We are at an interesting point in the stock market and that is always the case in any given day, although this one juncture is special. The $SPY, what was looking like a ABC correction all along turned into a 1-5 impulsive move when we breached the $282 if you are looking at the cash index or $2820 in the etf market. What was an ABC is now a 1,2,34 &5 upwards move.
The moment the turquoise line broke the previous highs the trend is broken and ABC has now turned into 1-5 impulsive wave.
The cycle starts from 1992 and a low of $42.81 to the current high of $293.94 is the end of wave 3 and we are in the middle of wave 4 correction more specifically what I call an equilateral triangle right now.
$SPY-Super Cycle Chart
On a traders perspective of the chart let us take a closer look at the day to day trading plan. Wave 3 ends at the 200% Fibonacci extension of the larger 1-2 waves. Since the wave 1-2 was a simple ABC pattern the wave 4 can be expected to be a complex correction that is what the theory of alternation suggests from Elliott wave. Just going by that i expect the correction to last quite a while before we break the all time high of 293.94 to break. My best guess is that we are going to be doing what I have drawn in blue to be doing before we break out of it. If you look at the weekly RSI it has room to run before hitting the ceiling at 60 RSI level suggests that this A wave as of 2/17/2019 has room to run. before dropping in a B wave. Where every other Elliott wave technician and I differ is that they say the market is going to surge after this ABC 3wave and another blue ABC 3 wave correction that we are going to complete the 5th wave . I believe this will be part of a more complex Ascending, descending, reverse symmetrical yet to be revealed.
You can call it that the stock market has been on a tear sort of , since the new years! Christmas eve and the day after the Christmas the $spy did a sharp almost 1000 pts a day reversal since it $233 lows . Such bull runs are typical on a bear market, and what seemed a wave 3 ( still very well ) could be a wave 3 on the way down of a larger AB move. With the way the political climate is with government shutdown in the United States and he Brexit deal not seem like its going to pass. The retrace that happened on the 25th and 27th in December 2018 is a W3 reversal and that reversal should have retraced 50% to 70% as you can see the magenta lines show that the price has retrace a little over 70% of the past down move which looks like wave 3 move down. The RSI has pushed past the crucial 60% level but that can always be a fake out move and start falling anytime now.
Another interpretation :
This this is a raising wedge in traditional sense of technical pattern and this raising wedge pattern when combined with Elliott wave 3-3-5 wave sequence suggests that it has come to an end and the trend move which is down is about to happen. A lot of technical analyst are suggesting that this uptrend would end at $270 , but the Elliott wave suggests that this is the end of the road for this sequence UP and we are going down from here!
OK so the $SPY has been getting hammered lately and on the last trading day the on the 24th on Christmas eve. The 5 wave had completed on the 24th
Now on the 26th I saw the beginning of a wave 1 and 2 with a deep retrace after the initial move 237.90 and did a 70% retrace which set the stage for the all day 3 move , got some $SPY calls when the price action moved past the 1 and holding it overnight taht has topped out at 245.54 after market. Haven’t got the 4wave yet and 5 after that is still coming. The RSI is 36.38 and will hit resistance at 40 level around the 249-250 area and time to reassess !
It took a while but i think we have a good idea as to what the $spy is going to do next. It just completed the “w” move in the correction move on the daily , we have had a, b and c most likely completed on 12/21/2018. Should start seeing a reversal move (x) at around $235 when the $SPY tests the 50 MA of the monthly!
MU:Micron broke the rule of wave 4 overlapping wave 1 on weekly and monthly, so its a w1-w2 move and on the weekly and in the daily we have a 5th wave move in progress
This was an amazing experience to have identified a wave 2 although it would have been great if it had happened in real time, anyhow it is found and can be found again!
Below is a 15 min chart of $SPY on 12/6/18 . The market was plummeting like a rock per-market with news that the CFO of Huwei the Chinese phone maker the 3rd largest behind Apple and Samsung was arrested on charges of selling products to Iran in spite of sanctions by the US. Anyways, I think the news is a catalyst for already setup waves to progress and some how make sense. The bottom happened at wave 5 and I saw a impulse move of wave 1 and mistook the A move to be part of a ZigZag and placed a trade on the arrow mark thinking that will be the 2nd leg of a ZZ, but instead it turned out to be a wave 2 and then the wave 3 progressed after that and now in postmarket is a wave 4 , possible that the wave 5 would even terminate in the per-market.
It will be very interesting to see how the market reacts on Monday the 3rd. As of no Saturday the 1st President Trump is having dinner with President Xi of China. The stock market on Friday was in a holding pattern awaiting the result on Monday to react. But the Elliot wave analysis of the $SPY says that the market is going down. If you see the chart below the $SPY is coming to the end of the 5 th wave on an uptrend and by the way that is also the long term trend, as I believe we are on the 4th wave in the 5 wave and doing side ways correction for a while.
In the chart above you can see the dotted yellow line is the move that is expected to happen. Which means that the outcome of the G20 is already doomed! But that would mean that the cart is in front of the horse. Or that I am predicting future using the wave theory. It sort of feels good to predict future 🙂
Caterpillar Inc $CAT
As you can see in the naming AB =15 BC=
The Weekly chart is below AB=15, BC=7 it is coming to an end and the 30 min chart shows as the 5th wave just ending , so the next wave should be the corrective wave.
The stock market is an animal of its own a living entity and it has life because it is reflection of life. Now, can we say that about anything that interacts with life is life? For instance you go ride a bicycle have fun with it for a sec and call it a life? I don’t think so, however if you had ridden this favorite bike of yours for thousands of hours and when it becomes normal to think that that bike is just an extension of your arm, then you have done some thing with it that you feel like it has life. Before i go on a tangent and completely loose my train of thought let me get straight to the point! Elliot wave when applied in the stock market it becomes a life form.
Lets dive straight into what my methodology that has worked for me so far. The indicators required are :
a) ZigZag percent indicator from Think Or Swim platform.
b) Regular RSI indicator the setting are left as default
First order of business is to pick stock based on the following criteria:
Step 1) Volume
Pick a size that can generate enough volume, because from what I can tell it is easier and more compelling to identify the waves when the volume is thick , when it is thin the waves don’t show up very well. Since we are talking about waves, let me give you an simple example of the waves in s lake vs the size of the waves in the ocean, same principle the more the market participants the more the visibility of the waves.
Step 2) RSI 40/60 levels
The RSI 20 and RSI 80 are the usual oversold and overbought conditions that every one follows, but i think the 40 and 60 are the real levels that act as inflection points for breakouts and breakdown’s. Ideally it is best to look for setups where a Zigzag or triangle is about to happen then pick a time when the stock is going to intersect at these crucial levels. Ideally when the wave pattern like the zig zag ABC (seen in the diagram) gets to triggered at level 40 when the stock makes the A to B move, along with the implied volatility high very much above normal.
The BC move is ideal when the stock tries to breakout of the 60 RSI level and fails, then is when a nice drop happens.
Set it up to a 8% level first on the weekly chart
Step a) Once the larger trend is identified, reduce the % setting in the Zigzag indicator to get an idea as low as 1% to get the patterns identified.
Step b) To tell if it is a zz wave pattern, look for a 5 move up kind of pattern. If it is a straight up or down then it is triangle.