Saturday, March 17, 2018

How You Can Tell - 11

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher; NDX, NQ lower
SPX Candle: Lower High, Higher Low, Higher Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

In the category of you can't extract blood from a stone, you also likely can't get much more information from the market than it offers. So, there is not much point - at times like this - in beating one's head against the wall looking for more clarity than we can get. But I do think it is essential to see what information is there, and not throw away any that is there.

With that in mind, here is the chart of the S&P500 Cash Index - 15-minutes that we have been working with all week.


S&P500 Cash - 15 Minute

This chart essentially says, "we have spent two days going downward, and, after breaking the downward channel to the upside, spent two days going sideways."

We counted out for you in near real time, the A wave down, and the B wave "running flat", all based solely on measurement and structure, and not based opinion. The C wave down - also based on measurement - best counts as the ending contracting diagonal shown. It fits all of the rules and leads to the right conclusion: the upper parallel trend line will break - which it does.

Next, beginning on 15 Mar, there is the break of the channel upward, and a divergent back-test of it downward, which actually makes a lower low in the S&P500 (but not the DJIA), and then a very sideways structure, currently, to which one might try to draw some trend lines. We have sketched in some.

Before we go on about the possibilities for this wave, we will note that, at present, as a triangle it is not very well formed yet. Even to the untrained eye, I think one can see it is not entirely symmetrical yet: the top line is flatter than the bottom line. Also, it is possible to count the up portion from 15 Mar to 16 Mar as a five-wave-sequence or as a three-wave sequence. So, that alone generates some caution. But, we don't exactly know what will happen before the FED meeting this week, and so a triangle could get better defined, or the trend lines could be a good effort, but still just an illusion, and the pattern will break unexpectedly in one direction or another.

So, here are some of the possibilities for this structure. From an A-B-C down, if sideways movement continues, and a triangle is better formed, the triangle could be an X wave, with a further A-B-C down yet to come - to allow the daily triangle on the DOW to extend it's lower trend line further lower. The same with the daily S&P 500.

Equally possible, if the potential triangle prematurely busts upward, is an X wave in the form of another flat. And that is because of the lower low following the C wave. In that case, the middle leg of the potential triangle is, in fact, and impulse, and - provided a new cash low is not made - then the down movement at the end of the day on Friday is all or part of a second wave lower. Further, there has not yet been a 62% upward retrace of this down wave.

Next, because, with the DOW's downward overlap, and a very ill-formed upward channel on the S&P500 it seems less likely that this is a fourth wave of the upward progress, as currently structured. Again, a fourth wave of an impulse is impossible in the DOW, but might be possible as a larger triangle in the SPX. But this is now pretty far down on the list. Remember, the DOW and the S&P are fully out of synch wave-wise because they topped on different days. It is even possible, because of that extra wave in the DOW for it to make a non-overlapping impulse down.

There are few technical clues. I mentioned the DOW's weakness relative to the S&P. Another one I see was the NDX was a bit weaker in the last session than other indexes. Again, due to The Fourth Wave Conundrum, it is hard to get or present more information than is available.

So again, be careful, cautious and patient until things clear up just a bit.
And have a good start to your weekend.
TraderJoe


5 comments:

  1. It was reported last week the markets saw the biggest inflows ever and the markets didn't move much. Joe, as you mentioned, the markets are diverging. I think that's the biggest indicator that the top is in on the Dow. Look at the year 2000. Dow topped in January and the Nasdaq in March. The FANG stocks are the only thing holding the market up. The market sent a major warning shot in Feb. The crash sure looks like it's around the corner. Everyone is bullish again. This is an opportunity of a lifetime to short the market this upcoming week and wait for at least a 30-40% crash to cover. Any rally everyone needs to add heavily to the short side. My stop is the Dow making new highs...not going to happen with Trump and his trade war with China. Trump is the biggest gift to short sellers!

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  2. DJIA from 180227 high to 180302 low can only be counted impulsive? Where is the B wave that makes is possible to count a zigzag? If this wave is impulsive it invalidates the potential triangle from 180129 high, IF it's not part of the C wave down of the triangle..If so the C wave would be the complex wave of the triangle as a zigzag right? For this zigzag wave C to validate it as to go pretty far below the A wave of the zigzag ca 24220 (cash), BUT this would make the triangle to look very asymmetric? As you said the alternate for the triangle is the impulsive iii of 3 down so I guess we can rule one out pretty soon.

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    1. The wave from 180206 low to 180207 high on Transports reaches just above fib 38.2 and the wave down from there only goes to 61.8 of 180116 high - 180206 low which makes it very hard to count anything else than an impulse? This strengthens the scenario of an impulse on SPX and DJIA if they aint to diverge unusually much

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    2. The wave from 180206 low to 180207 high on Transports reaches just above fib 38.2 and the wave down from there only goes to 61.8 of 180116 high - 180206 low which makes it very hard to count anything else than an impulse? This strengthens the scenario of an impulse on SPX and DJIA if they aint to diverge unusually much

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    3. This thread makes no sense to me.

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