Summary In last week s update I mentioned A break below SPX2875 would be worrysome for the Bull case and morph things into something else. Well, that is what happened the past week and this week s update will therefore be somewhat different from what you are used to as this price-overlap, which is not allowed during a standard impulse, turned the tables. Recall, I was originally tracking a standard impulse with a micro-4 wave underway from the SPX2917 high, which then turned into a possible minute-iv wave as the market continued to drop, and now has become what is most likely a minor-4 wave of a larger Ending Diagonal, with even the possibility of a very large market top being struck at SPX2917. When this up/down grade of wave degrees happen, I always get very cautious and try to listen extra carefully at what the market is telling us. Therefore, IMHO upside potential is becoming much more limited (SPX2970-3010) and I personally would re-assess / adjust / reduce my long-(term) portfolio as it s always better to wish you are on then out and Forewarned is forearmed. I will review many charts -including international indices- on why upside will be limited and why this larger top (Primary III or V) could very well -based on cycles- have been struck. In the case of III, expect a SPX450-725p decline. In the case of V, we can expect at least a SPX1000p decline, possible as much as 1500p. he only (very) bullish option left is a nested 1, 2, i, ii, 1, 2 setup meaning blast off is upon us, but I find that much less likely and I will show you why. I will not assess the very short-term as the decline off the SPX2917 high is very messy. Now is the time to focus on the intermediate- to long -term picture. Hence, this update will be rather Elliot Wave focused as it is THE tool to use when adjusting POV. The beauty of it is the if/then scenarios EWT gives us: IF price overlaps with level-xyz, THEN this is what is most likely happening. In addition, I adapt my POV when the market is telling things are not going according to plan. I ve no preconceived notion on where the markets should/must go based on long-term expectation etc. Doing that will cloud judgement. Anticipate, monitor and adjust if necessary. Aloha, Dr. Arnout, aka Soul, ter Schure 1 P a g e
Elliot Wave Updates In Tuesday s daily market update I already showed the possibility of the DJIA forming a larger ending diagonal (ED, See here, page 3 ), and in Wednesday s daily market update I then showed how the NDX was still holding on to a standard impulse pattern by 1c, while the NAS still exhibited a picture perfect pattern, but that also on the NDX an ED was becoming more likely (See here, page 2). This standard impulse pattern got broken the very next day, shiften the preferred view thus to the ED scenario. As the market continued its decline into Friday it added more confidence to this POV. In addition, it then also added credence to the possibility a much larger top (Primary III or V) may have been struck. Figure 1 on the next page shows the three most likely scenarios for the S&P500 we re dealing with; from most bearish to bullish. There s also a nested 1, 2, i, ii, 1, 2 option (shown on page 2, fig 4 for the NDX as well as on page 3 of Tuesday s daily update for the DJIA here), but I don t find it very likely for now. 1A) Major-5 of Primary-III/V has topped in the forming of a large ending diagonal, with a classic overthrow. A break below SPX2840-30 from here without making new All Time Highs (ATHs) first will be the first sign of worse things to come, while a break below SPX2800 will confirm this scenario. I then expect the market to drop an additional 350-625p in the case of a wave-iii top at SPX2917; and at least another 1000p in case of a wave-v top. 1B) Major-5 of Primary-III/V is close to topping, with first a little more downside to SPX2860-2840 to complete minord/4 before a last move (minor-5/e) to SPX2975-3010. Based on the NDX ED-pattern I find this the most likely scenario. 1C) Intermediate-iii of Major-5 of Primary-III/V has plenty of room to run, with first a little more downside to SPX2860-2840 to complete minute-b, before minute-c of minor-3 is completed at around SPX2985. From there we should then expect minor-4 down to around current levels (SPX2875) before minor-5 rallies to SPX3010ish to complete wave-iii of 5. This is the 2 nd most likely scenario. As you can see, scenario B and C have an identical path up with first a little downside and then a rally that targets within the SPX2975-3010 zone; telling us this short to intermediate-term path is more likely. Note this target zone does not necessarily need to be reached as EDs can end abruptly. 2 P a g e
Figure 1. SPX daily charts (SPY). A) long term top may have been struck (30%). B) ending diagonal 5 th wave has one last leg up left (50%). C) ending diagonal 5 th wave has several more legs up left (10%). A B C 3 P a g e
Fig 2A shows minor wave-4 on the NDX looks close to complete but can still drop to ~$7300 without invalidating the pattern. A move below $7200 will shift odds seriously in favor of the aforementioned Primary-III/V top being struck. Fig. 2B (as well as page 3 of Tuesday s daily update for the DJIA here) shows the only real Bullish option left is a set of 1 st and 2 nd waves (called a nested 1, 2 setup); meaning a strong 3 rd of a 3 rd UP-wave is upon us at any moment. However, the annotation in the chart tells you why I think this option is not very likely (10% odds): it invalidates several EWrules and price-patterns and it is too obvious IMHO. Figure 2. NDX daily chart (QQQ). A) looks and EW-counts best as one more wave higher needed, but it s not necessary. B) only real Bull option left, but there are several issues with this possibility (10%). A B 4 P a g e
Foreign Indices; German DAX and England s FTSE Another concern for the US-equites markets is the fact the European markets are down while the US is up. However, almost 30yrs of data shows the German DAX and USA S&P500 move in close tandem. For those who follow my weekly DAX updates (See here and Fig 3B below), you know that for months we ve been looking for a 3 rd wave up, but it still hasn t happened. At some point we then need to realize it most likely won t happen; and we can see that the daily chart is indeed in a bear market: price<20-day Simple Moving Average (SMA) <50d SMA<200d SMA and all SMAs are declining. This then leads me to conclude the DAX has most likely topped for Primary-V (see Fig 3C next page). The FTSE -not shown here, but weekly updates are provided here- also follows the US markets closely, but topped early May and has since been making lower highs and lows as well, with price now also below its 200d SMA and at levels similar as early-2017. Neither a good sign. Figure 3. A) SPX-DAX monthly chart. Both indices have moved in tandem for 30yrs, but since May not anymore. One is wrong, one is right... B) DAX daily chart Bear count as index is in a bear market: price<20d<50<200d SMAs 5 P a g e
The monthly chart of the DAX shows that one can easily Elliot-wave count it as having completed five (5) primary waves up off its low made in 2009. This then means it has completed a full impulse up and a three wave decline, retracing 50-62% of the whole move up is now most likely in the cards. Note the negative divergence on the monthly MACD (red arrow) and how tight the (green) Bollinge Bands are: a large move is coming. Below 11500 will set the stage for a much larger decline. Only a move back above 13500 is now needed to re-assert the Bull case. But, given the daily chart setup I find it not likely. Figure 3. C) DAX monthly chart. Can very easily be counted as having completed five primary Waves up off the low made in 2009. Unclear at this stage what larger (economic) Cycle has completed. SUPPORT 6 P a g e
Cycles If the DAX has indeed topped after five primary-waves up, it may have completed a Grand Super Cycle in line with Mr Ralph Elliot s own 70-year Bull-market prediction made in August 1941: This termination [1941] will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle (V) is not expected to culminate until about 2012. And here we are in 2018... If correct, please excuse Mr. Elliot s 6/7 year inaccurary while he made the forecast 77 years ago, we are in for a treat Add to this the lesser know Benner-Fibonaci-Cycle, starting in 1902 it forecasts a major market top in 2018. Hence, we thus have very good overlap and weight of evidence for a high in 2018. (FYI the Benner-Cycle forecasted for example the 1929 crash, the 2000 high and 2003 low, the 2010 high and 2011 low, and now a 2018 high among many others). These scenarios favor the Primary-V top (either now or soon) A 90 year cycle since the 1929/1932 stock market crash is also in play, which places the market top in 2022. This scenario fits with a primary-iii top in 2018, and a primary Primary-V top in early 2020s. Once this cycle completes, now or in the early 2020s, we ll likely see large shift in economics and politics, some of which already and clearly underway. This fits all also well with the generational fourth turning last seen during WW-II. Closer to home, I dug through several other cycles including my own cycle work and found that there was a STRONG Bradley Turn date on August 28 with a (100/100 long term powers), with the next similar one not until mid-january 2019. In the meantime, my own intermediate- and long-term Fibonacci-based turn dates also point to August 28. My next turn date is September 11 and could foretell of a turn around Tuesday. Another interesting correlation is the 10yr leading oil-indicator foretelling of a market top mid-2018 (see here). Note, the markets topped on August 29 and have since declined. Figure 4. Fib-based Cycles for the rally since the February 2016 low. Turn date on August 28, which aligns with STRONG Bradley Turn date on August 28 (100/100 long terms power). Bottom line, all cycles -be it from different experts, methods, or time frames- point to a significant market top in 2018. This can be now, or a little later (see Figures 1 and 2) and can either be Primary-III or Primary-V, but that we ll let the market decide. What we can do is take appropriate action and invest/trade accordingly. As said: forewarned is forearmed and it s better to wish you are in the market than out of the market. 7 P a g e
Chart Patterns Updates This week, the Bulls did not proof them self at all. Quite the contrary as price fell back below upper (green dotted) trendline support as well as below initial upper horizontal price support and closed the week in the next horizontal price support zone, without much of a bounce. All the technical indicators (TIs) are pointing down and on sell, wanting to see lower prices. None is oversold and can easily sustain lower prices. Albeit the only silver lining is price is above its 20D SMA (SPX2870), and 50d (SPX 2827) and 200d SMA (SPX2736), there s no indication of a turn in sight. Next support is now at SPX2850, followed by SPX2840 and SPX2830. Figure 5. S&P500 (SPY) daily chart. New, raised, support at SPX2890-2900 did not hold this week, all TIs are now pointing down and/or on Sell. Only silver lining is Price>20d>50d>200d SMA: Bullish setup. 8 P a g e
Market breadth, Sentiment and Volatility The SPXMO (McClellan Oscillator -MO- for the S&P500) ended the week at -29, down another 28p compared to two weeks, ago. Last week the Bulls [were] on watch as Bears are in favor with negative breadth. and this week the Bears are clearly in charge. Each index MO ended the week lower and negative (see table 1, page 12). Therefore, the Summation Indices (SIs, cumulative MOs) ended the week on a sell for the DJIA, NYA, and close to a sell for the SPX and NDX (Fig 6A). Note a very Bullish picture either. When we assess the weekly SPX-MO we see long- intermediateand short-term negative divergences (Fig 6B, red arrows) and the FSTO has turned down to a sell. Hence, unless the Bulls can turn this around with a strong spike higher to >60 at least, this pattern tells us market-breadth (i.e. internalstrength) is weakening for each week that has passed: less and less strong stocks are carrying the market higher. Figure 6. A) SPXSI: close to a sell. B) Weekly SPX-MO negatively diverging long and short term and back to a sell.. A B 9 P a g e
AAII Sentiment (what I perceive as an intermediate-term indicator) saw Bullishness drop 1.5% to 42.2% over the past week, while pessimism rose 1.9% to 26.3% and neutral dropped 0.6% to 31.5%. Two week excessive Bullishness already crept in, which got punished this week. Last week I thought a ~40p minute-iv would burn off this excess, but by now we re almost 50p deep. Nonetheless, we should expect less Bullish numbers next Thursday, allowing for that possible minor-5/e rally. The Fear & Greed Index ended at 52 the past week, down 19p compared to last week (on a scale from 0 to 100: neutral). Thus, the greedy sentiment readings from the last two weeks have likely burned off and current sentiment could allow for that last rally to SPX2975-3010, or for a smaller bounce in case the market has topped. We can assess shorter-term Bullishness and Bearishness by checking the put/call ratios. Last week the CPCE (equity put/call ratio) ended at 0.69, up 6p compared to last week, just like the week before. Thus, traders are getting rather Bearish, which is confirmed by the CPC (total put/call ratio) ending the week at 1.17 (up 0.14p compared to las week). Thus, as more and more puts were bought over the last two weeks a turn-around Tuesday from SPX2850ish on the September 11 turn date could be in the cards. The VIX closed lower at $14.9 on Friday, which is 16% above last week s close. Up for a 2 nd week. It is still above $12 support, close to breaking above $15 resistance, and it is now back above its 20d SMA, 50d and 200d SMAs. And it is now also back above its 20w to 200w SMAs. That s not good for stocks. Last week I concluded The VIX will trend higher first for a few weeks before a significant market correction occurs. This week could be the start of that trend. And with this week in the books, I think that s the case. 10 P a g e
Simple Moving Averages Charts In this week s update I wanted to look at my Long-term Simple Moving Averages (SMAs) trend-following charts for the DJIA and SPX. We can see that both are trending up, and the SPX is in better shape than the DJIA. No surprise since the SPX has made new ATHs and the DJIA hasn t (yet). But, if we compare the current charts with those from even six months ago we see a weaker setup where the SMAs are all bundled together and not nicely Bullishly stacked. This tells us the current uptrend is still in tacked but it is weak. It thus doesn t take much to turn these charts bearish. This fits with the preferred view of a top being struck soon or already in. Figure 7. A) DJIA Long term SMA: not very bullish. B) SPX Long Term Simple Moving Averages: increasingly Bullish over the last few months, but not like it was 6-12 months ago 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 11 P a g e
How to trade this: Aggressive investors were stopped out on the break of SPX2890 for a 20p gain and could have gone short on the break below SPX2875 for a ride to SPX2850. One could decide to try a long from there, with a stop at SPX2840. 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 = ~12.2% Table 1. Buy/Sell Signals based on Summation Indices Table 2. Buy/Sell Signals based on my Mechanical System for SPY/SH only. 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. 12 P a g e