1 P a g e. Executive Summary

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1 Executive Summary Based on this week s deduction of observable facts, we continue to favor the major a at SPX 1867, major b at SPX 2021 and major c down to SPX ies around October How exactly the market gets there from current levels is a smaller matter of debate. Either intermediate a and b of major c completed, or the market is still in intermediate b of major c. Current weekly charts are still tracking the (primary II) 2011-correction extremely well; for the 6 th week in a row in fact. Market breadth turned negative this week, and has simple remained too low to kick start a new uptrend. As such a major 1, 2 (SPX =1, SPX =2) count is deemed very low probability. Using our SMAs chart, daily TIs, Bradley turn dates, and time-fib extensions as a guide we continue to expect lower prices around October 9-12 with, however, improved market breadth. This positive divergence, among others, should then kick start Primary V to new ATHs. Big picture wise, please note that primary II and IV do NOT have to alternate as Elliot Wave Principle states: The guideline of alternation states that if wave two of an impulse is a sharp retracement, expect wave four to be a sideways correction, and vice versa. Hence, those looking for alternation may simple not find it. In addition, Because the termination of corrective waves are less predictable than those for impulse waves, it can be difficult to fit corrective patterns (zig-zag vs flats, etc) into recognizable patterns until they are completed and behind us. Hence, we need to excersize patience and flexibility to our analyses: we may even be dealing with some sort of complex triangle (not uncommon for a 4 th wave) that we can t deciver yet. However, and again, we stick with our preferred count until it stops working and we will adapt one of the alternate counts that we have on our back burner The price levels shown below delineate what targets to expect with breakdowns and breakouts: 1909, 1900, and 1867 for downside targets and 1953 for upside targets. Price levels to watch remain largely unchanged compared to last week: <SPX 1909: intermediate a or intermediate c still ongoing: NEXT TARGET 1867 <SPX 1867: intermediate c ongoing: NEXT TARGET 1850ies to 1830s. >SPX 1953: minor c of intermediate b of major c still underway targeting SPX As such I.I. advices bulls to be patient and to get ready to buy for the long term if you haven t done so already. Bears should become more cautious 1 P a g e

2 Elliot wave update Two weeks ago we identified the major b target as a price zone of around SPX The ideal mid-2000s target falls nicely within this more exact : 2030, 2031, 2034; respectively. With a top at SPX 2021, we got pretty close. Since then the market has done a reasonable impulsive looking move down, but IMHO it counts better as a 3- wave decline: (green) minor a, b, and an around c=a to fisnish (red) intermediate a at SPX 1909 (1910 was expected). See Figure 1A. Then we got what appears as 5 waves up to SPX 1953, and again what appears a 5 wave decline to SPX My preferred count as such is that we re still in intermediate b of major c, with a minor c wave up to complete this b-wave between SPX However, it is not necessary as b-waves often fall short of their upside targets in bear markets. One could also count this as wave 1, 2, 3, 4 and wave-5 down of all of intermediate a underway, but it is not my preferred count as 4 is now almost twice as long as 2: 44p vs 27p, while it also moved entirely outside the (blue) descending trendchannel and in fact found support at the upper trendline on Friday. In addition, the Bradley turn date was on September 23 and the market bottomed on the 24 th at SPX 1909 and reversed strongly. As such these waves are most likely not of the same degree. Figure 1. SPX 10min chart: preferred count is that intermediate a of major c is in, now in intermediate b. 2 P a g e

3 A bullish count with intermediate a of major b (at SPX 1993) as major 1 and intermediate a of major c (at SPX 1909), with major b being minor b of a failed irregular flat can even be proposed. However, I see this count as even less likely then the minor 1, 2, 3, 4, 5 of intermediate a count as there simple was no kick-off in market breadth at the SPX 1993 high: see page 8. I also can t rime this with the Bradley turn dates, or with the idea that Primary V will thus be over very soon (weeks) at barely new ATHs. That simple doesn t fit. Figure 2. SPX hourly chart: preferred path intermediate term to our mid-1800s Primary IV target around October 9-12 based on the Bradley Turn Date of October 9/10 as well as the Time-Fib relationship of 3 Hence, I will only entertain this count IF the market is going to blast off the coming week. If it won t, then this count was simple one of those don t confuse me with very low odd counts. As such, we keep working with the preferred count, which has worked very well for us for weeks: it nailed the major b-wave high 10p short but right on the day, and nailed the intermediate a-wave low right on the money but one day late. Don t change a winnig team. Thus, going forward, I still prefer to see the SPX area to be hit for intermediate b, where minor c=a from the SPX 1922 low made on Friday, followed by intermediate c of major c down towards our marginal lower low of SPX zone. Two items for the elliot wave affectionados among us: 1) wave 2 and 4 (in this case Primary II and IV, with II being the correction in 2011) do NOT have to alternate. There is not ultimate rule for alternation between these two waves. It's a guideline, an expectation. Elliot Wave Principle states: The guideline of alternation states that if wave two of an impulse is a sharp retracement, expect wave four to be a sideways correction, and vice versa. And 2) Because the termination of corrective waves are less predictable than those for impulse waves, it can be difficult to fit corrective patterns (zig-zag vs flats, etc) into recognizable patterns until they are completed and behind us. So we need to excersize patience and flexibility to our analyses. Hence, we may even be dealing with some sort of complex triangle (not uncommon for a 4 th wave) that we can t deciver yet. However, and again, we stick with our preferred count until it stops working and we will adapt one of the alternate counts that we have on our back burner. 3 P a g e

4 SPX update With the past 4 days out of 5 red -as we already expected last week based on the S/R, trendline, and SMA analyses (aee here)- the SPX 1910 zone needs to hold to allow for a larger bounce. Below that 1900 and 1865 are the bulls last stands before 1865 will be next. That s really all there is to it from this perspective. Figure 3. SPX daily price chart: support at 1910, 1900 and then P a g e

5 Over the past 6 weeks, the market has followed the 2011 script first identified by us late August!- to the T, with each weekly candle being identical (See yellow boxes). As mentioned last week: when will this fractal/similarity stop? Since we expect the current correction to end October 9-12, based on Bradley Turn dates and Time-Fib extensions (vertical dotted lines labeled 1, 2, 3 in Figure 2), which gives us 2 more weeks, while the 2011 correction took another 4 weeks from here on to complete; the market thus needs to compress those 4 weeks into 2. This fits, however, with our preferred count: we expect intermediate b to top in the next few days with intermediate c of major c to follow and complete all of Primary IV. Figure 4. SPX weekly charts: 2015 continues to track 2011 to the T for 6 th week in a row. Expected support levels for IV 5 P a g e

6 Our daily TIs chart remains mostly negative with all TIs pointing down; wanting to see lower prices. The MACD is about to give a bearish sell crossover, while price is unable to break above the 20d SMA. The A.I. however is a mixed bag with no clear buy or sell signal (contact me if you want to know what clear signals are). Most noteworthy of this chart is the fact that the daily Bollinger bands are contracting: a larger move is coming. This could very well fall in line with our expectations of a Primary IV low in the SPX ies region. Figure 5. SPX daily TI chart: TIs continue to point down A.I buys/sell indicator 6 P a g e

7 Simple Moving Averages Charts Obviously the Long Term-SMAs chart continued to deteriorate over the past 3 weeks. It s only now entirely bearish. The Short-Term SMA chart has been 100% bearish for weeks, obviously, but appears to be finding what we can call a bottom, as every week more and more SMAs, now 4, are going sideways. This also fits with our preferred wave pattern: a quick stab lower for c of c of IV that will barely register on the SMAs are price will then recover quickly for major 1 of V. Figure 6. LT-SMA and ST-SMA now 100% bearish** ST-SMAs chart is bottoming out. Slowest SMA Fastest SMA ** The SMAs are bullish stacked, when the fastest SMA is on top, and the slowest below. The SMAs are bearishly stacked when the fastest SMAs are below the slowest SMAs. 7 P a g e

8 Market breadth Despite a down day on the SPX and Tech (not on NYA and DOW); as healthcare and biotech solid off (talk about a one-trick pony); NYMO as such improved slightly but remained negative. This favors the bears over the bulls, as more stocks are declining than advancing. Figure 7B shows why I do not favor the major 1, 2 count at all: there s been no kick-off wave in market breadth (as measured by the summation index) at all since the the SPX 1867 low to the SPX 1993 low. Just compare the orange arrow with the green ones. Those were true kick-off waves: the SPX-SI surged almost 1000 points in each case in a matter of a few weeks. Now we have 200p, at the most. That s all there is to it. Figure 7. A) NYMO remains slightly negative this week but it isn t enough to kick start a new uptrend. B) SPX-SI almost sell signal, and certainly no kick-off wave in market breadth (compare orange to green arrows) A Buy-able Buy B 8 P a g e

9 Volatility/Fear Index $VIX has broken above 1 trendline, but remained stuck below a 2 nd ascending trendline, as well as the $25 level and the 20d SMA. As long as it can t break above any of these three VIX will remain subdued; which favors the bulls. However, please note the tightening Bollinger bands, suggesting a large move is coming. This fits well with our expectations of an intermediate c wave of major c of Primary IV within the next 2 weeks. Figure 8. VIX is decreasing and stuck below $25, 20d SMA and upper trendline resistance. 9 P a g e

10 Anecdotal evidence Since we re talking about volatility, which is often referred to as the fear-index, I wanted to bring the following article to your attention: Stock investors haven t been this bearish in 15 years. In this case bearish and bullish sentiment are expressed as the Purified HNNSI (Hulbert Nasdaq Newsletter Sentiment Index, blue line in Figure 9): all we need to know about this is that a high HNNSI reading equates to lots of bullishness, and a low reading to lots of bearishness. Interestingly, it is now at the lowest level ever since data became available in early Using this as a contrarian indicator (like we use extremely high put/call ratios as signs of a bottom), it means there s an impending bottom as there are too many bears. The article then continues by pointing out that: [the] record low doesn t guarantee that the market will immediately rally sentiment often will hit its low before the market does. So, even if contrarian analysis is ultimately right about the current market, it could still be that the correction s ultimate low is ahead of us. But, on the assumption that contrarians do get it right, the extreme bearishness we re now experiencing suggests that the market will pass its retest of its late-august low. Figure 9. Most bearish since 2000 based on the purified Hulbert Nasdaq Newsletter Sentiment Index (HNNSI) These readings and expectations also fit well with our preferred count and objective, deductive analyses of the market: Primary IV is almost done, we simple need a retest of the August low before V takes hold. 10 P a g e

11 Conclusion Please keep in mind that Intelligent Investing provides an objective means of assessing the relative probabilities of possible future paths for the market. At any given time, two or more valid wave-counts are usually acceptable by Elliot Wave rules. In addition, EW rules are also highly specific to keep the number of valid alternatives to a minimum. As such only 1 or 2 alternate counts are valid high-odds alternatives. Using other market tools we have to our disposal, such as TIs, TA, SMAs, market breadth, etc we can then use deductive reasoning to conclude which count i.e. course of the market is the most likely. The rest is don t confuse me with noise, and should be set aside/on the back burner and not be our focus. As such, we continue to favor the major a at SPX 1867, major b at SPX2021 and major c down to SPX ies around October How exactly the market gets there from current levels is a smaller matter of debate (intermediate a and b of major c completed, or still in intermediate b of major c ). As such I.I. advices bulls to be patient and to get ready to buy for the long term if you haven t done so. Bears should become less aggressive. ALOHA Soul, Ph.D. **************************************************************** Intelligent Investing, LLC Founder, Intelligent Investing 11 P a g e