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Dow update

Hamilton

Dow dec 3 2018

The great decline is imminent, right around the corner and has been predicted to happen at least ten or more times over the past 10 years by one of the leading EW purveyors. Clearly counting to 3 or 5 is not as simple as they would like you to believe. Impatience may be getting in the way of sound analysis.

Earlier it was clear that Nasdaq had gone through a corrective drop early this year. It stood out like a sore thumb. Here again we have a 2000 point drop mid November. This is a 3 wave affair that does not make a new low. It is definitely not 5 waves and therefore should be seen as a b-wave of sorts. Here probable a wave b within wave 2 counting from the top. It is even possible to argue that this whole year is nothing more than an ascending flat correction but that is unlikely seeing that wave a also does not look like 5 waves. Accordingly for now we go with the top in October followed by waves 1 and 2 – the start of a major decline – in which 2 may not be entirely complete but at least very close to it. Wave 3 in this analysis is actually right around the corner. If so it could easily measure at least 5000 points and may coincide with the Trump house of cards falling apart spectacularly.

At least as far as the Dow goes we have basically made no progress, either up or down, for most of this year. This in a remarkable contrast to the enormous increases in the previous years all the more so as such timid behaviour is at odds with all the geopolitical events etc. We will shut down for a few months, getting tired of waiting for Godot as a friend puts it.

Nasdaq, April 13 and now.

Hamilton

nasdaq apr 13 2018nasdaq nov. 1 2018

Back in April the Nasdaq had a very clear corrective signature and despite having expected a peak a little earlier this has worked out just fine so far. We now (this chart is a day old due to technical problems) have a fairly clear 5 waves down. Once this 2nd wave countertrend is over we should roll into the third wave of some degree which should be quite dramatic. We will see.

XHB, S&P Homebuilders Index.

Hamilton

xhb sept 2012 contentxhb oct 27 2018

The boys from Gainesville reminded me of the existence of this index. Even so this index has been on my mind for the last year or two as I tried to sell and buy a property. Particularly here in Canada things seemed to have gone a little crazy lately but that still does not guarantee that you are experiencing a top.

In any event what we have here is a 5-wave move down from 2006 to early 2009, the low of the financial crises – probable a wave C of a large ABC correction wave 4, followed by a 5-wave fifth wave into a new high at the start of 2018. This index, by the way, does not only contain the homebuilders proper but also all the other elements that play a part in the joy of moving. Building products, furnishings, appliances and so on are all ingredients of this index. What you will notice almost immediately is that this thing double-topped at about $47, always a good time to step aside and smell the roses. All the more so if this top occurs as a thrust from a triangle, which, arguable, is the case here. This is so because invariable you will return to the lowest point in the triangle immediately after the thrust is complete, here at about $27 or so.

Ultimately a fifth wave retraces itself entirely as it moves back to the 4th wave of previous degree at around $7 or so. This assumption could, of course, be wrong if we are in a brand new bull market. In that scenario the up move from the 2009 low would have to be an initial first wave. These typically retrace a lot more than the 30%, give or take, that this index has done this year. It is a possibility that, for the moment at least, does not seem realistic. However if the Fed. and other CBs fail to raise rates we could be in an environment where hyperinflation could undermine all financial assets and boost all real assets. Time will tell.

MCD, McDonalds Corp.

Hamilton

mcd oct 26 2018 bmcd oct 26 2018 s

From the 2003 low near $10 one can count a 5-wave sequence into the Feb.  top earlier this year. Arguable it might not be complete as yet but the RSI is at a level that is roughly equal to the earlier top and is already at an extreme valuation. Furthermore with a p/e at 26x or so, double the “normal” level historically, this thing is ripe for a big adjustment.

    In any event, even if not yet entirely complete, the first target is at about $90 which constitutes a decline of about 50%, not a bad setup for a trade.