Thursday, May 23, 2013

Bryan's scenario

Reader Bryan Franco has been posting in the comments that the historical tape for major tops like these usually shows a nasty headfake before a final top.  He estimates that a 3% correction is needed before a final high that convinces him it will stick for a while.

Well ... we got that 3% just this morning. 

I can marry it to the 1705 high from last night, but the 5th wave leg to get there no longer relates to the 56pt wave 1 that began April 18th.  It's just a target up in the ether.  Figure that any touch of that TL next week (if we get up there) is a potential reversal.

The 1705 high comes out of a simple channel projection of the wave 2-4 trendline and yesterday's high:

Bryan's song?

Bryan -- really interested in your comments here, how badly I distorted your ideas for my own agenda, etc etc.

UVXY is so muted this morning, it really makes the overnight dive very suspect. 

8 comments:

Bryan Franco said...

Christian - Thank you for your encouragement. I appreciate it. First, the study I conducted (for work actually.. shsh don't tell anyone!) was based on closing prices for the Dow. Closing prices. That is the first caveat. I do not know yet how the data would change by using hi/low. This would imply that we need more of a correction (say, to the top of your Wave II around 1600-ish). I was trying to see if such a move could be part of your wave cycle implied by the degree you have beginning mid April. But, but, could wave 4 possibly be part of that same cycle?? I think you've suggested that any advance from here or lower would be part of a new cycle, yes? If so, what would that imply for the larger wave counts?? A "quadruple zigzag from '09 low" ? I am not an experienced wave counter, so I rely on you for that part. That's all i can say. Thanks. Bryan

Alex Red said...

We have already had two 3+% percent sell offs in 2013, each followed by a new high. So Bryan's condition is already satisfied twice.

Alex Red said...

Sell off from 4/11 to 4/18, based on closing prices, -3.25%. Then new high on 5/21.

Bryan Franco said...

Alex, one important conclusion is as follows: a new high can be one that results in a 20%+ drop if the market does not put in the following sequence: 5-10% decline, then upon climbing to ultimately exceed the start of previous decline, 3% -5 % correction, new high, 3%- 5% correction, new high. That is precisely the tape we have since September using closing prices. There is actually a second conclusion, and that is if the next correction is 3-5%, the proposed new high would have twice the probability of being the ultimate high than if the next correction is between 5-20%. If you are rooting for a long term top (like i am), you actually want the decline that we are in to be between 3-5%, but a new high after a 5%+ decline would still be an eligible top. Now here is another important subtelty... upon climbing to make said high, you have to be mindful of any 3%+ corrections along the way. If we have any 3% + corrections along the way to 1700s, then you have to check the sequence against the abovementioned first conclusion. In other words, EVERY 3% + decline that results in a new high needs to be checked against conclusion 1 .

Bryan Franco said...

Christian - The 11 day 30-minute S&P emini chart appears to have that "Leaning Tower of Pisa" look to it.. for a sharp move to your previous cycle (mid-April low) wave 2 around 1600s ... needs to happen, like today.

Bryan Franco said...

Christian - at what point would the current decline be ruled out as being a wave 4 of the climb starting mid-april?

Bryan Franco said...

I have a thought on a way that we could have put in "the top" while also jiving with the 3-5%, 5%+ correction study. The fact that I used closing prices means that we don't need to make an intraday new high. In fact, maybe we get Wave 5 of 5 from the mid-April low on Tuesday and Wednesday to 1663 (a failure). Then we decline sharply to 1590, taking out all of the stops between 1595-1600 as part of Wave 1 down. We then put in a Wave 2 that finishes at 1670 by Late June, thus putting in a closing high, but not an intraday high. Wave 3 down follows from there. This would fullfill my thoughts that we need a 3%+ correction on a closing basis followed by a closing high. Can a Wave 5 of 5 failure still be part of the mid-April low wave count?

Christian Gustafson said...

I dunno ... I'd like to see us hit SPX 1710 on Friday, finally touch the other side of the BIG channel since 2009, and get the next phase of the Bear underway.