With the "almost" new high on the SPX we are slowly moving into my much awaited target zone of 1480-1500SPX. I have been tracking a potential ending diagonal on the SPX and with some of the other US markets showing similar patterns, I knew sooner or later the SPX would need to play catch up.
As usual those that forced 3 wave declines as 5 wave moves
got run over as the markets have rallied back to test the Sept highs. For me it
was a no brainer, the European markets had exceeded those highs some weeks back
and one by one markets like the RUT, XLF, and NYSE exceeded those highs,
it wasn’t going to be long before the major indexes in the US played
The DOW and the COMPQ are still behind their respective 2012
September peaks, so with approx 200 DOW points needed to exceed that Sept 2012
peak, the SPX probably pushes a bit higher towards 1500SPX.
You don’t need to be an Elliottician to notice the bearish
looking wedge shape seen in many US markets, just pull up a chart of any of the
major markets such as RUT, XLF, NYSE etc to see this shape.
I have been expecting a new low in the VIX as the SPX pushes
to new high, it amazes me how many people simply ignore history and feel deflated,
especially bearish traders, the very fact that many have been ran over trying
to sell into this current rally from November 2012 only further supports my
thesis that you need the majority to be bullish at a market peak looking higher
before a substantial reversal can be seen.
Is this chart screaming a buy signal? Do you really want to buy at the highs knowing
what has happened prior to the VIX reaching these levels, or will you succumb to
the media hype that is always seen at the top and whenever a market makes new
The media is ALWAYS bullish at the top of a peak, in fact I would
be troubled if I never saw bullish sentiment, but just like the prior peaks, it
seems many traders and investors fail to look at history and use that information.
At the very least the bulls should be cautious as if history is any guide, the
prior times the VIX has seen these levels a significant peak has been seen.
I am not one to fight price, but when I see clues such as
the VIX as multi-year lows and other markets making multi-year highs, my radar
goes into caution mode.
Although I am not convinced a high is in place just yet,
just based on the DOW needed to exceeded its Sept 2012 peak it would need a bit
higher in some major indexes, which brings me to some other clues I want to share,
which could be beneficial to some readers.
Although I understand the negativity towards Elliott wave,
but like all skilled professionals, we are not the same; some Elliotticians don’t
have some perma bear bias where we are looking for wave 3 to DOW 1000 at every
peak, and the end of civilization.
I like this idea a lot; it looks like a potential ending
diagonal (bearish wedge) and if my analysis is correct it needs to stay under
$56.66, although I would like to see a rejection and reversal under the $55
A strong move under $48 would suggest a high in place.
Since its IPO it appears to be a 5 wave advance which is important
as I suspect its entering into a stage where it’s going to see a substantial correction
and one that I think will take it back to the $45-50 area.
If you look closer you can see the bearish wedge shape which
suggests a terminal phase that coupled with a 5 wave advance suggests the trend
is nearing a termination point.
I have been monitoring this stock for a while and it’s still
not pushed high enough to count it completed, as I would much prefer to see
this stock hit a new all time high. If you look closer once again you can see
the bearish wedge shape, which we Elliotticians call an ending diagonal.
Its partner in crime has a similar pattern and what looks
like an ending diagonal as well (bearish wedge to non Elliotticians). A new
high is needed and a new all time high would setup the stage for a substantial reversal
expected to take prices back to the $55 area.
Those are just a few stocks of a list that I am watching and
many others have similar topping patterns, which suggests that the major indexes
in the US are in my opinion carving out a major top and the rally from March
2009 appears to be nearing a climax. Based on some major stocks, I am seeing
broad range of stocks suggesting the same message, not to mention patterns in
other indexes such as RUT and XLF.
So bulls do need to pay close attention, although judging
from this chart it seems not, and I wonder if the bag holders have finally been
found for Wall Street?
That's a nice way to end the top of a trend.
Until next time
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