Friday, March 23, 2018

Razor Thin

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

By the narrowest of margins, the Dow Jones Industrial Average, cash index, just missed making a new lower low below the Feb 8th low.  By 173 points, the DJIA stopped (today) shy of it's 23,360 low. That is less than a day's trading. In the process it retraced more than 90% of it's up wave to Feb 27.

Looking at the DJIA futures, on the weekly chart. This put's the futures skating right on the channel up trend line, of course.

DJIA Futures - Weekly - Sitting on Lower Channel Line

This is a very precarious position. The margin is razor thin - even thinner than above in the cash index. Some of  today's metrics include: once again, about four times as many declining issues as advancing issues; more new lows than new highs; and more declining volume than advancing volume.

The S&P500 Cash Index stopped for the day just below it's 78.6% Fibonacci retracement level. If the market wishes to form a triangle here, it can do it. But, the odds to do not favor it without first seeing higher high days.

If you use the ES S&P500 E-Mini Futures, the daily swing line is still downward, and price closed under the 18-day SMA, the 100-day SMA and lower daily Bollinger Band. The daily slow stochastic is in over-sold territory, but there is no sign of it curling up yet. So, the best conclusion is that momentum is currently pointing down.

The yellow area on the chart above is the daily / weekly fire danger zone that I wrote about in several of the prior posts. Keep your eyes on things closely.

Have a very good start to your weekend.


  1. Leverage today is so much higher than anytime in history, so expecting anything less than a crash is irresponsible and dangerous for your wealth. Buckle up!

    This is what I said last Saturday:

    "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!"

  2. I wanted to go back and visit a discussion regarding degree violation which was had on the Feb 12 post. The premise was made that a minor 4 wave could not be larger in points than a primary 4 wave. I believe this was a typo and meant to say that minor 4 could not be larger than an Int 4 wave. I and several other followers disagreed with this at the time favoring a percentage comparison as the correct measurement over raw points. Now that we are approaching the Feb 9 low I think it's a pertinent conversation to have again as we now face the possibility of being in a minor 4 wave vs the bull market having ended.

    I want to reference here the EWP book, page 69 in my copy which is an older book and the page might be different in the newer versions. In any case it is the last paragraph of the "Charting the Waves" section of chapter 2. It clearly states that waves should be compared on a percentage basis as opposed to raw points, and provides an example. Based on that information my calculations follow.

    Int 3 topped at 2135
    Int 4 bottomed at 1810
    Points traveled 325
    Percentage move 15.2%

    For Int 5
    Minor 3 toped at 2873
    2-9 low for minor 4 2533
    Points traveled 340 (Greater than int 4)
    Percentage move 11.84% (less than int 4) not a degree violation

    To have a degree violation te SPX would have to close below 2436 which would represent 15.2% move off of the high of 2873. So I contend that there is plenty of room to have a zig zag minor 4 and not violate degree.

    1. See the reply at Elliott_Trader March 4, 2018 at 2:47 PM in the comments section.