E-Wave is all about probabilities. Anyone can count to 3 or 5 so that part is not that difficult were it not that the market always throws in the proverbial monkey wrench. The DAX and the S&P both had near perfect double tops but the NYSE (NYA) and the TSE went way beyond the 2000 highs. The TSE proper has a triple top before it starts to drop and then has a double  bottom (Dec. and March) so it is difficult to , with any degree of certainty, establish where things begin, end and what the intervening pattern is. All one can do is look at what the alternatives are and where the greatest common denominator is found. In other words, try to find the highest probability. Here is the chart again.

This is a rather bearish outlook and one would hope it is wrong. Still it has the highest probability. The pattern is fairly clearly one of 5-waves down (which never stands alone!) so there should be more to come. Time wise , depending where you start, the time spent going down is essentially equal to the time of the retracement (markets love symmetry). The initial 6 month drop took the index down by roughly 50% (but not to the 2003 lows!). The retracement, which certainly could go higher to 50/61% , or even higher, has so far done about 38% in 6 months, most or all of that in the past 9 weeks. In doing so the market traded above its 200-day moving average and pretty well exactly into the high point of wave 4 (a very common retracement level). Also the RSI was above 70 about equal to the high in June and the same goes for the MACD ( I look at these only to support an EW view). In the mean time stocks like RY went from 62 to just under 26 (50%) and back up to 46 (78%) exactly at times that that bank’s own analysts were either bearish or bullish precisely at the wrong time. The insurers like MFC and SLF have more than doubled from there respective lows and are dropping.

There could always be more bullish scenarios to explain what is going on, but for the moment none stand out as probable. To the 473 viewers last month, thank you for watching. I can be reached at hamilton.jansen@cibc.ca . My phone is not working yet but 905 762 2426 will get you through. This is at CIBC Wood Gundy, in Thornhill. Look forward to hearing from you all.

Last week I was dead wrong in assuming we might have a turning point. The market did drop by some 400 points intraday by mid Teusday but then came roaring right back to make new highs. So what is wrong with the analysis?  Probably just a week (or two); here it is again.

We were looking for an irregular flat (there are other possibilities) that would be complete when the market action crosses the green line, however it may go beyond that (which it is doing). Secondly, given the market’s predilection for symmetry we are approaching a time equidistant point in the coming week but are as yet just shy of that point. (this charting system does not allow for  fine tuning so I am not sure which point in June was the real top.)

In more detail notice that the symmetry in distance, not time , also shows up in the (two??) up-legs from the low. However the original thought of a wedge due to the over lap (in red) is simple not possible as this entire structure as a c wave must have 5 waves within it. So I changed the count  (now in green) by making Monday’s 311 point collapse a wave 4. If correct we know that this structure cannot rise by more than about 300 points as this would make wave 3 the shortest.  Also at about 9650, give or take we have a veritable cluster of points suggesting the probability of an end to the up-leg. These are to repeat; 1 time-symmetry, 2 amplitude symmetry, 3 structure, an irregular flat, 4 RSI above 70 ,5 MACD already dropping, 6 at or near 200-day moving average and 7 an approximate 29% rebound from the lows, equal to the HIGHEST rebound in the C –leg during the great depression (yes history is good unless you want to repeat it). Also, quite obviously, this market has been just a little too bullish for its own good. US markets such as S&P are in different but similar positions and may already be moving down.

Here is the TSE again. As we have seen with RY this leg counts best as a 5-wave affaire whereas with the insurers MFC and SLF it looks more like a two wave affaire. As I am sure not too many readers are too interested in the E-wave implications of this difference, it should suffice that at least as a minimum we should retrace the entire “wedge” in the next move, that is down 1000 out of the 2000 points we have gained during the past 6 weeks.