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Showing posts with label SPX. Show all posts
Showing posts with label SPX. Show all posts

Sunday, December 7, 2014

Elliott Wave Analysis of the SPX

I posted a short term count on StockTwits a few days back see here:


It never spiked higher as I thought it might, it appears that it could be morphing into a small wedge, we call that an ending diagonal, if that is the case, it can suggest a termination to the rally that start from the October 15th lows. Ideally if I had my way we would see a minor high, then a strong reversal, if a strong gap down under 2060SPX that would support the idea of a potential peak in place.

I am still working the idea that the move that started from the October 2011 lows is potentially coming to an end, that would suggest a significant decline is setting up. A decline that I think will surpass the move we saw in September - October 2014. Already I reading the same sort of comments that I was reading at the Sept highs, I was looking for a significant decline back then.

With the market struggling to break above the upper trend line, it think its a sign suggesting a decline is setting up. In a trending market, 4th waves tend to spike under the lower boundary of the trend channel only to see it move to the upside to finish a 5th and final wave.

So the September-October 2014 decline I think is a larger 4th wave and we are now likely in a 5th wave.

I am targeting the 1800 - 1750SPX area as the initial 1st target

Sunday, November 16, 2014

Elliott Wave Analysis of the SPY (SPX)

I decided to get the book out and look at a detailed look at each of the characteristics of a 5 wave impulse wave and see if it fitted well to the move we have seen from the Oct 2011 lows. Its my belief that we are nearing the end to the trend from the Oct 2011 lows and a significant decline is setting up.

I initially thought we had a peak back in Sept 2014, you can read that here: http://wavepatterntraders.blogspot.com/2014/09/brk-vs-spx-where-buffett-goes-so-does.html

However with the last rally I have been forced to adjusted the idea. whilst its was a great move that I forecasted it was not the move I was expecting. I am expecting a larger move than 200 points on the SPX.

Lets take a look at the chart and see if we can cross reference the thoughts at the time to what we have now.


1) Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish, put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts.

I think we can all agree, at the time it was very bearish, and the bounce was considered a "dead cat" the bears were expecting much more downside as the next bear market hard begun or so the bears thought. So we can tick the box on that wave.

2)  Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern.

Well wave [2] did correct wave [1] and that would have got many bearish as that's what a 2nd wave does. Volume was lower as well, prices retraced around 61.8% of the prior wave [1]. So we can tick the box on that wave.

3) Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1.

Well we can count a large 3rd wave, the news was getting better and more positive economic reports were seen, even earnings were getting better if you believe the financial bubble media. Hardly any pullbacks so that's a characteristic of a 3rd wave as well. By the mid point many are joining in and "buying the dip" aka BTD or was it BTFD. I cant remember these days, there is a new one as well which is BTFATH. Wave [3] is longer than a 2.618 extension of wave [1]. So we can tick the box on that wave as well. 

4) Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three (see Fibonacci relationships below). Volume is well below than that of wave three. This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, fourth waves are often frustrating because of their lack of progress in the larger trend

Wave [4] is clearly a corrective decline, its in 3 waves, so that's the definition of a correction, its not in 5 waves, hence we are seeing a new ATH. In a strong uptrend when a 3rd wave is far more than a 2.618 extension of the 1st wave, we tend to see shallow 4th waves around the 23.6% of the 3rd wave, that's an acceptable 4th wave target. The Oct 2014 low was almost a 23.6% correction of wave [3]. The only negative is there was no alternation between wave [2] and [4], although not a rule it would have been nice to have seen that. So we can tick the box on that was as well.

5) Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak). At the end of a major bull market, bears may very well be ridiculed (recall how forecasts for a top in the stock market during 2000 were received).

Well the news is "almost universally positive"  Investors have now bought into the trend (see the last weeks readings )

Survey Results

Sentiment Survey
Week ending 11/12/2014   Data represents what direction members feel the stock market will be in the next 6    months.
Bullish 57.9%
up 5.2
Neutral 22.8%
down 9.5
Bearish 19.3%
up 4.3
Generally this is considered to be the reading of the public I believe its a new high since the Oct 2011 lows. so the "public is on board". What can go wrong?

Volume is showing a clear trend moving lower as price moves higher. We have many momentum indicators showing divergences, and the bears are well and truly being ridiculed, if you mention that the market can move lower you are labelled a pariah, i have first hand knowledge of this, i was suggesting (although telling members to expect a strong decline) to people that the market was setting up for a significant decline in Sept 2014, only to be abused. so we certainly have the bears being abused and laughed at. So we can tick the box on that wave as well.


I believe this is a standard text book 5 wave impulse from the Oct 2011 lows and I think the risk for a significant decline is very high. so i strongly suggest anyone that is invested, take appropriate steps to protect yourselves, You saw how fast these markets can unwind, the Sept -  Oct  decline was speeding down before anyone even thought about a correction and fooled many. The next decline may shock many.

Time will tell.

Monday, September 15, 2014

BRK Vs SPX (Where Buffett goes so does the SPX) Update

This is an update to my prior update http://wavepatterntraders.blogspot.com/2014/01/brk-vs-spx-where-buffett-goes-so-does.html

Initially i thought we may have a potential peak in Jan of this year for this stock , thus i was going on the basis of a potential peak for the SPX. However seeing as the SPX has continued to push higher, its inevitable that BRK was going to follow higher. As you can see essentially BRK is the SPX (or vice vera).

However having followed the SPX higher for the last few months i though it would be a good time to review BRK and see if it offers a clue to the direction of the SPX. I can make the case (well for the bullish case anyhow) that its close to ending wave [3] and a potential decline for wave [4] is close by. If the SPX pulls back in wave [4] we should see BRK pull back in sync,I estimate around 110 can be seen,  there are enough gyrations to warrant caution now for the bulls.

Both the SPX and BRK have met a 1.618 fibbo extenion which is a common area for a 3rd wave

Saturday, September 6, 2014

Fun Facts About History

For those that refuse or shall i say dont believe we are in a bubble i would like to bring your attention to some interesting facts. Whilst this facts alone are not sell triggers i do find it ignorant of others that fail to use history as a guide.

Both time and price "screaming" a warning for those that are interested in understanding history.

The last prior crash to the 2000 high was the 1987 crash, if we take a measurement from the 1987 lows until the 2000 top and add the distance to the low of the 2009, we get a nice target that has just been hit at 2005SPX,that took a total of around 13 years, the current move is into its 6th year.

Around the beginning of 1995 it starts to move higher but the ascent is much steeper. If we take the angle and add it to the 2009 lows we can see the angle is virtually the same as the current rate of ascent.

Time wise the move from 1995 - 2000 took 63 months The move from 2002 - 2007 took 60 months, the advance from the March 2009 lows is past both those time advances (currently on month 66), so if the prior advances lead to a crash, why would this time be any different?

I remember both the 2000 and 2007 peak, good news was abundant back then just as it is now. If anything the angle is far worse than the 2000 and 2007 top.

Its never a bubble until after the fact, just ask stock traders at the 1987, 2000 or 2007 tops or what about Oil traders in 2008 or the Gold and Silver traders in 2011.

If seems no matter how many bubbles we get, traders have amnesia, greed does bizarre things to peoples memory.

So if it was a bubble in 2000 and 2007, why is it not a bubble now?.

Sunday, August 31, 2014

Elliott Wave Analysis of the SPX (update)

This is a update of the last post.

The trend from 1904 appears to be be in a final 5th wave, short term above 1999 targets higher, if a small gap up (some European markets argue for strength on Monday) then it can suggest  its in wave iii of [v], so we should see a decent move of around 10 points or so.

There are other markets like OEX, NYSE DOWCOMP & TRANSPORTS that have still yet to make a minor new high, so next week i think we see the final finishing touches to the upside.

 The bulls have had a good run but now is not the time to be complacent, the potential for a strong reversal is very real. I forewarned readers about a reversal prior at the July highs see here: http://wavepatterntraders.blogspot.com/2014/07/elliott-wave-analysis-of-xlf-spx.html

I am expecting a much larger decline once the move from 1904 is finished. Using the SPY, we can see that we have a 5 wave move from the FEB 2014 lows, the volume on this last move has been considerably lower, that's the hallmark of a terminal 5th wave.

Sunday, August 24, 2014

Elliott Wave Analysis of the SPX (update)

This is a follow up to the last post on the SPX http://wavepatterntraders.blogspot.com/2014/05/market-report-are-you-ready.html

Back then i was looking at a possible ending diagonal to end wave [5], although i wont bore readers with what happened next, suffice to say its morphed into a ugly impulse wave. Not exactly as i would have liked, but this market has been relentless and destroyed the bears.

Back then i was looking for a number of things to happen, we never even came close to confirming the ending diagonal as it morphed into a 5 wave looking impulse wave. Obviously it stands to reason that we  had to adjust our bias and follow the market higher again. Its now once again that i suspect the bulls need to be very careful as we could again be close to completing a large 5 wave advance from the Oct 2011 lows.



The short term chart suggests that above 1963SPX targets more upside, its a few gyrations short of a completed 5 wave move for wave 5 of [5], so it likely sees the 2000 - 2020SPX area before it would appear completed.

Its then that i think the bulls need to be very careful about the dangers of a strong decline. A decline that could see the 1700-1650SPX area tested. A near 3 year up trend has likely converted most traders into thinking the market can "never go down" they said the same at the 2007 and 2011 peaks.

The market has a nasty habit of changing its mood at unexpected times.

Interested in following our analysis? $20 a month gets you access to charts and edges like this and much more.

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Saturday, July 19, 2014

Elliott Wave Analysis of XLF & SPX

From the 11th April lows both the XLF and SPX appear to be working an impulse wave, the Elliott Wave structure suggests that a new high is to come to complete the cycle.

An impulse wave consists of 5 waves, I suspect the last few days the SPX and XLF have been inside a messy sideways triangle and probably started the 5th wave"thrust" to new yearly highs. A triangle is a nasty pattern to trade, but to an Elliottician its a great clue, the most common position for a triangle is a 4th wave.

So just by knowing that we can summarize that the SPX and XLF likely still have a new high to come for a 5th wave and end a 5 wave move from the 11th April lows.

That will then setup for a reversal. So the trade short term is to try and get in early for the "thrust" (so buying longs) or if you are looking to sell, I would wait for the new highs, then sell those highs.

The RSI is confirming that the move we have seen is likely a 4th wave triangle, so we still need new highs to complete its cycle. Once we see a new high on the SPX the next target after that is around 1920-30SPX, this cycle is part of a larger 5 wave move that started from the Feb 2014 lows.

Interested in following our analysis? $20 a month gets you access to charts and edges like this and much more.

Go to wavepatterntraders.com to check out the packages.

Sunday, May 25, 2014

Market Report: Are You Ready?


In my last article I wrote that we were looking for more upside, the SPY and ES are the first markets to confirm the upside move we have been expecting, although the SPX has yet to confirm a new all time high, the DAX and DOW are likely to confirm the move that we have seen on the ES and SPY. Both the DAX and DOW have similar patterns to the SPX but they need a bit more upside, which I think will be seen this coming week.

For the last few weeks I have been monitoring a potential ending diagonal and in the face of all the bearish news the bulls did what was needed and really stuck it to the bears. As I mention numerous times to members, news is just garbage and those that use the news to make trading decisions are likely to be on the wrong side of the market direction.

The bears have tried to use virtually every conceivable excuse to look to sell, but the stubbornness of the markets have completely wrong footed those that were convinced of a sell off due to the Crimea or Ukraine conflicts. It just goes to prove that the news is garbage and price and patterns are more important. Well they are to us.

Simply put the market was suggesting it wanted higher, patterns also confirmed it wanted higher, and here we are, just about to make a new all time high.

It’s now that I am warning members not to get too overly bullish on these markets, if I am right about the ending diagonal, we are likely a few days away from completion and a strong decline setting up, with the media all gleefully happy about the market sitting just under the prior all time highs, now is not the time to be throwing caution to the wind, whilst I have been warning members not to be getting too bearish, as soon as we get a new high its then I will be looking to jump back into my bear suit.

If you recall as the market sold off in April, the media was convinced that it was starting a 10% correction. What about “sell in May” that everyone was so convinced of, sell in May huh! More like spank the bears in May.

We at wavepatterntraders simply follow what we see; we don’t confirm to any market statistics, if the markets suggest they want up, we will follow it higher. Likewise if we see a setup that can suggest a move lower we will look to sell the market, we feel that such an occasion has presented itself once again and we are looking to try and capitalize on that just as we did on the January puke I warned about.

If the market is finally ending the trend from the Oct 2011 lows, then we can expect to see a target initially towards 1750SPX, but suspect we could see towards 1600-1550SPX, our focus now is trying to confirm that this ending diagonal idea is coming to an end and try to get positioned for a large decline.


We have also been watching a possible timing peak window, a 53 week cycle (+/- 2 weeks) seems to be a common theme for this market, so that’s a potential clue to suggest the ending diagonal could be very close to completion and see the much awaited pullback everyone expects, although I think with the market making new all time highs, I would dare say not many are not expecting a “swift swoon” a decline that could really shake up the bulls.

The furthest thing on the bulls minds is a sell off, if the ending diagonal is correct, hold on to your hat things are about to get a little uncomfortable for our horned friends.

Whilst the decline in January was a great move for us, I am expecting a much larger decline, so looking to get members properly positioned for the expected decline.

As always ideas are always subject to revision, nothing is every case in stone, our objective is to find ideas to help members make $$$, if we are wrong, we can live with that. Being wrong is OK, but just make sure you are not wrong for long is our motto.

Until next time,

Have a profitable week ahead.