Ok its Sunday night putting the most important chart up top, the SPX. The SPX matches all the Wilshire counts. Here is the triple zigzag in the SPX. Friday's late high was an uncanny [c] = [a] of Z.
If we get a small squeaker move up Monday keep an eye on 3356.46 that's the other spot where [c] = [a].
Ok, we have honed down the counts to 3 top candidates. The first section of this post will discuss the top counts
ELLIOTT WAVE DISCUSSION
When counting waves, you are really counting separate small wave structures. Then how we connect these structures makes the overall higher degree count(s). There always exists a few ambiguous spots in the wave structure that are open for interpretations which is what makes wave counting somewhat of an art form.
A high VIX and big overnight futures moves makes for a rough-looking structure. This is why the March low area is so rough looking along with the first month bounce. Once the VIX calms down a bit, the waves become smoother.
However, when developing counts, one tries and keep the basic substructure counts "as is". Its how we connect them that matters. In other words if we have a clear impulsive wave upwards, we don't later just make its a bunch of a-b-c's and call it a day if that's what's convenient. We need solid Elliott Wave reasons. We follow rules and guidelines. Always following rules and guidelines will almost always lead to the best overall results. This blog is guilty in sometimes in a guideline violation, but overall consistency is strived for.
But we do have a few ways to connect the structures, and hence the top counts as a result.
COUNTS (3)
Listed in no order of preference. There are no "primary" or "alternate" labels at this point. The market will decide that in the end. 2 of the 3 counts fail to make a new all-time high. As I have said the past few days, at this point I really, really would like a new all-time high in the Wilshire 5000. This eliminates the wave (2) count altogether and gives us a "clean" all-time high and fresh counting start point. One of the rules in counting is that wave (2) can never go lower (or higher in this case) then the start point of (1). The start point of (1) down to March lows is the February 19th all-time high (duh!).
And I cannot stress enough that I want a new all-time Wilshire high so very much, that I am absolutely sure it won't happen! I won't get my clean start. And it's probably meant to be that way.
FIVE WAVE COUNT FAILS NEW ALL-TIME HIGHS
The nice thing about this count is that the wave 4 low, almost matches the proposed wave 4 low in the NASDAQ 100 (see Friday's charts, etc.) which is the main market driver not only in the U.S., but the world. In that regard it makes the most sense.
The final contracting triangle [y] in wave 4 does not violate any rules. Wave (e) of [y] price low is lower than both wave [x] of 4 and wave 3 peak itself. This was an important consideration for this count. Additionally, wave (e) of [y] of 4 is itself an expanding triangle of sorts which makes it a perfect complement to the overall contracting triangle wave [y]. A triangle guideline is that wave (e) itself can take the form of a triangle (in this case expanding).
Therefore this recent "price thrust" impulse from 4 is occurring post contracting triangle. Which implies when its "over" its over.
My favorite count at the moment. This count most aligns with the NASDAQ 100 count "over" or nearly so.
FIVE WAVE COUNT MAKES NEW ALL-TIME HIGHS
This count has 4 starting at the "midpoint" of the price correction period after 3 and at the end of a small expanding triangle just for good measure. The first subwave (i) of [i] of 5 makes a higher high than 3 which makes this the next strong candidate for a count. Wave [i] of 5 is a bit squirrelly but counts ok.
This count supposes that wave [iii] of 5 peaks early this week, we get a gap close for [iv] of 5, and then a move to final peak which makes a new all-time high in either the SPX or Wilshire 5000, hopefully both. But look for failure in one or the other by a mere point or 2.
TRIPLE ZIZAG WAVE (2)
The only rule is that wave (2) must not make a new all-time high. It may retrace as high as it requires but cannot break that hard rule.
There is a lot going for this count. After all, their are so many indexes and sub indexes which are far away from their all-time highs they can only be counted as wave (2). Even the Dow Industrials have not yet taken out its June peak! many world markets are far below their peaks. It is hard to justify a new "Grand Supercycle" top in that regard.
This would count as the greatest bear market rally ever. And yet that still makes it only a wave (2)! Social mood aligns itself that this is wave (2) not a new Grand Supercycle peak!
Wave Y itself is a double zigzag. Y was required to make a higher high than W. It did. Z is required to make a higher high than Y.
Additionally each zigzag should "channel" within itself and it does a pretty good job of doing just that.
WEEKEND CHARTS AND STUFF
Will add here as weekend goes along.
BONDS
I've been wanting to a post on Bonds but have no time at the moment. But here are some random thoughts related to bonds, notes, etc.
1. Bonds are nearing an all-time high likely which means interest rates will rise. A rising interest rate will make the outstanding bonds and notes unserviceable debt. This will result in deflation. As bonds become worthless or take big haircuts, it will snowball.
2. The entire "real yield" curve is negative and started in negative territory since the beginning of the year, January 1st, 2020. This is signaling a generational market move towards massive deflation. However for the yields to remain negative, bond prices have to remain high. This is doubtful after a 40 year rise.
3. The FED has not "allowed" negative yields but the market is pressuring them to do so. The rest of the world pretty much has already. For instance, Germany has a negative -.50 interest rate on their 10 year bund. Japan has been dealing with deflation for 3 decades.
4. I suspect it would cost a lot of money to implement negative yields in the U.S. Computer programming will have to be reworked to allow a negative sign! And cash would have to be outlawed and every transaction handled by the banks. This is an enormous political problem to implement.
5. The FED follows the market. The market sets the prices, the FED follows. The FED didn't keep rates low for years because they had the power, the market kept prices low.
6. Here is a 3 month chart showing just that. Real yields on the 3 month had gone negative but the US market is not structured to deal with negative yields (yet). So rates stayed flatlined. When they bounced above the 0 mark, the Fed was forced to raise rates. They went back below the 0 line and the Fed was forced to cut rates to match. Does anyone really think the Fed engineered this 3 month yield chart over for 40 years?
7. Massive deflation is the real danger. Giving $1200 stimulus checks to (most) taxpayers is not inflationary. Consider it as a small tax cut in that regard.
8. The US Treasury issues bonds and notes, the Federal reserve system is merely the main regulating conduit for getting those to market. The FED cannot issue money directly. The entire system is structured to prevent hyperinflation.
9. Most of the debt issued by the US government is sitting in accounts. You and I cannot spend this debt per se. It sits in our Pension funds, 401k's etc. At some point we do get to spend this but only in a measured way. If one has $1M in a 401K you can bet a lot of those "assets" are in bonds. But you cannot just cash it out unless you're retired. Even then when people do cash it out, they are retiring other debt for the most part such as paying off a mortgage for good.
10. Hyperinflation is actually generally a rising mood type of phenomena. In a severely dropping social mood environment, there will be no will to persuade others that issuing $$ directly to the people in massive quantities is a necessary thing to do. It may happen, but only after a massive deflation destorys all the rot first.
11. The FED (and the government) should have just let over-indebted people and businesses fail. That in the long run would produce a healthy economics. But a Grand Supercycle peak in social mood ensures that the greed will be insatiable and that the FED must "do something". In an effort to save everything they will in the end, save nothing.
12. The Federal Reserve cannot buy up the entire GDP. Not even close. They buy stuff to try an induce confidence in the market. They even say this. They jawbone. In a rising mood environment it works. That has convinced them it will always work in the future. That notion will be sorely tested, and they will fail.
13. The FED are human too. They will get scared at some point. They will get (extremely) political at some point. This acceptance for more power will be their undoing. If they would just stick to their original function of a clearing house for US Treasury debt and a bank of last resort to ensure a stable currency, things wouldn't have gotten so out of hand. But human nature being what it is, they have taken on "the market" and think they can influence such things as unemployment rates.
14. The Treasury can issue more and more bonds, but its like pushing on a string. When social mood goes down, people don't want more debt. They want to retire debt instead. Debt = risk. Risk is a rising social mood trait.
15. The only way hyperinflation can take hold will be for a political will to change the system in a huge way. The US Treasury would have to print their own dollars and issue them out directly. This is what happens to other hyperinflationary countries. Their national banks literally print money. The major Central banks of the world are simply not structured to do this. It would take a political upheaval to change the system. This political upheaval would likely only come about through a system collapse first. Massive deflation would occur first, then in an effort to counter the destruction (that will have largely occurred anyway), then they may try and change the system.
16. An income to debt ratio of about 100% is generally what breaks households into bankruptcy. The US is there in that regard.
17. Sometime in 2019, there was an article at FRED saying how if you actually minus out the agency debt (mainly the social security trust fund) and the debt held by the FED banks, the GDP to debt ratio is only 64% as held by the "public". But this assumes the government will break those promises to Social security and the FED banks. They felt the need to post something like that because everyone knows its getting bad.
18. The GDP took a huge hit. Look at each little drop in GDP on this chart resulted in major stock market retreat major recession. This will be much much worse particularly since everything is not allowed (at the moment) to be "washed out" of the system. It will in one way or another. A renter who refuses to pay rent becomes a squatter.
19. Bankruptcies have not even started yet really. Everything is in a state of forbearance it seems. This will all come to a head sooner rather than later. A further declining social mood will ensure it.
20. Prices are not merely a result of monetary inflation per se. People forget that there is a significant supply and demand aspect to prices that have little to do with social mood. If I can't find ham in a supermarket (I couldn't) this is a major supply issue. I would expect prices to rise as a result. That has nothing to do with us getting a $1200 check.
21. The FED has an Elliott Wave pattern going wouldn't you agree? They need another squiggle to make 5 of 5.
22. "Flight to Safety". That is a misconception about bonds. When were prices lowest in last 60 years? At the multi-decade social mood low of early 1980's. This means they sold off and got washed out at the social mood low. On Robert Prechter's Grand Supercycle III chart, this bond price low was the social mood low of cycle wave II of Supercycle wave (V) of Grand Supercycle III.
23. The market sets the Fed interest rate. The Fed follows. They have to follow! Why? If the market sets a 3 month T-bill at 2% and the FED keeps rates at .25%, what do you think would happen? All kinds of distortions and pricing misallocations between banks, funds, money markets, etc. Imagine what the mismatch would do to the 1/2 quadrillion dollar interest rate derivative market. The FED pretends they have control over it because, well, it has gone to their heads. Think of the "OZ" in Wizard of Oz. There is nothing behind the curtain.
24. Volcker raised rates in the early 1980's and was seen as "brave" to do so. He had no choice! The market made him do it. And it will happen again, except this time there is so much debt sloshing in the system it will be destroyed by becoming unserviceable and massive deflation will occur.
25. Credit = money. In our Central bank systems, they are interchangeable. Deflation occurs when money (credit) is retired, in this case by default. Assets are sold to try and service the debt. In a bubble, its a nasty cycle of debt destruction begets more debt destruction begets bankruptcies etc.. The FED knows this which is why they hope they can prop everything up. It only takes a small piece of the debt bubble to deflate to affect the entire thing.
26. The Dollar will be the best asset in a deflationary environment. As I have said many times over, bonds are converted to dollars, not the other way around. People pay in dollars, not bonds. So bond destruction is the first worthless paper to be destroyed. Bonds will be sold in an attempt to either dump them as an "asset" or service debt. Either way, its deflationary.
27. Bond prices go down = yields go up. Will they be "attractive"? Sure, lots of people and institutions will be there to buy the dips. But ultimately, the rot in the system will be washed out. Having bought a bond at a 4% yield may seem like a thrifty thing to do, but when they go to 6%, then not so much.
28. What effect do you think rising mortgage rates will do?
29. I'll repeat myself, but changing the system to have the US Treasury print their own money and dole it out to the people will take a major political upheaval to do so. When would that upheaval occur? After a major market panic and complete debt destruction. I would suspect at the end of cycle wave "a" down, at a very major social mood low, after much debt destruction has already occurred. Only then, in an effort to leverage a now high dollar, may be a demand for the Treasury to issue a (now high) valued dollars to the people directly. This will work at first but eventually will become very inflationary. Hyperinflationary maybe even. And then will the dollar be seen for what it is, just another worthless piece of paper backed by nothing tangible. But we are a long way off for that stage of the game.
30. But Dan the dollar is worthless just look at the price of gold! But duh! You think any of the other fiat currencies using the same debt systems such as Euro (will be broken up), Yuan (communist), Ruble (Russia, really?), Yen (ok I'm laughing now) are any better? They will all experience the same thing!
31. The 10 year yield has enough waves in place. Yields have rallied a bit the past few days. Something is going on.
32. Timely article in Zero Hedge about Bond volatility and duration. Look at that MOVE chart.
CPCE and RATIOS
Forgot to post them Friday. Bull, bull, bull!
Here is longer view of the ratio chart. You can see everything is hitting extremes.
NASDAQ 100 COUNTS AND CHANNELS
I like to count everything. If wave 5 comes (a peak), you can guarantee the nuttiness about the COVID-19 will reach an all-time hysteria. Such is the nature of wave counting and social mood inflection points. And that's when we should be saying to ourselves "its downhill from here". But we will do the opposite I am sure.
My prediction? At the wave 5 peak of new cases, there will be some kind of national emergency order decreed. The public mood will demand it. We''ll all be under house arrest, but you can keep buying stocks on your Robinhood app!
This is confirmed new cases, not deaths which has diverged greatly.
