Elliott Wave and the XAO

[tech/a]

Its been great to sit on the sidelines and watch this un fold.

Seen it many many times.

Elliott Analysis evokes a great deal of passion from hard-line exponents.
Truth is that very few people in the general populace even remotely understand the method and are quick to judge and more often than not pointing out how hopeless it is as an analysis tool because the wave count changes.

WHEN IN FACT I see this as the greatest strength of the analysis.

Ive spent many months over the last 20 yrs studying and implementing Elliott.
In fact it was Elliot Wave Analysis that warned me to halt my portfolio trading within my method "Tech Trader"
Months before the GFC. There are lots of posts at the time on my decision and the analysis both here and on "The Chartist"
Saved me a great deal of $$s.

Rimtas has obviously chosen Elliott as his specialty.
Porper who I have known for years is no slouch when it comes to Elliott.

My view is that if the wave counts aren't as clear as day then I ignore them and us other analysis.
I don't force a count and am aware that the three of us could all have a very different count.
Its been my experience that it doesn't matter.

But its also been my experience that die hard analysts tend to just analyse and have very little expertise in implementing Elliott as a trading method.
If you cant apply the analysis --- what's the point

Personally I'm glad I spent the time to understand the analysis and wouldn't make a longer term decision without applying it.

Keep up the discussion guys---I agree with both of you on a lot of the discussion.

Like Elliott Analysis you/we will agree and disagree.

 

[rimtas]

Hi tech, glad to hear from someone who understands the importance of EW not only in stock markets, but in life as well. Many people are unconfortable with EW but I personaly found it as the best aproach to the markets.

In previous post you told that when count is unclear you just leave it. And that is right. But I've found this "unclear" issue very important. If you are in the market, most likely you entered it when count was more or less clear.
When the wave develops, it passes through stages and from the midle to the end of wave 3 there are the greatest amount of alternatives possible. Later when the wave develops, alternatives lose ground one after another and finaly you can see 5 waves, that's when the count becomes clear. This is also true at the bottoms when first wave made it's way-then it is clear and highly tradable. In correction-it becomes more clearer when it's near the end, in the middle you can be short of your fingers to count alternatives.

When I am in the position and situation becomes unclear, this means only one thing-hold on to it, because you will se the pattern sooner or later which you can use as a ground for decision making. This approach makes holding the stock quite comfortble and enables to see movements against you as normal, when everybody around are just like lost sheeps-they seek reasons for the decline instead of knowing that their stocks are within the normal market cycle.

Anyway, glad to see you here...
How you see All Ords from here? Looks like it made five up from the most recent bottom...

Few months ago I thought that Ending Diagonal is in the works, it was quite a good call ( https://www.aussiestockforums.com/forums/showthread.php?t=4888&p=840431&viewfull=1#post840431 ) , I remebmer sold everything just days after the top was formed, but the nature and size of the decline just fell short of targets that are usualy reached after ED . Instead market rallied and here we go-5 waves up, TLS at new highs, real estate at new highs...

I am thinking that three waves from the 2009 bottom was not the finished development in the light of most recent rise, which I am prety sure, has more to go. This will put us in the stage of "unclear" for a few years, but best what comes to mind is that some sort of third wave can develop with ATH on the horizon.





I am tracking a few posibilities, that's one in a Chart above-((1))-((2))-(1)-(2), or ((A))-((B))-(1)-(2) of ((C)), but both implies the same thing-higher prices. The question is :
Does this correction is over? It can easily sport another 3-3, or 3-5 making to the lower ascending support. The first sign of significant leg up would be making to the ~6000 I suppose. It's pitty that I don't have Zweig Breadth Thrust on ASX but I feel this rally could have trigered the event.

When I realized that the latest decline was just a part of 3-3-5 flat, I remembered the DOW at the time 2011, I was trading full time then in US when the same thing happened- It just reminded me once again that if market reached new highs in Three waves, always be suspicious about the five wave decline.





Many people will seek reason as to what must happen for markets to reach ATH. But the reasoning should be opposite-what events can be trigered by rising optimistic market mood. Could be plenty, pick one...

From fundamental view it could be the Iron Ore making the bottom, along with China in the early stages of advance, those events could triger a mining sector rally.









The price action in Australia's largest mining company, BHP, sugests that the stock could be in a Triangle formation, which is Primary wave ((4)).
Looking at the fact that BHP is trading close to the long-term trendline support, The Triangle maybe over, and we could expect a thrust to new highs, which will support ASX advance scenario as well. Another case is that Triangle is still in the progress and it could take for the market years to finish it, but both ways advance will follow soon(here is the alternate count : https://www.aussiestockforums.com/forums/showthread.php?t=1335&p=840445&viewfull=1#post840445 )




Also, the company in August announced that it would spin off about 8% of assets as a separate company-the industry's largest spinoff in a decade, according to CLSA Asia Pacific Markets. BHP continues the industry's process of deleveraging . In January 2013 I observed how four major mining companies, including BHP, had fired their CEOs in just four months following the Wave (C) low within BHP's wave ((4)) Triangle. All four former heads had been appointed near the peak of the mining boom in 2007, and each pursued growth aggressively.

BHP's announced spin-off shows that pessimism about the mining industry remains entrenched. Company's CEO told analysts on August 19: "We are now at a point where the status quo no longer positions us to best maximize value. Change is required." Analysts expect other industry titans such as Rio Tinto and Anglo American, to follow BHP's lead spin off assets of their own.

But from contrarian perspective, a bearish consensus is often a bullish signal for the strongest companies in an industry. The pessimistic sentiment may even support an approaching low in some resource markets important to Australia, such as Iron Ore(see chart above)

Australia's main customer China, shows no signs of reducing its consumption of commodities anytime soon. As Bloomberg reported in late August- "Qinhuangdao, home to China's largest coal port that's been called an indicator of Asia's biggest economy, is set for record commodity deliveries over the next three years as urbanization boosts demand for the fuel".
But even if mining prices remain soft, the strongest companies can continue to grow. BHP's own price history provides a case in point: during the commodity bear market of the 1980s and 1990s, the company's stock price increased about sevenfold.


I also would like to remind about how the Abbott government proposed its budget in May to greater uproar. The Washington Post claimed that Abbott has quickly become one of the world's most hated prime ministers after he "unveiled" a draconian austerity budget that analysts at that time called the most extreme and least popular of the past four decades in Australia" . His approval rating plunged to 30% after the announcement, according to Newspoll.

The Prime Minister defended himself by pointing out that support fell for former Prime Minister John Howard after he introduced an austere budget in 1996, which preceded a "decade of prosperity". From a socionomic perspective, the analogy could turn out to be prescient.

Austerity drives are a product of the fear that attends the late stages of larger degree bear markets. For example, Europe's austerity budgets of a few years ago followed large-degree stock market declines. So has China's crackdown on government excess over the past two years. In June, the new prime minister of India where, by mine wave counts, a bull market is just ramping up, announced that the nation's government ministries will be consolidated and the number of cabinet ministers reduced from 72 to 45.


The Hovard government passed its budget in 1996 early in a multiyear uptrend in the All Ords. Abbott's government austerity measures provide me an anecdotal evidence to support long term bullish forecast for Australian stocks.
The wave count above indicate the market to be in a similar position at present paralleling long-term uptrends in most other stock markets in the Asia-Pacific Region.


Also, I remember what CB governor said just two months ago in his semiannual testimony to a parliamentary economic committee: "The thing that is most needed now is something monetary policy can't derectly cause: more of sort of 'animal spirits' needed to support an expansion of the stock of existing assets"

My wave count above shows that those spirits are about to burst higher in a third-of-a-third advance.

Cheers

 

[PennD]

View attachment 60182


Hi Rimtas,

Why could this not be seen as a larger degree ending diagonal?
Cheers Penn

 

[rimtas]

Hi Penn,
Ending Diagonals are ending patterns, they appear only at the end of the five wave move as the fifth wave in an Impulse wave, usually when a third wave is extended. And their internal subdivisions should all consists of "threes". Also- as Index is an average representative of its constituents, many stocks should also reflect Ending Diagonals in their charts. It's not the case now.

Cheers,

 

[rimtas]

Latest Westpac/Melbourne Institute consumer sentiment survey shows pessimists outnumbering optimists in October for the ninth consecutive month, the longest run since the global financial crisis.

Also, ABC News just released a new survey for the Museum of Australian Democracy which showed that while Australians of all ages still embrace democracy and value its history of freedom and stability, they are disillusioned with contemporary politics and support radical reform.

"They associate [politics] with untrustworthy politicians," said Professor Mark Evans from the Institute for Governance at the University of Canberra, which designed and analysed the survey for the museum.

Professor Evans said short-term policies dominated by elections, the media and big business have left the vast majority of Australians feeling politically powerless.

"Eighty to 90 per cent of Australians believe they have little or no influence over national decision making," he said.


From a socionomic perspective those negative trends of how people feel, makes complete sense: they reflect an extreeme negative sentiment towards the wave (2) bottom.
One year market went nowhere. Sideways movements are doing the same to people as sharp corrections, just they take more time. Prices stay high, but sentiment drops. This indicates that the larger degree correction is in the works, and from a contarian perspective, an extremity in the above figures could be another bullish signal sending a mesage that an Intermediate Degree advance is not far away.

 

[rimtas]

I'll post a futures hourly chart as it has clearer waves at this stage than cash index.
After rising in five waves from the bottom, index made a three wave drop, a three wave rise to new higs and then started to decline impulsively. This development is an expanding flat (3-3-5). Those kind of flats are very common in strong trends.

Wave (c) of a flat still has some more subdivisions to be valid as a "five". Using a changeling technique I expect a rise tomorrow to approx. 5480 and then drop on Monday to 5410. Cash bottom would be equivalent to 5380, or fib 38,2% retracement is at 5370.

If this expanding flat is not a part of a double three, after the wave (c) bottoms out, I expect a strong rise towards a previous highs achieved a few months ago.

It is not clear at this stage whether the rise from the Oct bottom is wave ((a)) or wave ((i)) , but probability that Intermediate Wave (3) has started are quite high. What happens when market reaches previous highs will determine the final count which still has a possibility of a double three as Wave (2), this means that one more leg down(approx.10% on the Daily chart, see above ) would come.

Cheers,

 

[rimtas]

One more bullish signal appeared in the press recently. You will not find those kind of statements near the tops.

"Australia is headed for recession and nothing can be done to stop it", a prominent economist warns.

The mining boom has bred complacency over the past decade and it's now too late to avoid a recession in 2015, says Saxo Bank chief economist Steen Jakobsen.

"It's too late, the wheels are in motion," Mr Jakobsen told AAP.

 

[rimtas]

The decline on a larger timeframes like 4H and Daily already looks like a "five". RSI in uptrends usually stays above the ascending line on Daily so I think it is not much left for it to go down.

50% retracement is at 5320 and it could be reached within days. I am tracking an Expanding Flat scenario as a second wave and looking for a bottom very soon. The five wave rally in a smaller time frames will confirm the next rise is underway. I am going to buy a few banks there.

 

[rimtas]

Today market decline developed to the point, where a number of factors are pointing that the bottom is in or very close.

Decline from the top retraced almost 61,8%, (which is typical if this is the second wave). it was shy just 8 points to exact fib level of 5276;
Wave subdivisions on smaller time frames can be counted as "five", where the fifth wave is extended;
The whole cycle(advance+ decline) from Oct 13 bottom subdivides into the Fibonacci time section itself, with market rising 19 trading days, and falling 11 to date. The exact ratio of 0,618 would be 11,742 days, so this tells that Monday could be a small final dip and then a rally starts.

All of this is highly speculative, but it is the best setup since decline started so far. Now Market needs to sport five waves up and break the trendline which would be above 5350 level in order to confirm a bottom. If this is not going to happen soon and Market breaks lower, then the cluster of combinations pointing to something will be gone.

I can compare this situation with a turning vehicle-it's indicator is on, but will it actually turn? We'll see soon. If it turns, buying opportunity is close.

Cheers,

 

[rimtas]

Looks like the bottom is in and market started to pick up speed upwards. What comes next and what kind of wave is developing will be seen in the nearest future, especially if All Ords manage to climb higher to new highs above 5565 (futures chart). It is probably third wave developing, but no confirmation at this point.

It is interested from EW point of view to see how futures and cash index sport different waves, but both arrive at the same point with complete structures, just different counts. Cash index sported an expanding flat(chart above in previous post), while futures double three-expanding flat plus zigzag.

I expect market to rise further from here.

 

[tech/a]

Looks like the bottom is in and market started to pick up speed upwards. What comes next and what kind of wave is developing will be seen in the nearest future, especially if All Ords manage to climb higher to new highs above 5565 (futures chart). It is probably third wave developing, but no confirmation at this point.

It is interested from EW point of view to see how futures and cash index sport different waves, but both arrive at the same point with complete structures, just different counts. Cash index sported an expanding flat(chart above in previous post), while futures double three-expanding flat plus zigzag.

I expect market to rise further from here.

View attachment 60450

If it is a wave 3 ---happy days its going to be a good'n

 

[PennD]

Hi Rimtas,
So why would this not be seen as a wave 3 down in the making, with Octobers low being I, Nov high being II (back test of the ending diagonal) and now entered into III? With the US and DAX going up, up, up these last 6 weeks or so surely they are about to turn also, even if its just for a while?? I don't see the asx beginning a wave III higher in these conditions.
You are obviously well versed in Elliot wave. Professionally taught even??? Just a few weeks ago you were calling a P3 down on US indexes, (which they busted through to the upside) now your calling a wave III up in asx??
Dood, you sure can be confusing?
Cheers

 

[rimtas]

Hi Penn,
Yes, a few months or so ago I was calling on US down https://www.aussiestockforums.com/forums/showthread.php?t=4888&p=840870&viewfull=1#post840870

It turned down and dropped the most in two years, in a crash manner. But a very important thing happened-it failed to do so in five waves, and from that juncture it completely changed the long term outlook, because only from the point where the top was(see chart in the link) DOW had the last possibility to prove or disregard a bearish scenario-wave structure was good for this to happen.

The same with ASX. I thought it was Ending Diagonal at the top of three wave structure from 2009, but they produce a swift moves to the downside, It is very rare for the outcome to backtest almost previous highs with a proposed second wave, as you suggest. Moreover, A rise from the Oct bottom was a five also, meaning a change in trend. Financials, real-estate ad mining's all fell in three waves from this year's top and many stocks are at new highs already.

So the same as in US, long term outlook changed with this little move. I am early, but odds are high. It is enough to see an Asia-Pacific(ex Japn) index, which is moving in a series of one's and two's.

I do not say that the market will shoot upwards straight to the 2007 top, probably it will do this in the next couple of years, also sporting another smaller series one's and two's, because the real third waves are starting only at All Time Highs. So everything can happen at this point, but the odds for bearish scenario has shifted greatly.

I started to buy stocks , especially banks, though the wave structure of Financials would look better complete with another move down of 3-5% in some stocks. But better to be early than late.


I am aware of a possibility of the scenario you suggested, but I learned to recognize the waves early in development combining the picture of many stocks, and many of them are not aligned for that. Third waves down, (as a third up), are the unexpected move, catching everyone by surprise.

With market sentiment already bearish enough after year long no-go anywhere, the surprise for the market would be definitely to the upside, maybe the mid of next year will present this opportunity.

For now, I am waiting for a third wave or (c) (circled) of a smaller degree, do not be confused with Intermediate or Primary waves, this is not a degree I am talking about, though it can happen from here. I just expect banks to rise 20% and I get out (depending on a structure) sometimes in the first half of 2015.

Hopefully this explanation satisfies you, but you are not obliged to believe me, I was wrong before. And when I am wrong, my stops are usually triggered. When they are triggered, the count changes and it means that it's time to make money in other direction. I am in the markets only by one reason-to make money. Not to be right or wrong.

Cheers,

 

[rimtas]

Market failed to move in five after the Nov 21 Bottom I discussed above. Instead, it sported another impulse down, which I see as a wave (c) at this stage. The most recent rally sported "five" up, which adds confidence that the bottom is in. For a confirmation prices should rally above wave (b) top of 5395 in order to eliminate other alternate bearish scenarios.

If this is a start of another leg up that goes beyond this year's high, now it's a screaming buy.
I hold WBC, WESDD, ANZ at the moment, all bought at the wave (a) bottom, but remarkably banks have been holding pretty steady during wave's (c) drop, creating a fracturing market which lifts my confidence that the count is correct.
Property sector is at new highs, this won't be possible if the market would be at the edge of third wave point of recognition down, as some people suggest to count waves. It is possible, but I'll take risk here on the upside.

 

[PennD]

The price action in Australia's largest mining company, BHP, sugests that the stock could be in a Triangle formation, which is Primary wave ((4)).
Looking at the fact that BHP is trading close to the long-term trendline support, The Triangle maybe over, and we could expect a thrust to new highs, which will support ASX advance scenario as well. Another case is that Triangle is still in the progress and it could take for the market years to finish it, but both ways advance will follow soon(here is the alternate count : https://www.aussiestockforums.com/forums/showthread.php?t=1335&p=840445&viewfull=1#post840445 )


View attachment 60181

Also, the company in August announced that it would spin off about 8% of assets as a separate company-the industry's largest spinoff in a decade, according to CLSA Asia Pacific Markets. BHP continues the industry's process of deleveraging . In January 2013 I observed how four major mining companies, including BHP, had fired their CEOs in just four months following the Wave (C) low within BHP's wave ((4)) Triangle. All four former heads had been appointed near the peak of the mining boom in 2007, and each pursued growth aggressively.

BHP's announced spin-off shows that pessimism about the mining industry remains entrenched. Company's CEO told analysts on August 19: "We are now at a point where the status quo no longer positions us to best maximize value. Change is required." Analysts expect other industry titans such as Rio Tinto and Anglo American, to follow BHP's lead spin off assets of their own.

But from contrarian perspective, a bearish consensus is often a bullish signal for the strongest companies in an industry. The pessimistic sentiment may even support an approaching low in some resource markets important to Australia, such as Iron Ore(see chart above)




Good morning Rimtas,
First up, thank you for answering my other two questions
Does it not bother you that BHP has broken the lower trend line on this chart you posted on the 7th?
Cheers Penn

 

[rimtas]

Hi Penn,

Yes, BHP has broken a long term trendline last month. I am not worried much about this development, as Triangles can brake channels. There are many cases when Triangles were trading below the trendline and the last wave (usually fifth) was thrusting to new highs only to backtest the additional line from below.

One good example can be EUR/JPY chart, where exactly this has happened.






When you look at long term BHP chart there was an overshoot of the main Channel in 1983 and stock traded below for a few quarters before it returned back. So market seems to consider this as an important thing and thus I added one more overshoot trendline to the main channel. Today BHP still trading above it.










I must note that playing with intervals so long, all trendlines have a slight chance of an error, because I don't have an interactive chart from 1974 low. My trading platform only gives data from 1984 so even slightest discrepancy in drawing a trendline can give an error of 5-10% in stock price today. I did my best, but I can't guarantee on the exact position of those lines. So please take it with a bit of salt. If someone have an interactive chart from 1974, don't hesitate to post it here with an exact lines.


Zooming in todays position and giving the trendline a closer look, we can see that there is a bit of space for a down move in order to test that overshoot line. Within a Triangle, wave C would be equal 61,8% of wave A at $28,5, which is somewhere very close to the overshoot line. If market ends Intermediate wave (C) at this point, I consider that the whole structure will remain within the long term channels right to the end in the years to come.

I do not like much how waves looks within wave A, but it is one way to label them as complete. With Iron Ore so close to the bottom(I think somewhere above ~60 next year) and China's Hang Seng Impulsive advance that started mid of last year, I think that BHP doesn't have much room for a significant decline. If all lines are to be broken, the last defence is $23 area where the long term Triangle pattern will still look in progress and valid.
And if All Ords already started it's new Medium term advance, it would be hard to any blue chip to move down against the main trend.

 

[rimtas]

Today was another important day, most likely marking another important bottom, hopefully this time for good. Wave structure looks complete as double three ( w-x-y), and not much room left for the count to disintegrate into bearish one shown in red(as an expanding flat which looks a bit awry to me). The key level is today's low of 5168,4 which if breached will probably hit the Oct 12 bottom of 5121 and go under.

But today market seems to sport five wave intraday rally from the bottom, and this could indicate that the bottom is in and wave ((iii))(circled) up has started. Also, the whole cycle advance +decline subdivides into (close to) Fibonacci numbers of 21 and 21+1 of total days traded. This setup along with complete countable wave structure most likely is pointing to something important. Basicaly it is the best risk/reward ratio setup in the whole year with just ~30 point risk and at least ~600 point reward, if buying directly index ETF, CFD or futures.









I also would like to point out to 3 banks which I follow, due to their structures entering in the terminating waves of their respective patterns, which are all Running Triangles. I can allow for a little bit more downside to reach (or even slightly breach) the lower lines of the pattern in wave (e), which translates into 1-2% downside. But the same as ALL Ords, they can start a rally as early as next week, which confirms that new phase of advance has started.

I hold all 3 banks, BOQ bought today at 11.88 and the other two a bit earlier which are about 0,5% in the red. The best structure which looks as close to complete as possible is WBC. Other two banks can make a slight dips under todays lows.

I am also monitoring NAB which is thrusting down from expanding triangle at 1H interval and should find a bottom closer to 30,7 area.

Cheers,

 

[rimtas]

New lows in Asia-Pacific region suggests that before wave ((iii)) begins, the larger degree correction will take more time. Next week will be the key that determines medium term trend in stocks(next few months)

.

 

[pavilion103]

Gee this is such a crucial level.

I enjoy reading this stuff on EW in addition to my trading strategy. It can help paint the larger context. I don't put heaps of weight on it but do think it can be quite useful.

 

[IFocus]

Like your work Rimtas keep it up