E-Wave – Page 41 – Slope of Hope with Tim Knight

Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

ES and EURUSD Break Support (by Springheel Jack)

By springheel_jack - 15 years ago (20, Aug 2010 8:11:01 AM)

I was looking for confirmation that a major decline might be starting
yesterday and I got it when ES broke the rising channel. Looking at SPX
the channel was broken even more convincingly and just to underline the
point the 13/34 daily EMAs recrossed bearishly, backing up the 13/34
weekly EMAs which recrossed bearishly last week:

EURUSD didn't break the broadening ascending wedge yesterday but has
dropped well below it overnight, and has also dropped through the
neckline of the big H&S pattern indicating to 1.214. Short of a
really major recovery today I'm regarding the EURUSD wedge as broken,
and that is confirmation once we see the close today that we are likely
to see new 2010 lows on both ES and EURUSD:

Where we are on EURUSD is of enormous importance in my view as it is
the key inverse proxy for USD. I've posted before on the complex
relationship for the positive correlation between EURUSD and ES/SPX, and
that the moves down on ES move furthest and fastest when both ES and
EURUSD are both in powerful waves down, as they were between the SPX top
in April and the early June, during which time ES fell just over 180
points on a peak to trough basis. I think it is now likely that we are
in another such period now.

I have put a tentative EW labelling on the EURUSD moves down from the
top so far. On my primary count wave 1 completed at the June low, and
the recent high was the top of wave 2, putting us in wave (iii) of 3
now. On my alternate count we just completed wave (iv), which retraced
almost exactly 50% of wave (iii), and have just started wave (v) of 1.
EW pedants should forgive my not using the standard labelling, but I
think the meaning is clear enough, and either way new 2010 lows from
here now look likely:

Looking at the SPX daily chart I have also found a simply
beautiful declining channel from the April high to support this overall
picture. Looking at it now it is a perfect technical declining channel
from the top, and should define the target for the current swing down,
subject of course to the time taken to complete it:

On the basis of that channel and the current situation on EURUSD, and
assuming that we don't see a major reversal on EURUSD taking it back
into the broadening ascending wedge by the close today, I am therefore
seeing the next major swing low in the 940 SPX area in mid-September. We
shall see if I'm right over the next three weeks. 🙂

In the shorter term I also have a smaller declining channel on ES for
the current move, and also a largish potential H&S pattern
indicating to the 975 area. These give us the two most likely bounce
levels for the immediate move down, and they are the 1050 ES area to
finish the head on the potential H&S pattern, and the powerful
support level at 1037 ES, which would be the declining channel target
and also the neckline for the big H&S pattern on ES / SPX that
indicates to the 870 area. I'm favoring the lower target:

So there we are. I have put my bear suit back on and am once again
targeting 870 SPX as the most likely main target for this move down, as
it is the target for the big SPX H&S, the broadening formation,
and also the bearish gartley pattern that I posted yesterday, as well as
being the key support / resistance level for the October 2008 to July
2009 period. I am hoping that we will get a second Hindenburg omen in
the next few days just to add the final touch to the overall technical
picture here, which in my view hasn't looked as bearish since August
2008.

EURUSD Breaks Support (by Springheel Jack)

By springheel_jack - 15 years ago (10, Aug 2010 7:46:39 AM)

EURUSD finally broke support on the rising wedge overnight, and not
before time. I am expecting to see a good sized retracement now. My
target is in the 1.28 area, though technically of course, the target is
1.22. I've mentioned before that rising wedges often evolve into
channels or broadening wedges, and I'm expecting this one to evolve into
a broadening ascending wedge, and have drawn in the rising support line
on the chart:

GBPUSD, which has resolved into a clear broadening ascending wedge now,
is retracing back towards the 1.55 area. I'm somewhat doubtful about
this pattern breaking down and support there may well hold:

AUDUSD broke the rising wedge on the daily that I posted the other day.
Nice catch braddurden for pointing it out. I'm seeing some support at
0.90 but I think it's more likely we see a fall to the main rising
support trendline in the 0.87 area:

Oil completed the bearish gartley pattern I posted, though it was
Keirsten who first pointed it out of course, and reached the top
trendline of the rising channel. I'm seeing some support in the 79 area,
but am expecting a fall to rising support in the 75.50 area:

Dr Copper has broken support overnight and looks likely to return to
rising support in the 310 area, and to the extent that copper is a lead
indicator for equities, it is currently pointing firmly down:

So far, so bearish, but where does that leave equities? Well, that's all
about the rising wedges. In the short term the second of two rising
wedges on the ES 60min broke downwards last night. The first wedge broke
down last Friday and played out to target at 1104 ES. The second wedge
has the same target and with a bit of help from EURUSD, should have no
trouble making it there:

If ES can make it back to 1104, then the main rising wedge on ES will be
broken, and that is very much the main prize here of course.
Technically the rising wedge target indicates back to the July ES low,
but more likely in my view we will retrace either to the 1070 or 1084.5
area, or to the 1040 ES area to make the RS on a big IHS that should be
obvious on the chart below. I have listed the full range of targets on
the daily chart and I am hoping that channels or patterns formed during
the descent will make it easier to call this on the way down:

For a number of technical reasons, as I've explained in previous posts,
I'm expecting this to be merely a retracement in a larger bullish
picture. In EW terms I think we have just finished wave 1 up of a new
move up on equities from the July low, and we will have to retrace a
long way before I start to reconsider that seriously. That's not because
I think the recovery is real or that current economic policies are
putting us on the road to sustainable prosperity, but while the rotten
fundamentals will bring down this market sooner or later, I'm doubtful
about that happening in 2010.

For a good picture of the current EW picture from the bull side, my friend Pug posted a publicly viewable summary
last night that I think is well worth a read, and the scenario I have
outlined today fits very well with his alternate scenario.

More Elliott Wave Thoughts (by Nathaniel Goodwin)

By Tim Knight - 15 years ago (05, Aug 2010 7:01:25 AM)

Living alone the past week and a half has taught me that I am not much of a bachelor. I’ve
been told that I’m not the best person to be alone with, which is probably why I like having a roommate – mom, grandma or the colonel… whoever, I don’t like being alone by myself.

To curb my loneliness, I asked local street dweller Stun Gun Jones to move in for a bit. He agreed to stay until the Colonel gets back on the condition that I don’t cramp his lifestyle by making him use the bathroom and shower.

Last night I was showing him some charts with long term Elliott Wave counts, and he started that drunken laugh/cackling people hear from him all day on the street. He stated that the following EW count was just as possible as the count with EWI's P3 panning out, and warned me not to place big bets on very speculative EWT outlooks or be too firm with my beliefs on how things will play out long term.

After hacking up some phlegm and Irish Rose, Stun Gun said that there are a few safer ways to use EWT, one way is to only try to catch 3rd waves. A third wave is the most powerful or “glorious” of all waves, and a third wave can be a 3 or C – both are third waves. Wait for an impulsive first wave to appear, it could be a 1 or an (A), wait for 2 or (B) to appear. Enter the trade anywhere from 38-61% retracement of the first wave, set stops right below the first wave. Exit can be tricky, look for divergences or whatever to exit the 3rd wave (which is either a 3 or a C, who cares!)

I have to go empty Stun Gun’s pee-jar, another prerequisite of him moving in. One other thing he told me though was that lots of folks are looking for Aug 5th-6th as an important cycle or turn date, we are also very close to the 50% retracement area from the April 26th high to July 1st low. Seems like a good place for a bearish turnaround. His advice helped me out in early July, so I’ll be taking a close look the next couple of days.

Mole To The Rescue

By Tim Knight - 15 years ago (04, Aug 2010 3:51:13 PM)

Alright, I have seen enough. It's time for someone to step and set the things straight over here at the Slope. Although I can't blame Tim-ay for relenting to bearish exhaustion it's important that we fade emotions and look at all evidence at hand before we get married to the long side. Quite frankly, I almost feel pity for the bulltards – for they have no idea what they're dealing with.

I said 'almost'…

This chart is something my stainless steel rats are more familiar with. I'll try to explain it this way: What you are seeing is the difference between the 'average' (think moving average) and the 'median'.

What I have labeled on this chart are instances of when the SPX was in the 1120 – 1130 trading range. Which was a lot more often than I care to recall – we seem to be trapped in this range and I am starting to feel like Bill Murray. Anyway, the yellow marks are periods we spent in this range and the green marks connect to the moving average of the percentage of stocks above the 200-day SMA during that time. So, back in December (yes, half a year ago – the horror!!) we were at roughly 75%. Three months later at number 2 we were at around 65%. In May at number 3 we are at roughly 60%. And now/today we are at – gulp! – 46%.

What does that mean? Do we care? Yes we do. What it means is that there is a distinct and rapid steepening of the lead curve. And by that I mean that there is a greater polarity between the number of stocks in the SPX which are pushing up sharply and the ones which are flat or dropping. That’s the difference between the average and the median.

Jeezzz Mole – what does that mean again?

The average (or mean) is the sum of the values of all the observations, divided by the number of observations. It is the average value. The median is the value at which 50% of the observations lie above, and 50% lie below. Alright, now your head is spinning – let me fix that. Here is an example:

Here is a series of numbers: 1, 2, 3, 4, 5000, 9000, 8700. The median is the one in the middle: 4. To get to the average add them all up and divide by 7 – which is 3244.

Aaaah – I’m sure a light bulb just went on in your head 😉

You can assume that the median for stocks is usually lower than the average close to market tops. In other words again (and now we finally get somewhere), the price on the SPX represents the average, as it is a free-float capitalization-weighted index (please don’t ask me what that means), and the median (sort of – it’s based on the 200-day SMA) is the SPXA200R (which I put an SMA on, just to confuse you further).

Moral of the story: On the median side we can see that an increasing amount of stocks are dropping below the 200-day SMA, despite price claiming that the ‘value’ of the SPX is the same.

And that, boys and girls, is the definition of 'distribution'.

Here is a similar view, this time with a slightly higher 84-day SMA – we want to fade the noise. What I'm seeing is the exact same pattern we saw during the fall 2007 topping process. This actually confirms Karl Denninger's theory that we are going through a similar price fractal right now – maybe someone here can post the link, I can't find it.

Thus my outlook for the rest of the year is pretty clear. We are currently in a zigzag flat correction which may take us close to this year's high of 1219.80 on the SPX – and maybe we will even exceed it but that is by no means guaranteed. I also do not think that the Dow will exceed its high mark of 11,258.01. We may count a new high as an irregular top or we may slap another wave label on it to satisfy our never ending desire to make sense of this woodchipper of a market. Whatever floats your boat – but don't lose sight of the overall picture.

For the market internals are very clear – I have tons of charts in my repertoire (and which I present on a regular basis at my evil den of financial doom) which strongly suggest that this is nothing but a second wave correction in equities. After all – they are known to be brutal and leave most bears on the wayside.

Remember – the bus always moves fastest when it's empty.

Medium Term

Here are my short term musings on my SPX wave chart. That little overlap last week caused me to pull a very rare 'ending diagonal' card, but since it only happened on the SPX I may just choose to ignore it. The third option is to project new highs for the year – as this would mean that we are in a sub-dividing 3rd wave. And as Tim-ay pointed out – it may drive us a lot higher than any self respecting bear would care to imagine.

My gold/silver ratio chart is already bouncing exactly where I suggested it would. Bear in mind that this supporting indicator can dance along that lower line for a while until equities finally relent and drop to the downside.

Copper is still pointing to the upside and it's been spot on all year. Which means that we're not turning just yet – give it until mid August, which in my estimate will be the curtain call for Soylent Green (i.e. the green scenario on my SPX wave count chart).

Whatever you do – stay frosty and don't yield to emotion!

Cheers,

Mole

EWI Target Met

By Tim Knight - 15 years ago (24, Jun 2010 11:37:30 AM)

I had mentioned last night that the folks at Elliott Wave International had projected a drop into the tinted zone that I had drawn (shown below) before a partial push up and then – – – the big, fun plunge.

The tinted area has indeed been penetrated, satisfying the prediction. I had some nice gains going long IYR and IWM in day trades earlier today, and I'm pretty much totally short again. Looks like another fun day.