It has taken almost two months, longer than we would have thought, but now it certainly looks like this index is ready to go. Today we overlapped in such a way that we have to assume that this last corrective move is over. This implies that we are in the third wave which is normally the most exciting part. Given that wave one was roughly 3000 points we would expect wave 3 to travel more than that. We will see what happens.
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;
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;
We had this interpretation in our previous blogs, either a series of 4-5s or, more likely, a diagonal triangle 5th wave. This is a long chart and therefore does not lend itself for precise predictions but our take on this is that we are about to peak and that a dramatic drop is straight ahead as that is a “diagonal” which invariable retrace their entire advance. In this case that would amount to roughly a 2/3 loss from whatever peak lies ahead.
The Dow is going vertical, and if anything, confirms the possibility of a major top.
Today is the last day of the month. Typically this is good for 100 points or so to the upside in the Dow, intraday or for the day. Just a few days ago Amazon hit a new high, together with some of the other FANG stocks. Briefly Jeff Bezos beat out Bill Gates as the richest man in the US, perhaps even the world provided that stories about Putin’s wealth are untrue.
AMZN has dropped about 10% since. At the peak the P/E was close to 200, which is another way of saying that if you do buy the stock, it will take you 200 years to get your money back. On the political front a New York businessman, actually a fund of funds outfit’s principal , a bad business at this time sold at too high a price to a Chinese firm according to rumours, survived only eleven days of the White House. While his wife gave birth during that time and filed for divorce, he demonstrated his knowledge of the English vernacular. In any event there is no chaos in the white house and the economy is doing extraordinarily well as witnessed by the stock market.
Could this maybe be a top of sorts? Clearly the RSI is back up there for the first time in 5 months. There are 5 waves up and the 5th is equal to the first. The trend line was broken today. We would play it safe here and get out. First drop could be about 600 points, next 1600 points. After that we will see.