of W. 

blog comments powered by Disqus