Market Pundits Converging on a Scenario

It is passing strange when market pundits converge on a common point of view from very different directions. The wave theory punditry & blogitry have been all over the map, but now are gaining conviction over a near-term peak in August, maybe within a few days of my Aug4 turn date (ie. this week or early next). The market has been in the Big Tease, which is working maximum damage on bull and bear alike, and pushing the pundits to the precipice. Today was the bulls turn to get momentarily exuberant. Will swimming against the bullish tide pay off for the pundits, or are they all about to tumble down the wall of worry into the abyss of irrelevance?   

Neely has been saying how in the middle of a formation, predictability is the lowest. He has had the market in a final corrective pattern since the Jan-Feb drop: an A wave to the April peak, and a B wave which is breaking as a triangle. We are now in leg D of that triangle, and predictability has increased, as has his conviction that the D leg will end soon and the market reverse down.

The STU got prematurely enticed by the S&P futures overlapping waves 4 and 2, and expected August to start down. No mention of that today. Just as well - the futures do not lend themselves to wave theory as well as the cash indexes since they expire, and that distorts the picture. The Dow did not have that overlap, and although they saw it in the S&P cash, over common time frames (eg. 15 mins) I saw no overlap, it was the slightest of overlaps (1088.9 vs 1088.1). They have us in the final thrust up (wave 5 of V of C) and note that we are at the 62% retrace of the whole drop off Apr26. Wave 5 could be done; or could have gone only to inside wave 3, so has a bit more to go in inside waves 4 and 5. 

Robin Landry has a similar view, and expects a top in the first half of August at below Dow10800. He sees the wave count as complete today, just as the STU does; but allows for the final jink and jive of little waves 4 and 5. 

So three of the major pundits come to a similar view from very different places. 

The blogosity of ewave sites has also converged on another view with the same consequence: that we are in an ending diagonal (ED) C wave. This chart from Blankfiend shows the ED at the end of a wave count like the Big Tease: wave 1 ends on May25 and wave 2 is breaking as an expanded flat with a deeper bottom to the B wave than the end of wave 1. 

The ED is a clever way to get rid of the overlap of waves 4 and 2: in an ED, that overlap is expected. The final thrust up should compress, with 3 shorter than 1 and 5 shorter than 3, and converge somewhat to a point of lower highs and higher lows. So it seems to work, and you can see similar charts from Daneric, EWtrends, MarketThoughts, and others too numerous to mention. Market Thoughts gives guidance that for 5 to be shorter than 3, the outside level in the S&P cash is 1150.

While clever, the ED has some challenges, including that all waves should be "3s" while the STU was adamant today that there are clear "5s" in the C wave, perhaps anticipating all these blogostic EDs. 

My Big Tease count has a different read on wave C: that wave (iii) of C is not yet done, and what is listed as major (iv) above is instead minor iv inside (iii). It is that minor iv which the STU was worried overlapped with minor ii inside what is labeled (iii) above. (The STU counts that (iii) as (v), having found a small waves (i)-(ii) inside what is labeled (i) in the chart.) This means we would be in wave v of (iii), and have a bigger waves (iv) and (v) to go. Such is the fun with wave theory! 

Hence the Big Tease is not limited by the ED short wave 5, and instead should go above 1150 in the current run up, possibly by Aug4; and then might get to 1175 later in August. Right now we have to see how the next few days go.

ContrarianAdvisor gives another view, more in line with Carl Futia's "box" approach. I highlight it because it is also similar to Zoran's Factal Finance approach, of a "plateau" or trading range following a sharp thrust - in this case, after the Flash Crash drop, we have been in a two month trading range. 

This box analysis also predicts a top soon, after running back to the top right of the box. Zoran often expected a False Break above the box, then a drop back inside. Watch for either hitting the 1131 area and dropping, or punching above then falling back below. A Bifurcation to confirm the False Beak and the end of wave C would have to fall pretty sharply below the bottom of the box, or Sp1010. 

A final convergence comes from a reader and frequent commentator, DG, who has taken Neely's approach and extended it. He posted this chart a bit ago and I thought to share it with you. You can read his analysis in this comment. His work says the final leg of an expanding triangle, leg E, should end by Aug6, or the end of this week. 

Comments

[Paul]

There has been a negative divergence between the Nasdaq and Dow Industrials. While the Industrials topped the June high, the Nasdaq is well below it. In fact both the Transports and Nasdaq are below their highs set just two weeks ago.

[Sherman "double long" McCoy]

funny how you identify "nested ones and twos" on the way down, but ignore them on the way up. Any 3 year old can see We're in the 3rd of a third, highlighted by today's opening gap. But that doesn't fit with your herd view, does it?

[Daniel - Taz]

A "3rd of a third" to the upside is impossible.

The rally of the July low is taking about three times as long to reclaim the June high as the drop from the June high into the June low.

Impulses are high conviction moves. if it was a legitimate impulse, the rally would have already reclaimed that high. The low momentum of the move makes it corrective.

Taz

[DG]

As always, Taz, right on point with the comment.

The only thing I would add is that if you look at the first wave up as a "1" and the correction of that wave as a "2" (not that I think they are, but for the sake of argument), the "2" corrected 47.7% of the "1". Then, if you look at the "nested 1 and 2", you see that the second "2" corrected 51.2% of the second "1", which is a logical no-no if the market is gearing up for a "3rd of a third". The second "2" HAS TO retrace less of the second "1" than the first "2" retraced of the first "1".

Man, I wish I had a dollar for every time I've had to correct someone from making that mistake.

Attention to detail is the only way to make sure your wave counts are even in the ballpark.

[yelnick]

Sherman, nested 1-2s usually get busted. I thought they might work a couple of weeks ago, but no such luck. A low odds formation.

[Michael Wagner]

Yelnick, thanks for a most informative summary of what is going on in E-Wave Land. I don't know where you find all of the time to do this . . .Excellent work!

[Hockthefarm]

Great stuff Y, thanks.

Dent is also on board. Sees a last stab up to 10700-10800 late this week after a slight pullback. Then down.

Hock

[GLN]

This morning, I found "Roger" over at Daneric's blog with all of those other "Perma-Bear" losers . . .

"There is a topping fractal in place that occured in April. This market is done."

Roger D.

[Hank Wernicki]

yep, wavelets are all pointing Down

[GLN]

Euro now up to 131.90
Dollar bulls getting crushed!

[JT]

I've noticed that the PERMA-BEAR blogs like Kenny and Daneric have seen their posts totally dry up. Perhaps all of the kids that frequent those blogs are getting ready to return back to school and no longer have as much time to post, or follow the market.

[Glenn Loser Neely]

Yeah...

I've noticed that too, so I am not so sure that they are as good as a CONTRARY sentiment indicator as they have been in the past. It seems as though after Kenny had his latest "temper-tantrum" and crying about no one making any donations to his blog, all of his followers left him for good and went over to Daneric's site.

That's the biggest BEAR DEN that I have ever seen! It's amazing that anyone has any trading capital left after the last 12 months in this market. Losers... each and every single one of them.

[upstart]

Why couldn't we be in "B" of a bullish triangle (that will take up most of the rest of the year) as easily as any other interpretation you would come up with?

[yelnick]

Upstart, there are several triangle scenarios that are bullish. The most prevalent is that the Flash Crash was wave A and the sideways move since is a wave B triangle, which is in leg E and is about to end. If so, it implies a drop in wave C. Since A went 180 pts, if C=A it targets 1150 (if we get there in the next couple of days) down to 970, then a resumption of the up move. If C= 1.6x A we go down towards Sp850 before resuming the upmove.

[Erasmus B. Dragon]

This is good analysis. Thanks. We had lots of short term bears in early July saying "the down ramp is here", and the one thing they did not expect was a head fake towards 1150 to 1180. We have to remember that we are still in a secular bear, however.