S&P500 ~ the evidence for a long term trend reversal...
On Friday we posted an update making a good case for a short term bearish scenario that would be followed by another rally to all-time-highs one more time.
Today we are going to give traders the alternate scenario which is much more bearish than just short term.
After 39 years of operating in the world of futures and options trading (with 35 years of that time spent studying the Elliott Wave) I learn one important lesson very early, which was, no matter how good the technicals and wave formations point to an indisputable conclusion for price movement going forward...there is always an alternate scenario that can happen instead.
Once a trader identifies the correct wave count that the market is working in it then becomes rather easy to follow using all the rules and guidelines. These same Elliott rules will also alert you better than any other system known when you are wrong.
Because of this we usually spend 90% of our time watching, looking for and calculating the alternate scenario that would be in play if our primary wave count becomes invalidated by price movement.
The charts on Friday showed a compelling case that a large "expanding triangle" or "expanding flat" as an "intermediate" degree wave (4) was unfolding and that a large decline was underway now to complete either one of those patterns before the next large rally as wave (5) begins.
Today's chart is labeled to show our best alternate count and makes just as a compelling case that the all-time-high made on February 20 was a major top.
Notice that we have labeled a "running triangle" formation from the wave (3) high A-B-C-D-E that completed the wave (4) correction. From the end of wave E the market rallied in an impulse 5 waves to complete wave (5).
The chart notations show that wave (5) was 61.8% of the triangle and also 100% of wave (1). A common way to calculate the price target for the rally out of a completed triangle is to measure the widest point of the triangle...illustrated by the yellow vertical line. The wave (5) rally should be a Fibonacci 61.8% of the length of that line which in this case wave (5) topped right in this area.
Also, if we look back to the 2009 low and measure the wave (1) rally that took place into 2010....we see that wave (5) now is basically the same length as (1).
Part of Elliott's specific rules were that fifth waves would have a relationship to the first wave of the same degree. So, after 11 years wave (5) now has an equal to relationship of the wave (1) of the same degree.
There is no way to ignore this because over the years we've watched this formula happen 100's of times. We know that these relationships don't just happen coincidentally! There isn't any reason for a price move to have a relationship to a price move that happened 11 years ago other than because of the Elliott Wave.
On top of this....Friday the market closed with an outside bar on the monthly chart. Price also closed below the closing price on the January bar which gives us a technical "outside bar key reversal" signal...this is a major sell signal!
Another important piece of chart data is that while the Dow Jones Index has been making all-time-highs for months....the Dow Transportation Index hasn't confirmed those highs. This is known as a Dow Theory Sell signal. The non-confirmation in price between these two averages does not happen very often and when it does it is always viewed as a long term trend change.
The chart patterns (the most important) along with the Dow Theory, extreme sentiment readings, momentum divergences, put/call ratio's, advancing vs declining stock prices and more...we have plenty to be concerned about a major stock market top already in place.
So, for now, we will monitor the current rally from Friday's low as a wave [ii] correction before wave [iii] down further begins. We will be able to determine in plenty of time which wave count the market plans to follow.
Hopefully it will be our primary count for now that allows for a steep decline but then another big rally. The alternate count would have more dire implications to it than just a bear market. It could be caused by a devastating global economic slow down not to mention loss of life from the coronavirus.
Or, another nightmare the market could be forecasting is that we end up with a socialist president!!!
Today we are going to give traders the alternate scenario which is much more bearish than just short term.
After 39 years of operating in the world of futures and options trading (with 35 years of that time spent studying the Elliott Wave) I learn one important lesson very early, which was, no matter how good the technicals and wave formations point to an indisputable conclusion for price movement going forward...there is always an alternate scenario that can happen instead.
Once a trader identifies the correct wave count that the market is working in it then becomes rather easy to follow using all the rules and guidelines. These same Elliott rules will also alert you better than any other system known when you are wrong.
Because of this we usually spend 90% of our time watching, looking for and calculating the alternate scenario that would be in play if our primary wave count becomes invalidated by price movement.
The charts on Friday showed a compelling case that a large "expanding triangle" or "expanding flat" as an "intermediate" degree wave (4) was unfolding and that a large decline was underway now to complete either one of those patterns before the next large rally as wave (5) begins.
Today's chart is labeled to show our best alternate count and makes just as a compelling case that the all-time-high made on February 20 was a major top.
Notice that we have labeled a "running triangle" formation from the wave (3) high A-B-C-D-E that completed the wave (4) correction. From the end of wave E the market rallied in an impulse 5 waves to complete wave (5).
The chart notations show that wave (5) was 61.8% of the triangle and also 100% of wave (1). A common way to calculate the price target for the rally out of a completed triangle is to measure the widest point of the triangle...illustrated by the yellow vertical line. The wave (5) rally should be a Fibonacci 61.8% of the length of that line which in this case wave (5) topped right in this area.
Also, if we look back to the 2009 low and measure the wave (1) rally that took place into 2010....we see that wave (5) now is basically the same length as (1).
Part of Elliott's specific rules were that fifth waves would have a relationship to the first wave of the same degree. So, after 11 years wave (5) now has an equal to relationship of the wave (1) of the same degree.
There is no way to ignore this because over the years we've watched this formula happen 100's of times. We know that these relationships don't just happen coincidentally! There isn't any reason for a price move to have a relationship to a price move that happened 11 years ago other than because of the Elliott Wave.
On top of this....Friday the market closed with an outside bar on the monthly chart. Price also closed below the closing price on the January bar which gives us a technical "outside bar key reversal" signal...this is a major sell signal!
Another important piece of chart data is that while the Dow Jones Index has been making all-time-highs for months....the Dow Transportation Index hasn't confirmed those highs. This is known as a Dow Theory Sell signal. The non-confirmation in price between these two averages does not happen very often and when it does it is always viewed as a long term trend change.
The chart patterns (the most important) along with the Dow Theory, extreme sentiment readings, momentum divergences, put/call ratio's, advancing vs declining stock prices and more...we have plenty to be concerned about a major stock market top already in place.
So, for now, we will monitor the current rally from Friday's low as a wave [ii] correction before wave [iii] down further begins. We will be able to determine in plenty of time which wave count the market plans to follow.
Hopefully it will be our primary count for now that allows for a steep decline but then another big rally. The alternate count would have more dire implications to it than just a bear market. It could be caused by a devastating global economic slow down not to mention loss of life from the coronavirus.
Or, another nightmare the market could be forecasting is that we end up with a socialist president!!!
Follow the Trend
and
"Trade Safe"
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