Elliott Wave and the XAO

[rimtas]

Short term market is moving as expected-an Impulsive advance developed from a bottom. After the correction the next leg should carry prices higher towards a descending bearish line, where the bearish count would be either approved if prices find support here, o denied if prices break higher.
Basicaly the entire 6 year advance from 2009 bottom will find a resolution at those levels, as the the next few weeks should determine the trend of the next few years, so the wave structure is very important here. I do not see a sideways movement that would last months, it's either sharp up or sharp down, in extreme manner.

 

[rimtas]

As market is getting closer to the descending resistance, the Target for possible Top can be seen in the 5640-5690 area, depending how sharp or slow/choppy the rally unfolds next week.
If the Trend will be set UP, prices should break this resistance strongly and never look back, changing the labelling from a-b-c to 1-2-3.

 

[rimtas]

Below are Three main DOW Averages. If DOW30 has indeed sported an Ending Diagonal, it should basicaly start to decline within days(few more daily sideways bars doesn't change the picture).

As one can see, Transports and Utilities already have enough series 1's and 2's and probabbilities of them to develop more of them are diminishing quickly. This means that either we see a sharp decline soon, or all three main averages will leave their structures as corrections with a potential to climb to new highs.

Somehow I am thinking about Grexit that would fit here this week, potentialy creating the Point of Recognition move in the world markets. Or to put it simply-wave structures at the main indexes points to the Grexit.
It remainds me of Sep 2008 when Lehman Brothers went under- next few days markets were even trading higher, but ultimately went into panic and Dow colapsed more than 3000 points within weeks.

 

[rimtas]

Market sees the descending Trendline Important-prices reached the level mentioned and started to decline. In Order to sustain a medium term rally, market must find support near 5500 level(in futures) and break upwards from the declining trend in the next few sessions.
The Key level for futures is 5425, which if breached, confirms that All Ordinaries most likely started a Bear Wave wich has a potential to drag prices near/or below 2009 lows in the next 12 months.

 

[rimtas]

The chances to recover are vanishing quickly as futures fell down in five waves, basicaly meaning that new lows are ahead.

 

[rimtas]

Oil is going sideways/down, no clear indication of what is going on since the last EW update https://www.aussiestockforums.com/forums/showthread.php?t=15355&p=868933&viewfull=1#post868933 .

But looking at the sentiment figures from TradeFutures.com OIL has managed to attract a whooping 83% bulls in just 6 months, from the record low of just 3%. There are no talks anymore about "oversupply", and those who see oil going lower say that it will go there till the end of the decade, but not now (Bloomberg, May 18: Goldman Sees Oil at $50 at the End of the Decade).

Given the fact that oil has risen in three waves and the current futures traders bullish sentiment, oil most likely start to tank again, though I must admit that commodities from the start of 2015 entered a 2-3year positive cycle in a 20 year bear market that will last till 2030. This means that Oil has a potential if not to rally, but then at least go sideways within 45-60 area and not fall to new lows within that period.
I would love to see cheaper prices at the pump, as now petrol costs almost the same as when OIL was $100.

 

[Smurf1976]

From a fundamental perspective, the idea that the oil price drops significantly from present levels or even remains constant raises some interesting points about physical supply and demand.

See chart here: http://www.euanmearns.com/wp-content/uploads/2014/01/C+C_detail_jul13.png

In short:

Conventional crude oil (what most people think of when you say "oil") and condensate (light oil that comes up out of the ground with natural gas) has been flat for a decade despite huge variation in price over that time. Production didn't increase when the price went up, and thus far it hasn't dropped in response to the price fall. It's flat, with a few bumps in a fairly narrow band.

Next comes Canadian tar sands. That's more of a mining and processing operation in physical terms than an "oil field". A key point there is that one built, a processing plant and mine runs at a constant rate (apart from maintenance outages etc) throughout its life. It doesn't have the peak and slow decline that a conventional oil field does, it's more akin to how a factory or power station operates - pretty much constant until it eventually closes.

Then there's US Shale, and that's been the only real source of growth in recent times. This one is interesting since there are plenty of reports emerging that with the price falls that growth is slowing and perhaps even reversing. The rig count has dropped and in due course production follows.

Take out Canadian tar sands and US shale and we'd have had zero growth in oil production for the past decade globally. Some countries up yes, others down, but flat overall. Now, if the price is going to stay low then it ceases to be viable to keep growing production from these two sources, indeed there have already been plenty of projects scrapped. That's the end of oil supply growth unless someone else has come up with something and is about to put it into production cheaply (but who and what?).

The big question is what other underlying factors would be present if this low oil price, flat (or declining) production environment eventuates? Demand for petrol etc drops due to technological change (electric cars etc) so we just don't need as much oil anymore? Or is it that the economy falls in a heap and kills consumption? That's a rather big question if we're actually going to see oil stay cheap.

 

[rimtas]

Or is it that the economy falls in a heap and kills consumption?

This is the best explanation/anticipation related to demand for commodities. Worldwide economic recession/depression would kill demand for everything-commodities, stocks, houses, cars and other goods. There are studies made (in relation to market cycles) that first signs/ recognition seen by broader population that the economies are in severe state will be just a year from now-mid 2016, and the bottom of economic depression sits in a 2021-2023y range.
If markets made their respective Tops in April this year, they should fall right till mid 2016, marking first leg of the decline. Then a relief rally into mid/late 2017 follows and after this the biggest drop in history till 2022 occurs, where the long term bottom would be set. That's a rough calculation of course, nothing is written on a stone, but it would be interesting to where the markets will be in just 12 months time.

 

[rimtas]

New lows today increases chances that market is very close to Point of Recognition area. Today we saw 377 stocks rose while 1.222 declined(according to TheBull.com.au), meaning that the breath was 1:4. For a Point of Recognition it is still too low, meaning that this is only an early stages of it.

When market produces 1:8 or 1:9 ratio between advancers/decliners, it will mean that the middle stage of the decline is upon us. Usually it is a big down day( or few), with "gap and go"(down) movement.

Today radio ant TV announced about the stock market "crash". It is not very common for non-business News have a comment on stock market, and I almost never heard it on radio entertainment channel. This only adds confidence about the fact that public starts to be aware about the direction of the trend.

I have no chart today as All Ords Waves from April Top are overlapping and this needs to be resolved by time in order to give and idea how much more market will drop before a sizeable correction (up) develops.
But I am looking forward to see the Point of Recognition drop, as it will be a view to behold, especially when sitting on cash.

 

[rimtas]

Asia Pacific short term chart-Two months decline produced clear looking Impulse wave from the Top. It can be labeled as series first and second waves as well, but the bottom line is that this devlopment is bearish, and looking at the long term charts it is extremly bearish.
So either the multiweek rebound develops from here and later markets plunge in a crash, or they will crash right from here.







In the longer term Asia Pacific chart here https://www.aussiestockforums.com/forums/showthread.php?t=15355&p=871723&viewfull=1#post871723 one can see the paralel trendlines. Today, prices are trading below the lower one, and this development also adds more evidence that the downtrend in the region has started. The short term bounce that could develop in the coming weeks, most likely retest the trendline, as this is the classic market behaviour before the next leg of decline, they call it "kiss and goodbye".


Based on the decline in Asia Pacific chart, I applied the same count to All Ords, or more precisely-on ASX 50 fund SFY , which, as I discused earlier, indicates much more better wave structures than XAO on a Daily chart. XAO has overlaping waves and there is no way to label it like SFY, so on the same chart I added a bearish count, which portends a crash .





In a bullish case market must start to rise tomorrow, and should develop a multiweek correction to the area marked in yellow. Why tommorow? Because futures declined in five waves, thus if correction up starts , it should start from here. Just I cant see any small "five up" yet from the bottom that could give us an early indication.

 

[rimtas]

One important measure of sentiment shift can be found in German Bond market.
Last month's "screeching U-turn on bonds" represents another delicate financial bubble that may have just found its pin. Notice, for example, the technical damage that pervades this chart of 8-10 year German bund futures, as prices have plummeted through the lower boundary of a 20-month trend channel.





Also, observe the quick switch in sentiment among bund futures traders. As the market sold off, the Daily Sentiment Index (trade-futures.com) broke away decisively from a long string of plus-90% bullish readings that persisted throughout 2014. It's one of the most dramatic U-turns I have ever seen, and it's the kind of light-bulb moment that frequently occurs at major market turns. With reversals well under way in Europe's weakest borrowers (Portugal, Italy, Greece and Spain), the about-face in the almighty German bund suggests that the credit crunch is now proceeding with a much broader agenda. It should be the start of a long-term trend toward rising borrowing costs.


The swiftness of the bund breakdown generated an equally strong reaction to Mario Draghi's €1 trillion quantitative easing program. "It's as though QE disappeared," said one company CIO, who oversees €197 billion of fixed-income assets (WSJ, 5/7/15) "In one week we had a total unwinding of all QE-related trades." It's exactly the kind of psychological shift, saying that investors would soon view QE as the "worst policy blunder ever initiated by a modern central bank."
Up until now, most pundits believed that a major bond sell-off would be impossible, given the ECB's €60 billion-per-month backstop. The awakening has been particularly rude, as the Wall Street Journal reports that about €344 billion was wiped off the value of eurozone-government bonds. For most European bond funds, all of the gains made so far in 2015 were erased in a matter of weeks.

Still, this is the beginning, not the end, of a trend that will see rising interest rates wreak havoc on Europe's debt-dependent economy. There are many dangers posed by the asset bubbles that have formed in real estate, high-yield debt, British IPOs and bank stocks. But no matter how many bubbles one can identify, the credit bubble underpins all of them. In other words, once credit begins to contract, the air will leak out of numerous inflated assets, most of which investors are now only dimly aware of.

 

[rimtas]

There is a 7 year Cycle between Tops operating since 1973. It has a left or right hand translation with an amplitude lasting approx +/-6 months. All bottoms that occurred after were early within the Cycle, usually in the first 20 months, with the exception of 1987 crash.

Most recent April 2015 top occurred exactly within the boundaries of the operating Cycle, marked declined Impulsively from the top confirming reversal.
If the same dynamics continues, we can expect the bottom to occur somewhere in the mid 2016, regardless of the extent of the decline.

 

[gartley]

If the same dynamics continues, we can expect the bottom to occur somewhere in the mid 2016, regardless of the extent of the decline.

View attachment 63269

A bottom in an uptrend or a downtrend???)))))

 

[rimtas]

Gartley, bottoms do not occur in uptrend, only tops. In order for something to reach a bottom it must fall first, right?

In the chart above only the date of the bottom is indicated. The price level can be any, but if this cycle pattern is still operational, it suggests that any rise in prices will only be a dead cat bounce with new lows to follow. Of cource, Cycles are good only as far as they go and there is no way of knowing when they start or end. I would say if All Ords rises from here above 6000, consider this Cycle ended and is no longer operational.

 

[rimtas]

Short term market will most likely rally to 5650 area or higher, sporting a first 'Three' of the sequence of corrective patterns that should ultimately develop into the second (2) Wave.

Today market breath was not so negative as the closing price suggests, as for every 2 stocks that fell there was 1 that has been rising, overall giving a 2:1 breath ratio, indicating low selling pressure and increasing optimizm.
5428 level in All Ords Cash index is a key level for the scenario to play out, but probabilities for the rebound are higher here despite the Greece scare, which, to my opinion, has nothing to do with the future market action.

 

[gartley]

Gartley, bottoms do not occur in uptrend, only tops. In order for something to reach a bottom it must fall first, right?

Depends what degree of trend we are talking about

 

[rimtas]

Because market took more time to correct the advance from the wave (1) Bottom of 5323(in futures) I adjusted expectations accordingly.
Cash index even managed to reach new lows, negating the structure and labelling, but as futures and SFY(EW indicator) were trading in accordance to expectations, I assume the best labelling would be that All Ords will sport a sharp Wave (2), retracing 61,8% or more ( towards ~5800 level in futures). Most likely banks and WOW will lead the market higher.
If market can not realize a sizeable countertrend push up now, it means weakness and the crash directly from current levels is inevitable.

But just monitoring the environment one can notice a widespread bearish consensus, which inflects the words "china share crash", "Bubble" and "iron ore crash" widely and intensively, meaning that some point of fear extreme has been reached and market needs to take a breath and accumulate more energy before another leg of decline, wich later will carry prices into 2012y territory. So expect a rally now, but be prepared to unload at any time, as corrective market mood is hard to forecast and wave structure keeps changing constantly..

 

[rimtas]

Last week cleared the fear out of the markets, as Greeks were “saved” and Chinese government manipulations “worked”. But what appears to be a new rally, in reality is only a countertrend push, as Shanghai Composite and Asia Pacific charts suggests.

Both crashed in five waves down, with fifth waves extended. This means a new trend towards much lower levels. But in the meantime, a countertrend rally that is already about half way through, is taking place. Usually a correction retraces entire fifth wave when it is extended, or terminates near the peak of its second wave. These areas are 4350 and 4750 in Shanghai Composite and 480-490 in Asia Pacific Index, which means about -/+10% more to go.
All Ordinaries are no different, just the wave structure is more complex, suggesting that a 4 month decline is a Leading Diagonal, with each subdivisions consisting of threes. A confirmation that decline was Impulsive can be seen in the entire Financial sector, with CBA having a clearest Down structure as a Five. A countertrend push that is developing right now can take few paths and end somewhere at ~ 5800 in ASX Futures and $90-94 in CBA.

I expect to see all of the below shown charts to be aligned for the next leg of decline almost at the same time, with rally ending suddenly and abruptly, resulting in a violent down move, which should come as a surprise to most of the people. Good news in bear markets usually mark the tops of the countertrend moves, so It is worth looking for any announcements that at the first glance would seem as a “catalyst” for further advance, but in reality it will be the opposite.

 

[rimtas]

The last subdivisions of wave c (circled) remains in progress. Today the entire advance from the 29th June bottom retraced 50% of the decline.
If rally extends further in to fifth wave (v) of c (circled), it can carry to 61,8% retracement level of 5750.

The entire three wave pattern looks a bit short in time, so I expect that the decline which starts just days from now(if not tomorrow), will develop into a corrective manner, leaving some space for another "three" later to 5800 or higher, as Wave Y(as indicated in my previous post).
But at the same time I am not ruling out that Wave (2) Top can be just few small subdivisions away and market just collapses in a third wave, carrying prices below 5000 over time.

Decline in an Impulsive manner below 5600 will confirm that Wave c(circled ) is over and short term trend will be down from there. Whether it develops into and Impulse or into a correction is to be seen. Good time to sell.

 

[rimtas]

The top discused yesterday was confirmed today, with market falling down through 5600 support.
Though the decline erased 1,5% of gains, the internals were quite strong, with 540 stocks rising and only 804 falling, leaving the breadth ratio close to 1:1,5, which suggests that the move is not the Kick-off of Wave (3)(as per alternate).

This can change at any time, but the main scenario I am looking at is that market should fall in three waves(in any form, shape and size but not lower than 5324 in futures), generating a corrective move, after which another three wave rise above 5668 (in futures)begins.

But If Wave (3) has indeed started, it's initial Impulsive wave should produce a Kick-off move straight to 5300, creating short term deeply oversold condition, which usually won't be reversed.

So again-the way waves unfold will determine what to expect next, but this is not the buying opportunity.