Saturday, September 17, 2016

OEW has Lost It's Lunch - a Fibonacci Five Times Now

First came the 2015 highs in which we indicated an ending contracting diagonal as early as February of that year, which would have started in November of 2014 and continued through May of 2015. We were looking for this structure to end a fifth wave wave up. It did. OEW called for a large third wave higher to 2,200 to 2,500. It didn't happen. Prices plummeted into August instead, agreeing with our call.

Second, came the December, 2015 up wave which OEW said was almost certain to make new highs because every Primary wave before it had and that they were simply constructed (in it's view). We said, it was likely we were in a B wave up, and the B wave would likely not make a new high because of alternation with the flat wave in 2011 - 2012. Then, when OEW did not get it's new high, it called for a truncation instead, flipping around and saying the truncation wouldn't be exceeded. It later was. Wrong again. Wrong on both counts!

Third, came the February 2016 low where OEW called this tune: "When this uptrend concludes, we are expecting the bear market to start making new lows during the next downtrend. Longer term we are expecting the market to lose 45% to 50% of its value during this bear market. Ending sometime in 2017 around SPX 1100." Really? 1,100? We on the other hand clearly and unequivocally wrote in the OEW forum, that the low was Primary IV and new highs were to be expected - which as you know is what occurred. We even pleaded with the author who had told us, "the universe unfolds in octaves". Our reply was, "well if the universe unfolds in octaves, then why won't you allow a Fibonacci eight-years (from 2009) for the bull market to complete?" Silence was  the reply.

Fourth came the latest new bull move Crude Oil call, on August 23rd, with prices at (close = 48.52) in an article called Crude and the Commodity Cycle. OEW calls for this bull market within the context of a larger bear market and says, "This suggests an upside target between $70 and $85 by the year 2020." Sounds good, right?! Wrong again. Since the article appeared Crude has declined over 10% in value and is sitting at $43.23 with new daily lows. Who makes a bull market call with a 10% decline staring you in the face, unless you clearly indicate that is the likelihood, first? But that isn't the only problem with the OEW analysis of Crude Oil. The larger problem is that OEW looks back more than 50 years to fully 1970 to begin it's wave analysis. Isn't that thorough? Ha! Anyone hear of Nelson Rockefeller? Or of Standard Oil Company? There certainly was Crude Oil trading before 1970, and lower than $1 per barrel. Crude prices in the 1930's were under $0.70 per barrel according to the EIA data. So, this whole wave analysis is woefully incomplete, and likely incorrect. In fact, the OEW analysis only really starts near the time of the first OPEC "oil shock", likely right in the "middle" of a third wave. And OEW ignores the 1990 Kuwait Invasion with prices higher by only $1 per bbl. As a signature "b" wave within a fourth wave decline, it would be a key to a successful analysis of where we are today if OEW recognized it.

Fifth comes this weekend's latest OEW treatise on the disparity of the various stock indexes, which has been going on for months now. OEW has really lost it's lunch this time saying that the New York Composite Index is trading like a foreign stock index?! Really. Let's see. The DOW has 30 stocks in it's index, the S&P 500 has 502 stocks in it's index (with very little foreign content), the Russell 2000 has 2000 stocks in it's index, the NASDAQ 100 index has 107 of the largest non-financial companies that trade on the NASDAQ market place, and the Wilshire 5000 has virtually all of the stocks that actively trade in the United States. By comparison, the New York Composite Index includes over 1,900 stocks of which over 1,500 are U.S. based companies. It is very clear to even the most novice critical thinker that, because each index represents vastly different baskets of stocks, some of which trade on some exchanges, and some of which trade on other exchanges, they will trade slightly differently! Yet, the OEW claim is that the S&P500 can not be in Primary V because the New York Composite represents some foreign companies and is, itself, in Primary V. I was going to say this is the most twisted logic I've ever encountered. But it is worse than that. It's not even logic! It is words written on a page, apparently to sell a service.

You'll note that this blog is not sold for a fee! We don't even ask for donations. We're not selling a course. And for a reason. Our primary aim is to be objective and see what Elliott Wave can really do for us if we let it. So, without further delay, we'll just provide this hourly chart of the S&P500 Index.

SP500 A,B,C Zigzag Complete or Not?

Since the truncation top, our position on the market has remained that, "risk in the market has gone up" as it now takes more points to validate a wave than when were were trading from 2165 to 2195. We are pretty sure the market is only making a corrective sequence lower to Intermediate Wave (2) of a diagonal wave for Primary V. As such, Intermediate Wave (2), shown here on the hourly chart, should be a pretty simple A, B, C zigzag wave, and this one is - albeit the B wave got quite complex, that is fully allowed.

The only clues we really get are that 1) the upward retrace is only 61.8% and has not overlapped wave 1 down at this time; 2) the Elliott Wave Oscillator is in the correct position to indicate a fourth wave - by not traveling beyond -40% on the other side of the 3, or C location (as of yet); 3) right now, we have lower highs, but no real lower lows; 4) the B wave back at the 2187 level is so complex, it would appear to be the correct wave sequence of a zigzag, not, instead, as the second wave of an impulse lower, and, 5) remember second waves of zigzags are usually sharps, and this B wave is a FLAT wave.

So, we are in the situation where the C wave may have completed, and completed with the overlap we noted in the DOW, but not in the S&P. And that would be at the low on 12 September. But it is very, very difficult to count it that way. As a result, we have discussed in live chat and yesterday in the comments of this blog, that it is possible we are forming a triangle to the downside. This potential triangle may be a "pre-FED meeting triangle", but it must, again, prove itself. Such a triangle, if it completed properly, would be the fourth wave of the C wave of the zigzag, and it would indicate "last wave down dead ahead".

Right now, in the S&P 500 cash, there are enough waves and sufficient overlap to conclude a triangle has actually finished, but then a thrust down out of the triangle would be required. Yet, triangles are usually noted for taking time and moving prices sideways. And, if that's the case, there are two more ways this triangle could develop. The first way is that another wave immediately forms along the lower wave 3 barrier (putting this triangle in the class of barrier triangles). Or, further up movement could cause the triangle to expand higher one time - in an attempt to fill the gap - and form a larger (c) wave of the potential triangle., before coming back down to the barrier to form the (d) wave.

Either is completely acceptable in terms of Elliott Wave logic, but it is very, very difficult to predict. That's why the old Elliott Wave maxim goes, "Trading in Triangles is Treacherous". Given that there is a FED meeting dead ahead - from a wave counting perspective - perhaps it is wise to let the market initially sort this one out! (No trading or investment advice is intended, provided or to be inferred). Anyway, from a wave counting perspective, that is our approach.

Have a great weekend!