Hamilton's E-Wave Analysis

S&P 500, SOX semi-conductor index and Alphabet GOOG

We showed the triangle give or take ten days ago. First it went a little higher than expected but then it did start going down again and now even looks better than ever before;

Not only does it look good, but waves b, c and d are clearly 3-wave structures as they should all be. Wave a is a little less clear and d has yet to be completed. In any event it could definitely be a triangle. To my knowledge triangles are 4th wave structures that are continuation patterns and ALWAYS continue in the same direction as the triangle was entered! The only exception would be when the triangle was misdiagnosed in the first place (as in 1-2, 1-2 etc.) which proves the rule anyway.

The SOX or semi-conductor index is great for playing with options. It moves relatively fast and for no discernable sensible reason. The large fluctuations are evident in the following chart;

This is essentially an unstable situation. The swings get bigger over time and here it is very easy to conflate different parts of different structures to come up with the desired result. Some even go so far as to refer to this pattern, incorrectly, as the jaws of death. Whatever the case, this one looks to be near perfect and just like the contracting triangle this expanding triangle should be resolved by a spurt up ( and very fast) to more or less meet the upper extended line (about 1550, almost 30%). Wave e, by the way, need not travel all the way to the lower line.

That brings us to some of the tech stocks. Alphabet – what an idiotic name – or Google (GOOG) is a perfect example of the previously discussed “flat” only this one is absolutely perfect and beyond reproach;

A flat is called a flat because, in its perfect iteration, it is exactly that, flat. The c tends to be equal to the a and the intervening a-b-c is often well proportioned. It too is a correction so once it is complete the stock should go to a new high. It has a 5-3-5 structure. We have added a longer chart going back beyond the lows of 2009. I have used a semi-log setting as that results in a straight line if the rate of growth is constant. I do not recall ever seeing a nine year long trend continuing so precisely. If we do indeed have a flat, and all indications are that we do, then we should make at least one more high. My guess would be around 1270 where the upper line resides. I am not sure what the little triangle in wave 1 up is doing.

One of the other “problems” with the bear case is that gold and are not reacting as they should and show no signs of moving up.