Wednesday, December 26, 2018

March FOMC, but not what you think

Conventional wisdom holds that the stop-run from today is another spike that will reverse in a couple of days, so we can finish up a wave 3 down to somewhere around 2250 on the S&P 500.

I want to suggest something a little different, that we are drawing a larger-scale leading-diagonal on the chart, that we are in a wave 4, to correct the crazy crash wave we may have finished today, headed to 2520.  The move up was so strong that it left us only 10 pts away from overrunning the .382 retrace within the wave 3 structure.



We may sell some of this off, but I don't think we will give it all up just yet.  January sets up to let this wave 4 play out, with most of the gains already in the bag from today.  We are still within the narrow channel of the wave 3 dive, but it will only take a few days and a bit of rally to break us out of it.

January then becomes frustrating wave 4 chop, eating put and call buyers alike, since the VIX is still high, until the FOMC at the end of the month.  The Fed is all that matters now in our credit-bubble asset "markets", so why not make all of the significant turns Fed meetings?

The channel puts us right at 2152 into March FOMC.


SPX daily, leading diagonal proposed

edit: adding the classic extended W3 scenario, so we can watch this bounce carefully.

SPX hourly  classic extended W3

50 comments:

Christian Gustafson said...

I think if we go through year-end and the entire month of January with only 53 handles of upside from here, that it's going to piss a LOT of people off, bears and bulls alike.

T.Berry said...

after yesterdays historic rise i'd be fine with 53 more points this year. the stock market isn't going to stay this cheap for very long though. like i've said, the economy is just too strong for it to.

Sal said...

CG, I think this is going to take some complex moves and then a decision point (ii - far right of chart) will be reached where in it will be decided whether the low was it (C) or that was just a (3) meaning a bear market rally or bounce. Best to be cautious and exit calls at 2612/52. What do you think?

https://imageshack.com/a/img924/4074/OS4J0S.png

Kevin Wilde said...

I'm in the drop to 2250 now camp, then what you've drawn, though with the 4 a sideways churn M shape, before we zig-zag down to complete wave 5.

Anonymous said...

I think we're going to get the entire downturn over with in the first quarter. No idea what the bottom will be, still thinking between 2200-2300. I would love to hear an explanation from Permabear or CG what the justification is for 1500's in the Fall.

T.Berry said...

kevin,
aren't you expecting a big up day today and even bigger up day tomorrow?

Christian Gustafson said...

Sal, the "2" on the chart is the .618 retrace of the drop I am proposing. It's also the apex of the triangle we drew last year after the 2872 high. Theory here is that the Fed will hold again in March, but be forced by bonds to hike again in June. Where will GDP be by then?

Hugh, if we draw an enormous 5-wave impulse down, the down legs are going to represent 3 phases:

1. the rollover of Peak Everything, recognition of the new Bear (happening now) - wave 1

2. arrival of recession - wave 3. Will we break below ~1400 on the decades-long mega-channel? Would that mean the Fed is finished?

3. retest of mega-channel from below - waves 4 & 5. It is now overhead resistance, the Fed has thrown in the towel on asset inflation to protect sovereign bonds, and we are in a deep depression. Policy experiments and bold new crazy thinking on the way.

Kevin Wilde said...

T.Berry, what Christian and I are discussing is whether Wave 3 is over, or still has more work to do on the downside. I'm in the camp that we have more work to do on the downside, say a move below 2300 on the SP. THEN we bounce into wave 4.

Christian's chart suggests wave 4 has already begun.

If so, then we should have seen today run very big right at the open. Then tomorrow would gap much higher, only for sellers to hit it big to mark the A peak of an expected A-B-C. The B wave would then revisit yesterday's lows, before a final rally push that close one single day above the A peak. Since today has been all down, I would suggest that wave 4 has not begun yet, and needs a close below SP 2300.

Please note that even if we are finishing up the corrective phase and even larger blow off to new highs come next year, the corrective pattern should be 5 complete waves down. We have 3. When we complete 3 then 4 is sideways churn lasting many weeks that leads to new lows to complete wave 5.

We can discuss the bull/bear thing once we see this 5 wave pattern, and how the rally back to SP 2700 unfolds. Then you will need to decide if you're a buy and holder, or a more sophisticated trader.

Kevin Wilde said...

BTW there's still a small - say 10% - chance we crash another 20% here, though if we do we should rally back 17.5%, which should be trapped bulls exit point if get caught in a crash.

45% chance Christian is right and 4th wave underway (of Wave 1.)

45% chance we break below SP 2300 level here before 4th wave begins.

Kevin Wilde said...

Mom and pop and the front-running algos panic sold the day before Thanksgiving. Mom and pop and the front-running algos panic sold the day before Christmas. Are Mom and pop and the front-running algos about to panic sell the day before New Years to complete the meltdown wave to close out the year on the lows?

Christian Gustafson said...

Just added the chart of the scenario where we are still inside the steep W3, still headed lower to a phi multiple of W1.

Kevin Wilde said...

If I'm right we see a move below SP 2300 - which Christian's new chart shows (thank you!) then it should 5 wave down impulse move on the intra-day chart. Low this morning was i, modest bounce so far is part of ii (are we going to close this morning gap near 2460 to end ii?,) so big selling likely lands very late today, with the meat it tomorrow in iii to close out the lows on the week. Then sideways churn in iv near 2300, before we crack to new lows well below 2300 maybe Monday, or Wednesday.

That's the good news for the bulls - yep, Homer, we're almost there - though the bad news is the chart of DB, which is melting down like it wants to pull a Lehman implode move. Trouble in Euro bank land gives a bigger crash? Watch DB...

T.Berry said...

thanks kevin, did a little buying today---all divy paying at 5%+ . can't lose at todays prices. these are retirement funds.

buyers are starting to pour in. we could end up strong again today.

T.Berry said...

Kevin Wilde said...

so big selling likely lands very late today, with the meat it tomorrow in iii to close out the lows on the week.

December 27, 2018 at 8:31 AM



kevin,should have stuck with your big rally call from yesterday. i'm sure when you peeked at the futes this morning it didn't look so good. remember, the fundamentals of this market have not changed one bit since the beginning of dec and when stocks get this cheap, smart money comes piling in.

not sure if today is more impressive than yesterday given we've had almost another 1000 pt dow jones rally back-to-back. market lookin' good

Christian Gustafson said...

Well we just overran the .382 retrace of 2685 -> 2364.

My first chart may be the best the Bears can hope for ATM, a leading-diagonal with an extended 5th ahead when the Fed stands its ground again at EOM January.

The first order of business is to SLOW things DOWN, get the $VIX back under 20, so we don't have to have a heart attack every day.

We need to get the Elliotticians counting "triple threes" and junk like that in a long, complex 4th wave that eats theta and money.

T.Berry said...

Kevin Wilde said...

so big selling likely lands very late today, with the meat it tomorrow in iii to close out the lows on the week.

December 27, 2018 at 8:31 AM


just for the record, the lows for the week on s&p is 2351 so you're gonna need a -137 day tomorrow. i'd make that a paper trade if i were you : )

hugh, i'm with you bruh, new highs in 2019 are coming!!! as the old (and 100% true) saying goes, the stock market ALWAYS comes back!

impressive 900 pt rally today after yesterdays 1100 gainer.

T.Berry said...

well we got 21 of the 53 point cap for year end in today. so we got 16 points of upside for the last 2 days. i'll take it!

Unknown said...

These are the same dip buyers who bought the SP500 dip at 2600. Plenty more downtrend in this before the Fed gives up and ruins everyone not prepared by initiating QE4. Economy in terrible shape right now with Apple and Amazon, [former] trillion dollar companies, guiding lower. Lets hope we get QE4 so we can have the illusion that America's economy is healthy.

Kevin Wilde said...

T.Berry, the jury remains out whether wave 3 ended yesterday, or still has that move to still to come. If we see the markets rollover tomorrow - as I expect - then wave 3 remains underway, and you should be following the second of Christian's charts. If we get a significant rally tomorrow then we are in 4th wave already, and you should be following Christian's first chart. Tomorrow should answer that big question, though no matter what, we have yet to see the bottom.

T.Berry said...
This comment has been removed by the author.
Prechter said...

CG made a temporary reversal - just like the market today :)

Christian Gustafson said...

McHugh phi mate turn date today, too.

W3 over?

Prechter said...

T Berry, u said u are trading with retirement funds - how many years do u have to retirement?

Prechter said...

CG, after almost 900 points reversal on dow today w3 is over! :)

T.Berry said...

less than 5 prechter. i'm not a trader though. getting between 5-6% in divies

and grasshopper got monkey-hammered again. lol

Kevin Wilde said...

T.Berry, if you have less than 5 years remaining before retirement you should seriously be coming up with a plan to deal with this bear market, for Dow 5000 by 2022 is a very real possibility given the patterns and market action we're seeing. I'm not saying to bet on Dow 5,000, rather come up with a trading plan should that turn out to be our destiny. I'm more than happy to help with that, though only if you stop the childish claiming of victory - and panning of others - every time the markets close in your favor. Talk to me about that when the SP claws its way back near the 2700 zone after we've hit bottom, somewhere near 2000-2100. Time to get serious, my friend, as SP 2700 is likely the last chance you will get before the bottom falls out for real.

Unknown said...

DOW 5000 by 2022 looks realistic. By then we'll have a socialist elected that'll do a good job bringing us down to that level. This country is falling apart and the stock market will accurately reflect it, permabulls are always the ones holding the bag at the top. Any new all time high made for the DOW at this point will be due to money printing, thus you'll have to price the market in gold and itll come out to DOW 5000 by 2022.

Christian Gustafson said...

Q3 2018 GDP adjusted to 3.4%

Q. when is the next quarter the USA will print a negative number on GDP?

Prechter said...

Optimistic answer: Q4 2019

Pessimistic answer: Q2 2019

Prechter said...

T Berry, u should get out of the market tomorrow/while this rebound rally lasts!

There is a further 30% drop coming at least - and this time it will take a very very long time to get back to even!

Be careful my friend - Don't risk your retirement.

Unknown said...

Yup, volatility picking up is not a good sign for permabulls wanting new highs. The odds of an intraday crash go up in this type of behavior. And we're also overbought, time to go back down. The sooner we extract money from these poor permabears' souls the sooner we can have those paid off homes in the Caribbean.

Christian Gustafson said...

So what was $UVXY telling us today?

It whispered that we are still inside the W3 channel itself and that we could still make new lows very soon.

Kevin Wilde said...

Yep, we are in a 4 of some kind. Either a iv of 3 - new lows imminent - or an A wave of a real 4 - close to reaching its upside target, though new lows are kept at bay for a couple of weeks to keep hope alive. An extended crash wave 5 also remains possible.

I have a plan for whatever.

For now, cash, or short, or sell into rallies to raise cash or shorts, is called for.

Too early to tell if we are headed to new highs eventually, or down into financial hell, though we will know which ahead of time. We just have to get there one trade at a time...and let what will be be.

umdengineer said...

Recent crashes have seen markets like the Shanghai composite drop 50% from their highs. Nikkei saw a similar decline in percentage from its peak in 1989 over the course of a couple of years.

The 1929 crash saw the Dow go from 381 to 41 in 1932. It isn't impossible to see Dow 5000 but it is unlikely. The reason being is the Fed is getting better and better at creating bubbles and managing them.

The last time the Fed was in a pickle was the 1970s/1980s stagflation, and it took a truly brave Fed chair by the name of Paul Volcker to raise interests rates enough to cure the problem. Our more recent '08 experience wasn't that bad because of a just-in-time rescue with TARP and later QE.

For the Dow to go to 5000 something very horrible would have to happen to force the Fed to accept it in lieu of solving some other problem.

Even China's bubble didn't burst as badly as the Dow did in '29.

What could possibly cause Dow 5000?

1) Dollar loses reserve currency status
2) War
3) ??? (black swan)
4) Profit (sorry couldn't resist ;)

Christian Gustafson said...

Friendly reminder that SPX 2256 is the phi extension of the 336 pt W1 down.

Kevin Wilde said...

The financial system blowing up as the FED/ECB/BOJ bubble pops - again - is how we get to Dow 5000, which is a simple retest of the lower trend channel of the 2002 and 2009 lows. DB looks like such an implosion is happening. Horrible action in all things financial related also suggests trouble. Low oil prices crashes the high yield market, which crashes US banks and financial institutions AND pension funds holding them.

Bad things happen and the FED will be hauled up into Congress and blamed and shamed, so unlikely to try to save us next time. Same with Congress, where you can forget TARP 2 to save the financial system next time around.

Remember, we get there one trade at a time, whether its bull, minor bear, or a major one. Worrying about what will be if fruitless, though one should have a plan.

Kevin Wilde said...

The charts seems to be leaning more toward Christian's first chart - intermediate term 4 underway - rather than a minor 4 of intermediate term 3. The key is where news lows come versus any hit of the 20 day moving average. Looking back at past intermediate 4th waves, then occur after an A-B-C rally of significant lows to hit the 20 day MA - one day close above it - before being pushed down into a retest of the lows, which eventually give way to complete the 5th wave of a large wave 1.

Should we see new lows prior to hitting the 20 day moving average, then we remain in intermediate term 3, and have to rally back all the way here to hit the 20 day.

So use new lows versus where a rally hitting and dying at the 20 day as a guide to where we are, and right here we await either new lows or a hit of the down-trending 20 day to answer this all-important question.

umdengineer said...

21 days... that's how long government was shutdown in 1995.

https://www.google.com/amp/s/www.pbs.org/newshour/amp/politics/every-government-shutdown-from-1976-to-now

Maybe the black or grey swan is Trump draining the swamp by shutting government down until the 2020 election, he gets his wall, or there is rioting in the streets (food stamps run out), whichever comes first.

Christian Gustafson said...

Just broke out of the old W3 channel.

Bryan Franco said...

It seems there is a time element with respect to any breakout... the longer it holds,the more valid it is. The trick is finding that sweet spot between confirmation and return cannibalization. Happy new yr

Kevin Wilde said...

Today looks like a completed A wave of an A-B-C 4. If so, we should see Monday down, gap down Wednesday to complete B, then rally for a week to hit modestly higher prices than we see today to complete C, just above the 20 day moving average. Then we head to new lows again.

However, that assumes we don't hit new lows next week to complete wave 3, which remains a possibility.

Next week should answer this all important question, and the bottom line is: tis not over yet.

john said...

S&P Y2K is coming baby, 2000!

Anonymous said...

Even Caldero is on board with the bear ending in the first quarter between 2200-2300.

"When considering everything previously noted. It is possible that the next selloff could not only end the bear markets internationally, but also in the US. At the beginning of the bear market we expected a short one of about 15%-20%. So far it has held within those parameters. We had thought that SPX 2400 would be the maximum downside. We got that wrong as the SPX has already hit 2347."

"We see two potential support levels for the next, and maybe last, selloff. SPX 2310 C = 1.5 A, and SPX 2270 C = 1.62 A. The DOW C wave would have a 1.62 relationship to A around the SPX 2310. While is no pivot at SPX 2310, there is one at SPX 2321, 2286 and 2270. Also if the potentially last selloff is not too severe many positive divergences would be set up in the daily and weekly charts, with oversold monthly charts. These typically work to end downtrends and bear markets."

rotrot said...

NYAD yearly has gone negative…it doesn’t happen very often…suggest to Caldero that he check to see what it might mean for the stock market...

rotrot said...

Charles Nenner
@NennerResearch

VIX (Cash)
Our market outlook for a bounce was supported by the cycle top in the VIX - as mentioned a few times - on DEC 24.
A close below 28.60 will be a sell signal.
The next low is projected again around JAN 17.

6:20 AM - 27 Dec 2018
https://twitter.com/NennerResearch/status/1078294625989861377
____________________________________________________________________
Charles Nenner
@NennerResearch

S&P / Nasdaq / Dow Jones
We are now close to the second short term cycle low.
The following closes can lead to a bounce finally:
S&P above 2410, Nasdaq above 6060, and Dow above 22380
If we see the bounce, it can hold on until JAN 17.

6:55 AM - 26 Dec 2018
https://twitter.com/NennerResearch/status/1077940931243008000
____________________________________________________________________

TO BE CLEAR...Nenner expects the stock market rally to continue into into January 17

rotrot said...

Exceptional Bear
1b $SPX - S&P 500 Daily ZOOM
https://stockcharts.com/public/1957888/chartbook/637532947
____________________________________________________________________

TO BE CLEAR...EB expects a brief pullback into early January then a rally to 2925+

rotrot said...

the market will let us know how Caldero, Nenner, and EB should be judged...NO MORE REVISIONIST BS!

Sal said...

I have a feeling that we top out at ES 2612. Then drop all the way down to 2052ish. But we need the double barrel blitz of balance sheet reduction and rate hike roadmap from Powell. Here is the chart

Kevin Wilde said...

Sal, your wave 4 stretches too close to wave 1 lows for my liking of that count. My wave squiggling has the C wave peak landing somewhere between SP 2520 and 2550.

But first we have to see a B wave retrace, AND avoid that hitting new lows that keeps the wave 3 impulse alive.

What a wild ride we're in for!

Sal said...

All roads seem to lead to es2612 atm. I maybe wrong. Think of it this way it broke out of this large balance area and now pulling up to the value area low to be rejected.