Just an update on the TSE, clearly the minimum retracement has occurred, will it go further??? Unfortunately I do not know but my best guess is that we first go down 1000 to 1500 points, then we may go up a little further. The important thing here is not to get burnt, go back to cash.
The long -bond in the US has continued to decline and now stands 30 points below the peak value. I suspect we are already on our way to 85 or so for starters as the world is beginning to realize that the money has to come from somewhere
Just to explain where we might be. The assumption is that we are in some sort of super-cycle degree move. It is possible that this is actually not the case in which case an argument could be made that the A-B-C is done. Notice that B went slightly above and below A in this 9 year pattern and that may just be all there is to it. The DAX has not even gone low enough. Maybe but there are some pretty strong arguments against this view. C is often MUCH larger than A. Also other exchanges do not rhyme with this. Therefore the assumption is that wave C has only completed wave 1 of C as shown, allowing for a big drop to come.
This rhymes with the TSE.
Note that this index, like the NYSE and the Dax and many others has NOT EVEN made it to the 4-wave of previous degree. Now there is nothing to say that it must do that but in al probability if it has not yet it will. So about 6000 or lower is still very realistic even though this could have been an A-B-C where the A and B are very small and the C the %-wave down that we have witnessed. It did go down about 50% and it does contain oil etc. to make it a little different.
A third and last possibility is that we are making a very big triangle. It would have to be irregular as 5-waves do not fit in a triangle. Unfortunately nothing is certain, however considering that this is a 300 year degree correction a return to the 26 year 1000 top on the DOW would be perfectly normal!
The Commerce Bank CIBC has a nice chart that provides a good insight into what may happen in the Canadian market. The drop from 105 to 35 would certainly qualify as a “bear market†by anyone’s standards, moreover it is pretty well what one would have initially expected given that the “box†of 50 to 62 % down has a lower boundary of about $40 (which under one count might actually be the “orthodox†low , as opposed to the actual low at about $35). It has a nice 5-wave down structure, no overlap and perhaps a 5th wave that is a wedge or diagonal clearly defining the imminent end to the move. Waves 5 and 3 are about the same size but 3 is definitely not the shortest!
There is one little problem, 5-waves never stand alone, meaning they either attach to an A-B- preceding it (not the case here , presumable , given the 40 or so dollar difference in the value of the preceding tops), or there is at least ANOTHER 5-wave move following, albeit after a reasonable intermission. The down-trend prevailed for about 17 months, very roughly, so a reasonable intermission could consume the better part of 6 to 10 months. Under one count 6 months have already gone by, under another only 2; either way another 3/6 months of corrective action is not an unreasonable expectation. All this suggests that we may be in a B wave of a larger corrective structure, the point to buy again is at about a 50% retracement or roughly $50 (even a new low at , or marginally beyond the old one is possible but in our present bullish environment not all that likely!The B-wave can develop as a triangle, usually for the simple purpose of consuming more time
As to how high the correction could ultimately go?; if the wedge is indeed a wedge $78 ( alternatively, if the wedge is smaller, $67) is your target; if the $40 is the orthodox low $40 + 61.8x (105-40)= $80 would be the upper boundary of the new “boxâ€. Wave 4 of previous degree, a common retracement level is also at $78. Time wise it could be done by Sept. give or take a month. Interestingly the Royal does NOT have this potential, its best level would be around $51/52 so this opens the opportunity to put on the long CM/short RY trade again, for a potential gain of about $15 or so, nothing to sneeze at.
Once all is said and done the end of the bear market would be when this B wave is complete and followed by a C to make the whole experience an A-B-C. Suppose, for the sake of argument, that wave C has the same percentage drop as wave A, that is about 62%, and also suppose we do go to the cluster at about $78 in B, than ultimately we would end at about $29. This compares to the low in ‘98 of $24 which low might be considered a 4th wave of previous degree in this larger context and a common retracement target. Notice that this outlook does not rhyme with the TSE overall, but the the banks as a group never did.