Thursday, March 22, 2018

Tariff Day

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

Yesterday, we stated, "Below the recent 2,695 low and triangle possibilities may be extending lower, or worse. We'll address those latter possibilities if and when needed."

Today, the 2,695 low was indeed broken in the S&P500 cash index. That occurred on the market open. Clearly, the i, up, ii down possibility did not hold, and was invalidated.

Cash closed yesterday at 2,712 and with the news of the tariffs being imposed on China, stocks opened gap down -21 points lower at 2,691, and traded down to 2,679 in the first ten minutes, then bounced to 2,694 by 10 AM, and turned around and headed lower to 2,661 by noon. At that point, there was another rally attempt to 2,691 which failed, and stocks then sold off to their 2,641 low, and closed at 2,643.

We show you the chart below only to remind you that we cited that if price began to break down into the 78.6% retracement level, it would be a condition of "Fire Danger", it would only take a spark to set it off.

S&P500 Cash - 30 Minutes - Broke the Daily Low

That spark was apparently the tariff news.

Both the DOW and the S&P500 made new daily lows today, and new lows for the month of March. The NQ futures came close, but had not by the settle. They easily could.

The DJIA is now just shy of its 78.6% Fibonacci retracement level on this wave down, of its up wave from Feb 9 to Feb 27. And the same concept above applies to the Dow. If price trades much beyond 80% it should be considered as in the same danger zone, as above, only on the daily chart.  The S&P500 is just shy of it's 62% downward retracement.

So, a larger triangle or taking out of the Feb 9th lows is now in play. I do not know that the Z ? wave of a triple zigzag is completed, yet. The best alternate for the count is that W = i, X = ii, Y = iii, X = iv, and Z = v. One thing I do not like about the count as a triple zigzag is that there are no overlaps. But, it is very hard to count wave i off the top unless it is a very, very compressed leading contracting diagonal. I tried to count it that way in real time, and it did not have very good form. Remember, it is the (c) wave of a triangle that most often has the most complex wave structure to it.

And, the down wave takes longer in time than the up wave - which would also still fit a triangle's internals very, very well. I am not advocating for a triangle. I am trying to "rule one in" or "rule one out". So, we'll have to see how the DOW holds up against the S&P over the course of the next few days.

In no case can the Dow make a lower daily low that February 9th, and still be in a triangle. Same with the S&P. The daily ES futures closed below their daily Bollinger Band, and the daily slow stochastic closed in over-sold territory. So, while the price bias is down, it is also in a region where one 'might' expect to close lower again only about 5% of the time. Could it happen? Absolutely. Simply just keep the odds in mind.

The advance-decline line finished at 572 - 2,420 (or 1 : 4.2) which is entering the impulsive territory.

So, again, be cautious, patient and flexible. And have a very good start to your evening.


  1. The bulls got what they deserved today! Bulls haven't seen anything yet! This is a 1929 market playing out. Big crash around the corner. Looking for a 40 to 50 percent crash from the highs made this year before I go long. Staying short for the margin calls times!

  2. I tried every way known to mankind to count the initial decline from 2802 as a LD, and it's impossible to do. Plus, the next wave was a triangle. So it's a symmetrical abc from 2802 to 2695, and another symmetrical abc back up to 2739. But we can easily be in an impulse wave down from there, and there is no limit as to how far it can continue to subdivide.

  3. ET,
    Thank you for showing this!
    We are on our 8th down AC bar so lower low below February 9th need to happen next few days or so. Dow looks most bearish whereas Rut is holding up just above 61.8% 3-2-18 low. Indices may end up taking different patterns before it's over. This marks the 8th week from our peak still little short (in time) I think. I don't think Vix followed today's drop. Would have expected more.

  4. Glad I called the margin calls! Still looking for a crash in the next few weeks.

    1. So your bearish? No more upside all down from here?