Elliott Wave and the XAO

[rimtas]

Not much to add short term, market is advancing higher and higher, probably will gap up o Monday in this strong bull wave. So a bit of weekend reading looking at long term perspective.

Australian social critic Donald Horne coined the phrase "the lucky country" when he published his seminal analysis of Australia, The Lucky Country, in 1964. The book came out during an economic boom toward the end of a nearly 40 year long bull market, and this title fit the mood of the times.

Although Horne used the world "lucky" somewhat negatively, the phrase has been popularly interpreted to mean that Australia is blessed with many advantages, including abundant natural resources, good weather and some separation from global problems.

Nearly 50 years later, I can add another reason for Australians to count their blessings: a history of relatively short and shallow bear markets in stocks.

According to the oldest Australian equity index I know of, which begins in 1875, bear markets in Australia have lasted no longer than five years. In addition, only one resulted in declines of more than 50%-the 55% decline during the 1970-74 bear market (monthly closing basis). Even following the 1929 crash, Australian stocks fell only 46%, bottomed in 1931-a year ahead of other global markets-and recovered to new all-time highs just five years after the 1929 top.

Australian stocks' long-term trend channel is the oldest proven channel that I am aware of among global stock markets. Time will tell whether stocks will continue to rise within this trend channel, but history tells here that betting on bear is a bad idea.

Though there is a small probability that in the next 5 years All Ords will test the lower trend channel which runs around 3000 area resulting in bigger than average bear market, totalling ~13 years(from 2007 to 2020), I am not betting on it because of historical performance. I expect the prices remain above the middle trend channel line in the next decade or more.

2009 bottom was a suspected Supercycle Wave (IV), thus Wave (V) is underway. This is a big wave, lasting decades, and stocks are cheap right now. Prepare yourself to climb a Wall of Worry.
And of course, Blue Chips are the best way to ride this wave, because they represent the mood of the market.

 

[rimtas]

A stock that has a complete looking wave subdivisions is Telstra. The decline from 6,74 top consists of three waves, technically appearing as double three(wxy) .
It crashed more than I expected, but after forming a bottom at 6,25 price rushed back into the channel, which is bullish. Usually this is the price action of wave ((iv)), so I am looking for next wave ((v)) to reach ~7.00 level before the next correction. I added to my position another 1000 shares, using this decline as an opportunity to spend more cash.

 

[JonTaf]

Hi rimtas,

why do you use sometimes log scale?

thanks

 

[rimtas]

Hi John,

Log scale enables to see price patterns on a very large time frames, where aritmetic is just a flat curve. So the answer is-log scale helps to visualize charts to the point where mind accepts them as valid.

 

[rimtas]

Short term subdivisions proved that BHP is on the run in an Intermediate Wave (D), which should take the rest of the year and Top in the $45-50 range before the (E) wave crash. I will use any correction as a BUY, I am confident that ~27 bottom will not be breached. With Iron Ore bottoming(for a dead cat bounce), and market overall in a positive wave, BHP should sport another wave for a long term Triangle pattern.

 

[rimtas]

Most likely market is ready for a turn. It reduced it's speed, right indicator is flashing and the driver started to hold the wheel harder. Will it change it's mind at the last moment is to be seen, but now I will be looking for a small impulsive decline which will break the wining streak. As a guide for wave formation I am looking at banks, because XAO has more interpretations here.

Westpac and NAB both have textbook subdivisions, but the last wave ((v)) would look better if it took more time(and price). So I suspect market can sport an Ending Diagonal and then crash. Or just spike higher above 40 and reverse. Both ways it should be the last wave and major multimonth correction should develop, killing the positive market sentiment before the next leg of advance.

But if I am right and market is indeed in Intermediate Wave (3), surprises always comes to the upside, and the risk of not to be able to buy cheaper if sold here is real. So do your bet.

 

[rimtas]

A good indication of the developing bull market can be seen in the MidCap50 index. 6 Years after the bottom and numerous overlapping waves, it looks like it's started to pick up speed.

The best count that comes to mind here is series of first and second waves from 2011, which implies that current rise is just approaching the middle of the rally in the strongest part of the sequence. If I am right, at the end of the year MidCap50 index should be at least 15-20% higher than today, ultimately reaching new highs above those of 2007 in the years to come.




Constituents of this index have very similar wave structures, with Quantas, Resmed, BOQ, Boral, Seek, Caltex, TTS accelerating in their respective third waves.
I own BOQ at the moment, but looking to add TTS to my portfolio due to best looking structure, (which means best forecastable). Though the strongest wave is in the past, but there is at least 25% rising potential before the major multimonth correction starts.

 

[rimtas]

BHP Cut the wining streak, showing that five wave advance from the bottom is complete, confirming that Intermediate Degree Advance is underway. Short term I expect some sort of pullback in three waves, most likely towards ~30, offering another opportunity to enter the market.

 

[rimtas]

Major stocks and XAO made an Impulsive decline from their respective tops, indicating that almost 3 months of advance is over, and market is going to get some breath. For a healty ride corrections are mandatory, because without them optimism builds too quickly and to the dangerous levels, which leads to a crash.

Stair step advance is what keeps sentiment low, alowing market to climb further . First level to watch is previous (iv) extreeme at 5704, but 5642 is more likely where it would erase 38,2% of previous wave. Deeper levels are probable and I will be watching for wave structure to determine the most likely end, but it could take months to develop. At the end of this correction the talks about recession and alike will increase as declining market makes people more pessimistic about the future.

Alternate is that only wave (iii) toped, and wave (iv) is in progress. In this case 5700 level should be a formidable resistance and (v) wave rally should start from here to new highs. But major banks and minings do not support this case, so probability is higher that larger degree wave has toped.

 

[Logique]

The All Ords seems to be struggling to push through this level ~ 5870 or so.

Vulnerable to a retrace I'd have thought, especially if OS markets pull back.

Starting Monday.

 

[Boggo]

Update of XJO chart from one month ago here https://www.aussiestockforums.com/f...=15355&page=19&p=860086&viewfull=1#post860086

If it continues by the rules then W.4 is target area.

(click to expand)

 

[rimtas]

OIL is in the last subdivisions of wave (B), just days from bottoming, presenting a good short term trade if buying in $56-53 range. The next leg of advance should carry prices towards ~$70, in five waves.

https://www.aussiestockforums.com/forums/showthread.php?t=15355&p=861227&viewfull=1#post861227

 

[rimtas]

All Ords today made a small five wave move up from 5723 low, indicating some sort of trend change.

From the Top index declined in clear three waves, leaving many interpretations, but the main thing to look is that either one more wave(after a bit of pop up) towards 5650 levels would develop, or a rise towards 5900 should start from todays low.

Both ways the rise in wave (b) should be just a part of even bigger correction, and ultimately XAO should decline lower in the weeks to come, capitulating in wave (c).

 

[Smurf1976]

I must say that whilst I don't properly understand the method being used, this analysis is extremely interesting to follow and learn from. Good work rimtas!

 

[rimtas]

As DOW is the world benchmark of markets direction, I looked at the waves today. It atracted my attention (again), because I saw the recognizable pattern. There were some attempts to forecast major tops, but as index is at ATH, most bearish scenarios lost ground invalidating thinking that rise from 2009 is a bear wave consisting of "threes".

At this time trained eye should see that a five wave advance is developing, and because it entered in the second half of the rise, forecasting should become easier.
I think that Intermediate wave (3), the strongest one, has topped, or is in the topping process(maybe ED?), which could take a few more months. After this, most likely in the midle of the year, the most bearish correction from 2011 should develop as an Intemediate Wave (4).

So basicaly the market's strongest advance is over and it will start to slow down at bigger degrees of trend in the years to come.

It is too early to say where it can top out completely, this I'll leave to future discusions when we will have more waves, but some analysis using market cycles indicates that some sort of bottom is due at mid 2016, and one major bottom is predicted to bottom out in y2021-2022. So local and major Tops could be this year and somewhere in the end of this decade.

The conclusion from this is that there shouldn't be any major crashes next year or year after, markets around the world should climb further in a stair-step manner.

 

[rimtas]

Nice rally today at ASX.
All Ords reached previous highs and it is very important what happens from here. It could colapse straight away in five waves to the last week's low, and only then rally; or it will hit new highs and rally further to 6100 or so.

I will use a Mid Cap 50 as a guide, which jumped to new highs today.This means that wave (v)(of a third wave) is undeway, that could rise another 3-5% from here before topping out.
But I can't rule out a posibility of Expanded Flat , with wave c down coming soon(as per Alternate ), but this should happen tomorrow or next Monday at latest. If not, happy days will continue.

MID CAP 50 also indicates that a TOP at the bigger degree of trend is still months away.

For someone this may look like not much value in trading terms, but for me everything is more or less clear-there is no complete wave structure, which means no SELL.
So just patiently waiting, holding everything, getting dividends and looking for fresh opportunities. Just added WOW to my portfolio, half of the initial position because still no confirmation of reversal(need five up to add another half).

 

[rimtas]

It is time for all knife catchers to look at WOW. A crash from FEB 24th top of ~34,70 produced 5 waves down hitting 28,52 bottom as expected, reaching an important target area discused earlier (see previous EW discusion in WOW thread).

Price managed to sport a "five" up from the bottom(as Leading Diagonal), which indicates a trend change. Now I am looking for a three wave correction down and after this a shoot up should develop. So it is a good time to load up. The analysis would be proved wrong if prices are about to decline below 28.50, so little risk here, just about 0,40 cents. ( Idealy executed trade would be with 28,7 entry, leaving just 0,20c risk-buying 1000 shares one could lose only 200 bucks)I like those kind of setups. With market overall trending up, there are little stocks left that could provide a good entry opportunity(I am talking about blue chips only).

 

[rimtas]

WOW rally is more likely a third wave from the bottom, but there is still no time for celebration.
If the trend is turning, it could be a messy affair- a series of first and second overlapping waves or a simple five from the bottom at larger degree.
I expect prices to reach an extreme of the previous Triangle of 30.20, but the bottom line is that at this stage we need to wait for the larger Impulsive pattern to develop. Probably few weeks should clear this, unless prices crash to new lows from here (below 28,53 ).

 

[rimtas]

I just wondering if DOW could sport an Ending Diagonal as the final wave of Intermediate (3). The prior Wave 3 has ended with ED, and two Diagonals in a row is rare. But there is nothing to suggest that this is impossible.

The case for Diagonal is on the plate because Dow started to move in "threes" from wave 4 bottom. There is not much variations of what can happen when price is moving not Impulsively(in fives). I will not discuss other scenarios here, as this post is not a forecast, just an observation. I make forecasts only when I clearly see a pattern complete or almost complete. The previous Ending Diagonal took almost 12 months to develop, and because this is the higher degree wave this one could take even longer. So far it is only 6 months in progress, so more to go before it tops out.

Implications for world markets would be more on the upside for the rest of the year if ED in DOW continues to develop, just the outcome later won't be very nice.

 

[gartley]

As DOW is the world benchmark of markets direction, I looked at the waves today. It atracted my attention (again), because I saw the recognizable pattern. There were some attempts to forecast major tops, but as index is at ATH, most bearish scenarios lost ground invalidating thinking that rise from 2009 is a bear wave consisting of "threes".

At this time trained eye should see that a five wave advance is developing, and because it entered in the second half of the rise, forecasting should become easier.
I think that Intermediate wave (3), the strongest one, has topped, or is in the topping process(maybe ED?), which could take a few more months. After this, most likely in the midle of the year, the most bearish correction from 2011 should develop as an Intemediate Wave (4).

So basicaly the market's strongest advance is over and it will start to slow down at bigger degrees of trend in the years to come.

It is too early to say where it can top out completely, this I'll leave to future discusions when we will have more waves, but some analysis using market cycles indicates that some sort of bottom is due at mid 2016, and one major bottom is predicted to bottom out in y2021-2022. So local and major Tops could be this year and somewhere in the end of this decade.

The conclusion from this is that there shouldn't be any major crashes next year or year after, markets around the world should climb further in a stair-step manner.


View attachment 62019

You have labelled this as an impulse but are you sure it is? Looking at the bigger picture may suggest the broadening top of the last decade maybe completing. This looks like a big wave 4 expanding triangle. It remains to be seen if this bull can sustain it's run into 2016. Personally I believe we will start a major decline between now and October as major indices world wide are blowing off at present. Time will tell))