Summary Over the last month the market has been rather choppy and overlapping, invalidating several times standard Fib-based impulse patterns, leaving us therefore with what counts best as only a, b, c-waves up and down. This has made forecasting the markets next moves less certain and price targets often failed to be reached. What we do know is that overlapping three wave (a, b, c) patterns are part of ending diagonals, which in turn often occur in 5 th wave. Thus, we do know we are in an ending diagonal 5 th wave. But, how it is exactly unfolding remains somewhat uncertain. What we also know is that once this 5 th is complete we should expect at least a 450p decline on the S&P. Fast forward and at the end of this month we are still left with several options: The first option is bearish and has the market complete major-5 at SPX2941 or close to completeting it at ideally SPX2975 +/-5p. Downside risk: at least 450p, upside potential: 60p The second option has intermediate-iii still underway to ideally SPX2985 +/-5p before wave-iv gets going to ideally SPX2875-2840, followed by wave-v to complete major-5 at ~SPX3100. The third option has intermediate-iii of major-5 complete and wave-iv is underway to ideally SPX2845-2815, followed by wave-v to complete major-5 at ~SPX3015. How will we know which it option is operable? A break over SPX2941 -with a move over SPX2935 being the first good signal- confirms a move to SPX2975-2985 is underway; possible stalling at SPX2955ish. A break below SPX2886 -with a move below SPX2900 being the first good signal- confirms a move to at least SPX2845-2815 is underway. What keeps me from being extremely Bullish (e.g. a move directly to SPX3200+ from current levels) is a) Mostly negative market breadth with a negatively diverging NYAD this month b) A recent cluster of 10 Hindenburg Omens, the 2 nd largest in its history c) The weekly VIX is setup for a correction, be it small or large d) Technical indicators on the daily, weekly and monthly charts are negatively diverging All of these don t tell us when a market correction will occur as markets can stay irrational much longer than we think, and all divergences from technical to breadth-based can always be erased with a strong move higher. But, since all three of the Elliot Wave options presented can be counted as complete or (very) close to complete; there are thus enough lines of evidence in place to suggest any continued rally for the next months needs at a ~100p correction first either from current levels or from slightly higher levels. Aloha, Dr. Arnout, aka Soul, ter Schure 1 P a g e
Elliot Wave Updates Short term the market continues to be rather messy due to the overlapping a, b, c nature of the waves (standard impulse patterns have been negated several times as the S&P failed to hold key levels of support). I really wish it was different, but this leaves us with several options, aka uncertainties. The first (Fig. 1A) is bearish and has the market complete major-5 or close to completeting it at ideally SPX2975 +/-5p. The second (Fig. 1B) has intermediate-iii still underway to ideally SPX2985 +/-5p before wave-iv gets going to ideally SPX2875-2840.The third option (Fig. 1C) has intermediate-iii complete and iv is underway to ideally SPX2845-2815. How will we know which it ultimately will be? A break over SPX2941 is needed to confirm a move to SPX2975-2985 is underway and we can then eliminate Fig 1C. A break below SPX2886 is needed to confirm a move to SPX2845-2815 is underway and we can then eliminate Fig 1B. Figure 1. SPX daily charts. A) Major-5 in or close to in (SPX2975 target). B) intermediate-iii still underway (SPX2985 target). C) intermediate-iv underway (SPX2845-2815 target) A B C 2 P a g e
My preferred view of the NDX (Fig 2) has been for quite some time now that the price action aligns best with an ending diagonal (ED) intermediate-v wave and not a clean non-overlapping 5 th wave. Ending diagonals are rather common in 5 th waves and overlapping while rising prices are the name of the game. Hence the price-action for the past month should not come as a surprise. Minor-5 should be almost complete but can still reach as high as ~$8000, albeit the negative divergences on the MACD and On Balance Volume suggest it may not reach that high. Figure 2. A) NDX daily chart. looks and EW-counts best as that one more wave higher needed is almost complete. 3 P a g e
Chart Patterns Updates Last week the S&P closed lower four out of five days, with long upper wigs (selling pressure) the last three days. Nonetheless, up is up. The MACD and A.I remain on sell, wanting to see lower prices, while the Money Flow Index (MFI) broke below support. Price has been rejected at horizontal resistance (SPX2931) and at trendline resistance. Price must break above the declining black trendline to be able to make progress again (aligning with Fig 1A, B). A break below SPX2900 (horizontal and trendline support) targets SPX2865 (aligning with Fig 1C). Figure 3. S&P500 daily chart. Price stuck in trading range. Break below SPX2900 is bearish, break above SPX2935 is Bullish. MACD, A.I. on sell, but price rising 20d>50d>200d SMAs 4 P a g e
Potential negative divergences are becoming more evident on the S&P500s charts technical indicators (TIs), red dotted arrows, but nothing has been confirmed by price just yet. The solid red arrows show that such divergences can continue for quite some time, hence patience is required. Neither do the TIs give any sell signals. Hence, for now, the weekly chart continues to be 100% Bullish as price is still in the red uptrend channel, is above all weekly SMAs, which are rising and Bullishly stacked: price>20w>50w>100w>150w>200w. Thus, this chart tells us to expect higher prices over the intermediate-term. Figure 4. S&P500 weekly chart. Potential negative divergences more evident, but no sell-signals and price remains in a long-term uptrend and above all its rising SMAs. 5 P a g e
Just using weekly price only we can count waves often easier as there s less noise and it would look really good with a pullback from current levels and then a final advance to SPX3075ish for a v=i relationship to complete a picture-perfect Elliot wave channel (grey dotted lines) aligning with the black breakout line targeting SPX3060. Sometimes simple is best?! Figure 5. SPX weekly chart. Sometimes simple is best 6 P a g e
With the month of September in the books we can assess the monthly chart. Also here we see negative divergences, red dotted arrows, as on the weekly charts, as well as on all other indices (only S&P500 shown), with waning momentum and decreasing money flow. The MFI14 peaked in December 2017 and history shows that when it peaks the market made a significant top 3 out of 4 times (red vertical lines). But, price has yet to confirm a turn lower, and as we can see (solid red arrows), negative divergences can continue for a long time. For now, the monthly A.I. and MACD remain on a buy. Thus, there are certainly negatives creeping into the chart, which should give one pause and concern, but as said price has yet to confirm any of these divergences. Figure 6. SPX monthly chart Negative divergences setting up, but these can last for a long time, while there are no sell signals yet and price has yet to confirm a down turn. 7 P a g e
Market breadth, Sentiment and Volatility The SPXMO (McClellan Oscillator -MO- for the S&P500) ended the week at -28, down 39p compared to last week. Each index MO ended the week lower, which means this week s higher close for the NAS and NDX were not confirmed (made on decreasing market breadth: less stocks participating). Therefore, the Summation Indices (SIs, cumulative MOs) ended the week mixed: several on sell, one on buy. Still note a very Bullish picture from a market breadth perspective. When we assess the weekly TICK readings (Friday closing levels) we see decline readings since 2017 and there have been no closes above 300 for the entire last quarter, which is very rare (red boxes) and often indicative of an impending top, unless erased by a strong blast off in breadth. Lastly, I want to add that there s now been a string of 10 Hindenberg Omen s over the last 30 trading days: see here. Not every signal leads to a crash, far from it, but these 10 readings ties to the largest cluster ever (January 2018). As said in the article The warning gets extra emphasis from the small divergence between the major averages making a higher high in September while the NYSE Advance- Decline Line has made a divergent lower high. [Which I ve shown to you in my updates] That divergence can be rehabilitated if the breadth data suddenly start getting stronger, but for now the dual message of trouble is worthy of our concern. Figure 7. A) SPXSI: on a sell. B) Weekly TICK has been declining and dismally low the last quarter A B 8 P a g e
AAII Sentiment (what I perceive as an intermediate-term indicator) saw Bullishness rise 4% to 36% over the past week, while pessimism declined 1% to 31% and neutral dropped 3% to 33%. Nothing out of the ordinary. All normal readings. The Fear & Greed Index ended at 47 last week, down 28p compared to last week (on a scale from 0 to 100: neutral). Thus, the sentiment readings are normal. No excessiveness. We can assess shorter-term Bullishness and Bearishness by checking the put/call ratios. Last week the CPCE (equity put/call ratio) ended at 0.64, up 7p compared to last week. Thus, traders are neutral short term too. The VIX closed lower at $12.1 on Friday, which is 3.8% above last week s close. It is thus still above that important $12 support. A few weeks ago I showed the weekly VIX chart has tightening Bollinger Bands (BB): below 35. I didn t show the chart back, then but wanted to share it with you now as the BB-width has remained below 35 for some time now. If we add a VIX <15 value as an additional filter -because that s what we have currently- we can see there were only four such prior setups (BB-width <25 & VIX <15) since the 2009 low. One occasion was seven weeks before the August 2015 crash, one occasion was three weeks before this year s January correction, while two occasions (May 2013 and March 2017) led to smaller corrections before the Bull trend continued. Hence, the current VIX setup continues to fit with my preferred view of a pending (larger) correction. Figure 8. Weekly VIX: Tight Bollinger Bands for several weeks now suggests of a pending correction. 9 P a g e
Simple Moving Averages Charts The Simple Moving Averages (SMAs) can be used for trend-following and the short-term chart is now 95%. No surprise given the price action over the last five days. The long-term chart continues to improve and is now 97% Bullish. Figure 9. A) Short term Simple Moving Averages: 95% Bullish. B) Long Term Simple Moving Averages: 97% Bullish. A Copyright Intelligent Investing, LLC. May not be copied and/or distributed without permission. www.investingintelligent.com B Copyright Intelligent Investing, LLC. May not be copied and/or distributed without permission. www.investingintelligent.com 10 P a g e
How to trade this: Aggressive investors were stopped out at SPX2912. One can try for a short to SPX2886 on a close below SPX2900 or a long to SPX2975 on a close above SPX2935. Longer-term investors are long since April 4 and should still be long and continue to have stops on a close below the 200d SMA. However, given current developments as laid out in this update one may decide to re-assess once positions. STD-SPY-Performance = ~14% Table 1. Buy/Sell Signals based on Summation Indices Table 2. Buy/Sell Signals based on my Mechanical System for SPY/SH only. 11 P a g e
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Trading Performance Private Twitter Feed: Please Join Me & Sign Up Here. My private twitter feed now tweets ALL my trades, from AAPL to Z; from GDX to USO; from DIA to UPRO. I am still working on including those in my new P&L, but we should be at around 35% TD (Since June 1, 2018) So how does it work!? I tweet in real-time when I buy or sell my positions and you can simply follow my lead*. It doesn t get simpler than that! Results (% gains and losses) are calculated assuming each trade is of equal sized position. However, position sizes may differ in reality. Results are for Intelligent Investing, LCC s -the providertrades only. Subscriber results may vary due to different time of entry and exit as provider s trades are tweeted shortly (up to two minutes) after they ve been made. Subscriber takes full responsibility for his/her own trades and assumes no liability towards the provider regarding possible losses as provider s system is not perfect and no system can guarantee only winning trades. 2018, Intelligent Investing, LLC. This copyrighted weekly periodical is published on non-stock market trading weekend days by Intelligent Investing, LLC, and is intended solely for use by designated recipients. No reproduction, retransmission, or other use of the information or images is authorized. Legitimate news media may quote representative passages, in context and with full attribution, for the purpose of reporting on my opinions. Analysis is derived from data believed to be accurate, but such accuracy or completeness cannot be guaranteed. It should not be assumed that such analysis, past or future, will be profitable or will equal past performance or guarantee future performance or trends. All trading and investment decisions are the sole responsibility of the reader. Inclusion of information about managed accounts, program positions and other information is not intended as any type of recommendation, nor solicitation. For more information, contact intelligent investing at intelligent_investing@yahoo.com. I reserve the right to refuse service to anyone for any reason. 13 P a g e