Saturday, March 24, 2018

Bottom Torture

There are several who are claiming that a 1929-style or 1987-style crash is now imminent. OK. Fine. We see that as a possibility, but we wonder, how many of those claiming so actually would have counted the lead up to the crash in one of those markets properly.

As an example, below, we are showing you how we would count the 1986 - 1987 market to it's top. Ask yourself, seriously, if you would have even come close to this count at the time, knowing what we have tried to show you about counting Elliott Waves over the years.

S&P500 Cash Index - 1986 & 1987 - Detailed Count

Your count should start over on the lower left, with an expanding leading diagonal in five waves for Minor wave 1, and a 50% retrace for Minor wave 2. The 50% retrace is deep enough to allow Minor wave 3 to be an extended wave, and it is - at very, very close to the 1.618 Fibonacci extension level.

At that point, and this is critical, there is an abrupt down wave - which is interesting - but it is way too short in time to have corrected all of Minor Wave 3. It is part of the correction, but not all of it. I know people find it offensive, but what follows is a massive (b) wave of a running triangle - way more than 1.618 x (a), down. People try to count all of  this up movement as still part of 3, but that is not correct. It is more choppy, more curvy, and not as impulsive as the "straight up" movement in 3. And, the zigzags down to wave (e) would not alternate well with the sharp Minor 2.

Further, in examining this triangle, wave (c) occurs exactly at the 78% retracement level of (b), and wave (e) misses taking out the (c) wave low by less than 1 full S&P point, and, yet, it does - as is required by a running triangle - overlap the top of the prior wave 3. This is why I have titled this post, Bottom Torture. It may be similar to a situation we are in today. Look at how that triangle hammers at the bottom.

Then, after the (e) wave of the triangle, there is a clear five-wave movement up to the Top, which also occurs just barely past the usual technical target of the triangle - which is the widest width of the triangle added to the breakout point.

Notice within Minor 5, up, the fourth wave iv, is a "running flat" wave, showing the excessive power of the upward pull of the market.

So, here are some questions for you to think on. If you were counting waves in 1986 - 1987, would you have counted a nearly four-month triangle correctly? Or would you have been screaming for a crash at each of those lows?

And would you have counted the leading diagonal correctly? It is the "wind-up-before-the-pitch" that gives the market its power to rise nearly vertically in the next wave. Would you have arrived at a proper target for the post-triangle wave? And how about that "running flat" fourth wave, iv, within Minor 5. Would you have thought the move was over at it's b wave, and started counting with a i, down at that point? Yet, a running flat is in the right place at the right time, and serves to take up more corrective time in the count.

My point is this. Markets can play with us. They will do what they need to in order to fake us out and get us headed in the wrong directions at the wrong time.

Can today's market make a lower low on Monday or later next week? Absolutely. The only point of the above chart is to ask you to be careful about thinking the Elliott Wave count is what you think it is (and also to show that a triangle did proceed the 1987 top - whether that happens again or not). The above chart follows all of the Elliott Wave rules and most of the guidelines I am aware of. But the overall count is not visually apparent without work, study, and a prerequisite knowledge of the patterns and the rules.

When you have those in your grasp, I think you can see, then, how each of the descriptions of the above waves fits the wave personality for those points in time. You will also note in each case how the wave patterns try to keep waves 2 and 4 somewhat with similar or less net points traveled. Does that always have to happen? No. It just often has in the past.

Can a deep wave 4 occur in our current market? Yes. But, again, if we are ending a Primary 5th wave, then why is there no triangle or diagonal as of yet? Curious Elliott analysts want to know.

Have a great Saturday.
TraderJoe




32 comments:

  1. Thanks, this post was really helpful!

    As you mentioned in previous posts the best alternate for the tripple zigzag is W = i, X = ii, Y = iii, X = iv, and Z = v.
    What do you think about this view of W=i as a leading diagonal? (see pic). 5 is shorter than 3 which is shorter than 1, 4 is shorter than 2 and overlaps 1. https://invst.ly/6-g-n

    ReplyDelete
    Replies
    1. When I first measured it in the cash markets, 4 is longer than 2, negating a diagonal. Let me know what specific data points you are using.

      Delete
    2. 2: 2757,88-2777,38. 4: 2745,88-2762,62.

      With these data points "2" is ca 3 index points longer. I also think the form is pretty nice..

      /Erik

      Delete
    3. Yes, I re-measured in both cash and futures, and that contracting diagonal does now appear possible! Good one. I was looking at a slightly different diagonal. Thanks for the contribution! So far, that just reduces the complexity of the down move from TZZ to DZZ, though.

      Delete
    4. Thanks always fun to contribute. What if the LD is 1, the triangle is 2, and then another i-ii? With this view there’s no overlap between 1 and ii, or would this be a degree violation? The internals and momentum is speaking for this view.

      Delete
    5. I believe the second ii would be the degree violation if it is longer in points than 2. Also, wave 2's are not allowed to be triangles, but it is 'possible' it's not a triangle. It counts like one, though.

      Delete
  2. The Dow topped in 1929 at 386 points. It crashed 89% by 1932. Then, it took 25 years to recapture the old highs from 1929. By early 1980, the Dow climbed to 800, so it went up only 100 percent since 1950s to the 80s. What happened to the markets over the last eight years is far from normal. Anytime the markets skyrocketed this fast looking back 100 years, it crashed every time.

    ReplyDelete
    Replies
    1. You are making a broad generalization. Why don't you state what crash years "every time" you are talking about? Oh, and what is your current EW count for 2016 - 2018?

      Delete
    2. Joe,

      I appreciate your work 100%. But, it's important that we take a step back and understand history/cycles. Last March I called for a 20 to 30 percent massive rally by the end of the year and very few people believed in me. I based it on the 1920s analog. I also pointed out the last 20 years that the markets make big turns between Jan and March. A week ago I said everyone needs to be short before the market tumbled. We will have massive rallies ahead, but every bubble crashes. Mark my words, I guarantee the markets crash at least 40% from the top made in Jan and Nasdaq in March. It will happen between now and the end of the year. As far as the markets crashing (40 -50%) every time after historic gains: 1921-1929, 1932-1936, 1980-1987, 1988-2000, 2002-2008, 2009-?(2018). It doesn't mean we crash in a few days, it make take a few months to reach a bottom. This market resembles 1920s, every 90 years we have a depression cycle. I'm looking for a 80 to 90% crash before we bottom in 2020-21.

      Delete
    3. I am just suggesting that in 1987, as well as 2000 there were triangles before the top. Nothing more, nothing less, and I am only suggesting that we need to confirm a triangle is not occurring first.

      Delete
    4. Was there a triangle before the top in 1929?

      Delete
    5. Or a triangle before 2007 top? I believe odds favor a marginal lower low in the high 2400’s before recovering very quickly.

      Delete
    6. Tim, yes, as far as I can tell (and the data isn't easily available), in 1928 - 1929 Wiii = 350.09, wave (a) = 340, wave (b) = 350.26, wave (c) = 336.36, wave (d) = 359, and wave (e) = 336.16. Wave (e) was just under the wave (c) : and was just enough to form an 'expanding triangle' - not a contracting triangle. So (b) is higher than (a), (c) is lower than (a), (d) is higher than (b) and (e) is lower than (c).

      Delete
    7. Steve Walker - in the 2007 top; wave 3 or A at 1,462, wave (a) at 1,364, wave (b) at 1,556, wave (c) at 1,371, wave (d) at 1,496 and wave (e) at 1,440 to overlap the top at 1,462 for a pretty well-formed "running triangle". (typo in earlier response).

      Delete
    8. Thanks. And the Nasdaq has not formed a triangle yet?

      Delete
    9. Tim - With the higher high, the Nasdaq could form a) a truncated fifth wave, yet to come, b) a running triangle, c) an expanding triangle, or c) a diagonal .. but those have to be looked at carefully yet. There simply are not enough waves. That's it for today. It is The Fourth Wave Conundrum. 'Everyone wants to know what the count is.'

      Delete
  3. Hi TJ,
    Thanks for your posts.
    Q:I am not finding any problem with Nate lobg term count w.r.t waves

    http://natesmarketanalysis.blogspot.ca/2018/03/little-to-feel-bullish-about.html?m=1

    Can you please clear why you think P5 is pending in wave terms whenever you have time

    ReplyDelete
    Replies
    1. The extended fifth wave scenario is a viable one. That is the same as the EWI count at this point in time and is not unique to Nate. I have stated here that I wrote EWI, and told them how they could get the 'degrees' of the waves correct on their count. The only issue now is that IF that is not the correct count, and wave 3 ended at the high, then is the market forming a longer triangle for wave 4 - which is a rather common Elliott wave expectation.

      So again, the only question is are we forming a longer triangle in time for 4, or perhaps a longer zigzag to alternate with a flat 2.

      Delete
    2. Thanks.
      Clear like Crystal

      Delete
  4. ET, I have a question about a comment by "Pittsburgh Tom" on your previous post "Razor Thin". I didn't see a reply and wondered if it was an oversight? Appreciate everything you do!

    ReplyDelete
    Replies
    1. Hi John. Previously asked and answered in prior posts. P-T may not have read them.

      Delete
    2. ET, I show two comments by Tim and Pittsburgh Tom with no replies. I've reloaded the page a couple of times and it shows the two comments with no replies.

      Delete
    3. John C. My second reply to Pittsburg Tom can be found here. I will not repeat it. Elliott_Trader March 4, 2018 at 2:47 PM in the comments section.

      Delete
  5. Obviously if we go on to new highs then the EWI count ending the bull market is incorrect. This leaves me with the question of what would prove it correct? If we wait for an overlap of minor 1 to prove the current down move is not minor 4 that is a long way. We've discussed a degree violation as another sign. Is there anything else that would confirm that the top is in?

    ReplyDelete
    Replies
    1. Well. First I'm glad you recognize a degree violation would do it. That point was hard to discuss just a year or so ago. Second, a truncation where there 'are' five waves up would do it. Also, say, a failed diagonal in the NQ and/or RUT. Those would not necessarily make a new high. A larger zigzag down, and five-up to over a 78.6% upward retrace in the S&P500 would also qualify as a truncation.

      Delete
  6. Simple observation about SPX wave 4 triangle, market must recover immediately Monday for it to remain valid. If not, scrap it.

    ReplyDelete
    Replies
    1. And it’s fair to say it recovered immediately so triangle alive and well!!

      Delete
  7. I still favor the count I posted on the Thursday update:
    abc from 2802-2695, and then another abc back up to 2739, and then an impulse wave down from that point. The 1.618 extension=2566. The 2.618 extension=2459.

    Obviously, we all know that 2435 would be a degree violation on a percentage basis, and if that happens, then it makes things confusing, because I still see 1810-2872 as 3 waves, especially since it hit the 2.618 extension on the nose. Also, the 9 previous times the market had a sustained and relentless momentum driven rally (like we just had for 15 months,) all of them finally stopped and corrected 10%-15% and then did another rally leg to sustained new highs. So, if the Jan high turns out to be THE top, which is certainly possible, then that will be the 1st time a top occurred like that.

    ReplyDelete
    Replies
    1. This looks like a good count. Will be nice to fill the gaps from last week.

      Delete
  8. Also keep in mind guys. This is the perfect setup for NY adv decline divergence that you see in the majority of all tops. And this will be the mother of all tops we'll see probably in our lives. So I agree with Joe. I expect a new high to crush the early bears and trap the bulls.

    ReplyDelete
  9. The bears were crushed last year. The bulls have a major problem ahead. The Fed is pulling out 50 billion a month by Oct from the balance sheet. The Fed will raise interest rates two more times this year. Trump will issue more and more tariffs going forward. The bull market historically has little time left. I think we will see the largest margin call in history this year.

    ReplyDelete