Sunday, November 6, 2016

Under The Big Top

What is no one talking about? As of this weekend, you hear very little serious discussion whether or not the market has, in fact, actually already made the big top - and we just don't know it.

Back on my post of September 29th, I showed a chart of the Dow Jones Industrial Average, and said that because of the Orphan Wave at the bottom - where the Dow did not make a lower low in February - but the S&P500 did - it was, in fact, possible to count the DOW as having completed an Intermediate (5)th wave of a Primary Vth wave higher. I will repeat the chart below.

DJIA - 2 Daily Chart - Possible TOP Count

From the standpoint of The Eight Fold Path Methodology there is a lot to like about this count. First, there are about 117 candles in this count - very close to the minimum 120 suggested. Second, wave 3 of (3) is on a peak of the Elliott Wave Oscillator (EWO), and wave 5 of (3) diverges from it. Wave (4) sees the EWO retrace to below zero, but not more than -40% of the value of the peak of wave (3). Then Wave (5) again diverges from wave (3), as it should to indicate the loss of momentum, and the market has since broken the lower trend line.

From the standpoint of other indicators, the Dow Jones Transportation Index is still diverging from the Industrials - in what may still be a Dow Theory Non-Confirmation. As I have showed before, the Chaikin Money Flow diverged from the highs, is now below zero and declining. Here is the divergence we showed you back then, and you can see where money flow is now. Clearly, the market is bleeding volume!

SP500 Index Versus Chaikin Money Flow

The question is still whether the hemorrhaging is only a pre-election phenomenon or not. To add to the DOW's chart, we want to show you two ways now that the NQ (the NASDAQ 100 futures) could have topped too, and one way that it might not have.

In the first count, there is a large flat for wave (2), and a triangle for wave (4). There is a higher high for wave (5). There is nothing that violates the rules of a count like this, but suggesting the count may be rushed is a potentially valid criticism.

NQ Futures (2 Day) - Possible Top

In the second, perhaps more ominous possibility, we can see that of a Contracting Ending Diagonal in it's entirety.

NQ Futures (2 Day) - Possible Top

There is nothing technically wrong with this count either. Wave (5) is shorter than wave (3), Wave (3) is shorter than Wave (1), Wave (4) is shorter than Wave (2), Wave (4) overlaps Wave (1), and waves (1), (3) and (5) all make new all-time market highs. It is also pretty clear that all of the waves 'could' be considered zigzags. And, it would be hard to consider such a count as rushed. It has the right look for a diagonal wave.

So, we have the clear possibility of a top, but there is still one way, the NASDAQ 100 could not have topped, and that is in the A, B, C count, where C = A, below.

NQ Futures (2 Day) with C = A

In this case - just the C wave is an ending contracting diagonal. Still this case is pretty ominous because, it would suggest that the B wave will be soon exceeded lower.

So far, the only three factors I can see which suggest a possible all-time top is not in are: 1) the NY Advance-Decline line as not diverged from the highs. It would be atypical for a bear market to start without price divergences from the A-D line. 2) The Dow Transports, while not at all-time highs, do have a pattern of higher local highs, and we can not assume the upward move in them is over yet, and 3) it is more difficult to count the S&P500 as a top. It's not impossible, but it is more difficult.

From a timing stand-point, we are now within +/- six months of a Fibonacci (8) eight years since the March, 2009 lows - and that is plenty accurate for me. It was, after all, one of my key motivating factors for calling February 2016 as only the Primary IV (Circle 4) low in that the market had not had eight years to express itself as a bull market.

Could we go higher? Yes! It is possible. The A, B, C count up allows that only Intermediate (1), up has been made of a much larger contracting ending diagonal, and we are now in only Intermediate (2) downward. This is still a very, very, viable scenario, but obviously not below the February 2016 lows.

The purpose for this post is firstly to recognize a similar potential top in the NQ's, and to make sure these alternate counts of a potential top are clearly in your mind because there is not much discussion of them - and forewarned is forearmed.

Still we are not counting upward until we see clear five-wave sequences in that direction, and until the minute (e) wave of the Minor B triangle is exceeded to the upside. It is price that has to convince us to count upward - not the other way round.

For our part, we just remain flexible, patient and cautious as one of the biggest news stories in four years comes to dominate the headlines.

Cheers!

3 comments:

  1. Thanks Joe,especially for the long term Dow count chart. All the more reason to be very cautious.
    rose

    ReplyDelete
  2. Nice work and thinking TJ, Thanks

    ReplyDelete