Month: April 2018

Dow and S&P again

Hamilton

dow april 11 2018

The action over the last few days has met at least one expectation and that is that , so far at least, the index has not been able to cross the downward sloping line.

After some 20 plus years of involvement with EW, there are still a number of things that are above my pay grade – which, by the way, is zero given that this blog is free. As far as I am concerned there is a fairly distinct diagonal starting at about the beginning of march and lasting for about a month. Normally – that is 90% of the time -  that would constitute a C wave in a simple A-B-C corrective structure. It is complete! There are exceptions however as shown below;

Image result for leading diagonal vs ending diagonal

This one is going up rather than down but that is immaterial. Use your imagination. We are, in this scenario, at the 2 and about to embark on wave 3 of C. Notice that these diagonals as so called “impulse or motive” waves subdivide as 5-3-5-3-5 structures as opposed to 3-3-3-3-3. I simple cannot get that degree of detail, after the fact, to verify that that is indeed the case. Like I said, this is above my pay grade. Moreover this blog exists solely for entertainment purposes and should never be construed as giving advice.

Time will tell and keep your eye on the red line. Below is the somewhat less ambiguous situation with the S&P;

S&P april 11 2018

BA again

Hamilton

BA apr 9 2018

Here is Boeing once again. From $99 it moved to $371 in just two years. That is very impressive. For 2017 it was the best performing stock in the Dow, and because of its high cap. value it had a disproportionate impact on the index. Given all of this it does not seem unreasonable to think that the stock might need a correction, one of those “healthy” ones that in the end supposedly  rejuvenate the stock.

What we got so far is three months of ups and downs that barely make a dent in this rise. What is more worrying is that the pattern is not bearish, see below;

ba correction smallba correction large

The second larger wedge is part of an irregular a-b-c. Both corrections are essentially complete so new highs, much to my surprise, might still be possible. I would not trade on it.

Russia, ERUS

Hamilton

Russia april 9 2018

Russia’s stock markets may be in a bit of trouble. This particular proxy for Russia, ERUS, is down 11% in one day after recently peaking. If the chart  above is what it looks to be, that is a diagonal or wedge, it would not be unusual for the index to drop back to the low of 17 or even lower. That would be about 61%. Time will tell.

S&P

Hamilton

S&P april 9 2018

The structures in the Dow, S&P and even CAT are all similar but still they differ in the details. The S&P is relatively speaking the most straightforward index. It has this big A-B-C pattern that as a minimum promises a correction that should still go lower, and , of course, it can become a full blown bear market ultimately. Alternatively, in pink, there is an A-B-C going the other way as a wave 2. We would give that less weight as it would take a lot more time and violate proportionality.

Within the green scenario it is furthermore not perfectly clear where we are in this second major leg down. We could presently be in a 4th wave triangle of wave one down, or wave one could already be complete.

All of this appears to be driven by trade policies of the president. That that is in fact so, is hard to determine but, for the sake of argument, assuming it is then the “problem” continues to exist. As of today we have Navarro, a rabid mercantilist from the middle ages, and Kudlow a TV commentator taking conflicting economic views. In between we have this charming Mnuchin who owes his fortune to his predecessor at Treasury, H Paulson. Three alumni from GS in a row! Next Bolton is coming on board at a timely moment. This guy still thinks problems can be solved militarily and is chomping at the bit to prove the point. Wilbur Ross, a bankruptcy artist who once saved Trump’s bacon, needs no mention as no one listens to him anymore. And if that was not enough we have to keep guessing if this ignorant president is serious or just doing another “art of the deal” piece of theater.

 

Note: It is conceivable that rather than a simple A-B-C structure as shown in pink, this index will trace out a much more extended triangle A-B-C-D-E which would the constitute a large B wave. This would limit the ultimate bearishness that we expect and would take far too long.