Elliott Wave and the XAO

[rimtas]

We are bearish at least until mid June and more likely into the months following that.

I know, it is popular to be bearish nowadays, because it is very hard to build a bullish case using todays fundamentals and economy, which are crap, to say at least.
But the question is whether you want to be outside the market progression, which is always Up? Bears usually miss bull markets, which is the only time money can be made. And if you do not see a major crash (more than 50% down), there is no point to stay away form the bullish trend, which I believe is in the early stages of development long term.

 

[rimtas]

TLS has a similar-looking pattern, which could be considered as a series of the Quasi fractals expanding to higher levels. Though it is very rare to see a three fractals in a row, there it is. Now it is up to the market to prove it's validity.
The best setup would be if this third fractal could be in line with EW count, but it isn't. From the last bottom at 6.12 TLS is moving in threes, so probably downside move from here would be able to resolve this situation. Even 6.08 would still keep Fractal in tact, but lower levels would definately desintegrate it.

I never trade third Fractals because of their low probabilities, but I decided to post this chart out of curiosity.
If it holds, TLS price should skyrocket from those levels.

 

[rimtas]

Futures chart is a bit different from cash index, but at the moment is has a better wave structure in terms of completing the correction.
It can still make one more wave down to just below 5700 , but for the next bull wave to start it is not required.
Corrections are a bit frustrated to wait through, but in the end they provide opportunities to join the trend.
I Expect Monday to open in green.

 

[rimtas]

Iron Ore made a nice sharp advance, breaking out from the near term downtrend. The best move is to think that wave 3 of larger (C) has bottomed, and wave 4 advance is underway. It could take many months or even couple years for wave 4 to develop, but idealy Iron Ore should rise towards 80. This rise is in line with my BHP forecast for higher prices as well.

 

[rimtas]

Last few sessions All Ords developed into five wave advance, which means that after some consolidation it should go higher later and the last bottom of 5733 should hold for now.

 

[gartley]

I know, it is popular to be bearish nowadays, because it is very hard to build a bullish case using todays fundamentals and economy, which are crap, to say at least.
But the question is whether you want to be outside the market progression, which is always Up? Bears usually miss bull markets, which is the only time money can be made. And if you do not see a major crash (more than 50% down), there is no point to stay away form the bullish trend, which I believe is in the early stages of development long term.

Nobody can predict the long term future, but if there is a confluence of technical analysis suggesting a 15% fall from the 6000 point peak in the months ahead, why on earth would you want to be long stocks????
Surely better to be in cash or short from a R/R perspective

 

[rimtas]

suggesting a 15% fall from the 6000 point peak in the months ahead, why on earth would you want to be long stocks????

As a trader, you probably wouldn't. But for those, who bought stocks for dividends, even 30% drop should not scare them out of the market, right? Though I don't see any logic here, but many financial analysts and media makers say that market movements doesn't matter if fundamentals of any given stock are sound.
The problem with this is that fundamentals are the soundest near the top, and then gradually deteriorate until the bottom is reached. Some stocks go under, others stop paying dividents, some try to issue new emissions when the time is wrong...Bottoms sucks.
You need a good deal of experience to actually hold cash until it develops and start buying despite your limbic system is at the highest level of alarm indicating the biggest danger.


By the way, you don't need to guess long term trend-it is always UP. What matters along the way is the degree of the correction you'll be caught in. If you hold index, you can be almost 100% sure that it will climb back at some point in the future (if you are young enough, some corrections could last decades or even centuries). But stock picking is a risky business, they can go under in bear markets.

 

[rimtas]

3 months ago I posted a chart of WBC, noticing that it has the clearest wave structure in the market, this means highly forecastable.
it looked like this:





As the price reached the lowest point in the previous chart, it is time to evaluate what is happening. From the Top WBC declined in three waves, with the bottom in today or slightly lower tomorrow.
Then, 2 scenarios could develop:
1) it should start an Impulsive rally;
2) it will drift sideways and then decline, sporting a five wave decline from the top. This development will have a bearish consequences for the rest of the year. So what happens short term, will draw the medium term trend.

I see some signs in various other markets like Nikkei, SPX, Nasd Comp, Dow Utilities that can be labelled as toping, but on this later, first I need to wait for a five wave decline to make a confident forecast.

With these two WBC charts I want to point out that anyone can use EW to their advantage, as It gives you an edge to understand what could happen at any given point in the market. Just for a novice it is not so easy at it seams.

 

[Boggo]

From here - https://www.aussiestockforums.com/f...=15355&page=21&p=867003&viewfull=1#post867003

Wave 4 still in progress, no real change from this post of the daily XJO
https://www.aussiestockforums.com/f...=15355&page=20&p=863316&viewfull=1#post863316
Sub 5700 still on the cards

Well that has been achieved, took a while though.
We are now in the turnaround zone (or are we ?).

The right side of that zone (time) is the 12th May.

Charts of XJO and XAO - click to expand.

 

[rimtas]

We are now in the turnaround zone .

Agree, it's do or die at this stage. Crash should stop tomorrow and rally should start latest next monday.
Otherwise things will get ugly.
The best stock just poised for a rally to new highs is WES.

 

[gartley]

Agree, it's do or die at this stage. Crash should stop tomorrow

Crash may only pause for a while. It's higher probability we will continue bearishly until next major obvious support at 5150. That is where I am looking to completely exit short from this swing from 6000. Ofcourse will look to take partial profits before then. I have posted 2 charts in the attached excel file to explain this.
Firstly looking at the AUS200 chart. The upper pane shows price in the blue, a centered moving average (pink line) extended forward based on algorithm I developed, and 1st,2nd and 3rd std deviations of excursions of price away from pink line.
I learned a long time ago that in order to be consistent one needs to ONLY take high probability trades and more importantly think in probabilities. That's why I am very risk averse and look to bet small to make big via big swing trades.

Price movement comprises a trend and oscillations within a trend. In these charts it can be seen that prices oscillate or move from extreme to another. Extreme being between the 2nd 3rd std deviations or or more away from a centered moving average. When price does reach such an extreme it has a very high probability of reverting back to the centered moving average and more than likely the opposite 2nd and 3rd std deviations.

If price does not reach an extreme or climax a trend will persist until it does.

So looking at the AU200 8hr bars chart one can see we have reached the upper extreme and the probability was very high we would revert to the mean at the pink line and even further below the 3rd lower std deviation as we can get a throw over in a panic market.

More importantly if one looks at the monthly SP500 chart cycles chart it can be seen that it's high probability that we revert to the pink nominal line which sits at 1800. However if we move to the other extreme we are looking at about 1500. As can be seen, 1,2, 4 Year cycles have all topped.

Time will tell ofcourse, but at present I favor the downtrend to persist.

 

[rimtas]

Futures made an overlap today, eliminating the expected wave ((4)) probability.
This means that if one is holding long positions, there will be no new highs in the immediate future as expected, and most likely market will develop an Impulsive decline, which at this stage appears to be somewhere in the middle.
Sometimes overlaps occur when market is developing series one's and two's, but we have WBC, ANZ, BOQ as an example that this 2015 rise was a Thrust out of the larger degree Triangle.





This Triangle as Wave (4) (per chart below) was initially posted by EWI Asia-Pacific analyst and I always kept it in mind as a possible alternate scenario, especially when banks had a nice looking Triangular structures as well, which I noted last year in my analysis.

So basically one small missing wave which I expected in the last 8 weeks, is throwing the entire All Ords structure back to the same point where I started in the mid of 2014.

Three wave rise from 2009 leaves a trader like me in crossroads, because there are two main scenarios what could happen next. I believe I noted this already last year, but to spare anyone's time from browsing through previous post I quickly discuss main probabilities:

1) The rise from 2009 is three wave advance, or simply put- a correction. This means that market will decline below 2009 low of ~3100. To confirm it we need a sizeable five wave decline to appear from the Top.

2) I labelled it as per Alternate line. It means that a series of first and second waves are developing. To confirm this scenario market needs to decline in three waves and then start a sizeable rally making an overlap.

So basically short term both scenarios are looking down. Thrusts out of the Triangle are a swift affair and after they top out, they get completely retraced to the point where they start or a slight below, giving us an Initial Target of ~5125. When those levels are reached, I look at the structure and most likely there would be a nice entry point to ride up an oversold market.

 

[Muschu]

Agree, it's do or die at this stage. Crash should stop tomorrow and rally should start latest next monday.
Otherwise things will get ugly.
The best stock just poised for a rally to new highs is WES.

And the prospect of a rally start by next Monday is now looking remote?

Appreciate your analyses and comments Rimtas. As an older investor, pretty much retired, I find the volatility frustrating and expensive. Might sound strange - but sometimes amusing too.

And I don't want to spend my days analysing and watching the markets. There are so many more important things to do.

Regards

 

[Value Collector]

And I don't want to spend my days analysing and watching the markets. There are so many more important things to do.

Regards

Once you have a portfolio of good diversified companies you don't need to do a lot of work, If you owned a such a portfolio you don't have to worry about volatility, you could have held cba right through the gfc and you would be in a better position today than you were before the gfc.

 

[rimtas]

And the prospect of a rally start by next Monday is now looking remote?

The do or die date for a rally was before the overlap between waves occurred. So basically it's a die.
Even if we had the last fifth wave to 6150 as I was expecting, things would have crashed after it anyway.

But there is nothing to worry about at this stage if you are a long term investor. I have no any stocks at the moment, but my super is 100% in stocks. Later in the year I expect a situation to be much clearer and I will decide whether I should be out of market completely or jump in again.

The major concern is US market-optimism there is so elevated and for so long, that red lights are flashing very bright.
I'll have more analysis re this later.

 

[gartley]

Even if we had the last fifth wave to 6150 as I was expecting, things would have crashed after it anyway.

How do you know that??? Elliott Wave is not gospel, absolutely anything is possible at any time and there are no certainties. Market could have just as easily continued trending to wherever it wanted and made fools of all of us as it usually does with most who trade it anyway.

But there is nothing to worry about at this stage if you are a long term investor. I have no any stocks at the moment, but my super is 100% in stocks. Later in the year I expect a situation to be much clearer and I will decide whether I should be out of market completely or jump in again.

Really??? A long term investor who invested in the Aussie Market in 2007 would be down to breakeven now. If they invested in the FTSE in the year 2000 the same, and if you invested in the Nikkei 25 years ago you would still be down 50%.

As soon as you have a position in a financial market you are at risk ( unless you have a crystal ball) and have everything to worry about. You must have a trading plan to go with that trade. A clearly defined and written strategy to escape.
The only things we can control is how much money we risk and keeping our emotions in check. Market will not differentiate between long and short term investors

 

[rimtas]

Thanks Gartley for your valuable input. I know, stocks worldwide got overvalued and overbelieved in the last decades as an investment panacea (like real estate as well).

Looking back at the market, financials crashed the most, and the Financial Index looks like having the strongest third wave already in the past. This means that it has declined in three waves, thus a countertrend rally should start soon(maybe it started today).
If banks go sideways in the week to come, it would be a good indication that a fourth wave is in the works, with fifth to new lows to follow after. That's where the buying spree begins.
I expect this wave A to be "five" and bottom out at the previous Triangle Apex-at least this is a clasic market behaviour after the development we had in the last year.
A waves sometimes could be "threes", but in this case everything gets more complicated and time streched, so I 'd better folow the simpliest path, as usually it is always the best.

Chart is Daily, so patience is required, the whole scenario could take few weeks at least.

 

[gartley]

Looks like we might get a bounce into Monday/Tuesday. Have taken a very small position with a stop at 5574. Cycles look to have turned up for now, but how far up we go not certain, it may morph into a sideways move

 

[rimtas]

In the light of recent events I checked few world indices-Japan, China and US tech Nasdaq. The most interesting apears Nikkei, which can be labeled as a five wave advance from 2009 bottom. If you throw in some oscilators like RSI, MACD, Jurik or any other measuring the speed of the price advance, they all are diverging in the last (5) wave comparing to (3).
Wave subdivisons, especially in the last waves, are textbook "fives". Even more, from the Top Nikkei declined in a small "five" which could be a precursor to a trend Change. Time will tell, but I would be very cautios about the further advance in Nikkei.








The next one is China. Just few weeks ago China was making headlines with the facts about how "mum and dad" finally got into market, how margin lending skyrocketed and that a record of 4mln new accounts were opened with the intent to invest in stock market as "it had a nice performance". When those types of social events are accompanied with the complete looking wave structure, one must be very cautios.

A technical side comprises a Three wave rise from 2008 bottom, separated by Triangle. Triangles usually means that the Thrust out is final. The overall picture in this chart could be pointing to another GFC type event with wave (c) down next. "Mum and Dad" buying could be the good sign that the trend is mature.
Note that this is the ETF chart, which is a bit diferent from actual Shanghai Composite which is still well below 2007 high.




US indexes are all fractured, having different wave structures, making it hard to draw any confident conclusions. The global representative Dow Industrials looks like having an Ending Diagonal in the works, but no confident forecast can be made in relations to a short term move.
But looking at the Nadaq Composite it sits just few points below the Dot Com Bubble High. The double Top could be in line with wave labeling, pointing to the final subdivisions of the corective Three wave rise from 2002 bottom.
Given the fact that optimizm towards US stock market is the highest in history ever, the reversal could be from here.




Well, Australian Market just completed a Three wave rise from 2009 bottom, what a coincidence with those other markets above, all reaching some sort of technical turning points.

But the Only market having an Impusive decline yet is Japan. (if not to mention Dow Utilities which toped out many monhs ago and crashed since). If other markets will start falling Impulsively, we could have more evidence that something important is happening.


Also, I just remembered the article I've read on ZeroHegde on April 13, reporting by A. Giryavets from Dinamika Capital. He posted a thirteen year long index reflecting the rate at which corporate loan applications at banks and other lenders are rejected each month, as reported by the National Association of Credit Management. As best I can tell from this chart, the Y axis denotes the points' deviation in the index from the midpoint of the data series at 50.
The plunge in the final bar can be called a "light swich" event. Sudenly in March 2015, banks and other lenders rejected business loan applications at a rate that must be at record high since the 1940s. Wow. Here is one more amazing indicator of monetary and economic weakness in the face of stock market strenght. Measures such as this suggest that difference between aggregate stock prices and companies' true values is the highest ever.

 

[gartley]

Nikkei had a 20 year cycle low in 2009. It will not see new lows but most likely a retest of those lows and thereafter a great buyiing opportunity.