Stock indices to Top out in Sept - Nikkei shows the way.

[Mercury]

So 30 Aug didn't work out, I'm not surprised my confidence level was low because it didn't fit my big picture targets but each failure adds to the overall picture and I have a new possibility that does fit with those targets and with credible EWT counts and several classic charting formations.  Calling the top is still a stretch and one would want to see confirmation before risking anything other than a speculative anticipatory short trade but I like to set up road maps that follow a charting logic and see how closely the market follows them; the closer they follow the higher my confidence level becomes so let's see...

 

The Nikkei is the one that is really strong for me because it is not a market top but just a retrace; a higher level of confidence may be inferred on a retrace than a clear water top because there is past higher price action to draw upon so lets start with that.  On the assumption that all these markets are now inextricably linked, and I believe they are by global economic conditions and more particularly central bank policy.

 

The Weekly chart shows a strong head & shoulders formation around the Jun/Aug 2015 Top (could also be described as a double top but that is a bit of a stretch because it is not wide enough in time for comfort).  The H&S neckline was broken in early Jan 2016, retested in late Jan and again in April and is now heading for another test.  For EWT proponents the count is large scale 1-2 (purple) after the top followed by a 1-2 (Pink) retrace as part of Wave 3 down.

 

Now looking at the Daily chart you can see the 1-2 (pink) retrace move in close up.  It is currently running in an EWT complex retrace pattern (blue A-B-C labels) or a larger classic A-B-C (red labels) all of which suggests strongly that this is indeed a retrace move rather than a motive (1-5 pattern).  If correct the market is in a final run up from 24 June in a wave C, which exhibits both an A-B-C and 1-5 pattern (this means the classic and complex retrace forms can both apply but that doesn't matter as they both point to a retrace move that will conclude at the same point).  The most likely conclusion is the 62% Fib level, which also cuts both the Neckline from the weekly H&S and a Triangle on the daily (this top line has excellent price touches both before and after the June 2016 low, the before ones being so-called prior pivots giving this line very good resistance credibility).  With strong Neg Mom Div building and both RSI and Stochastic heading into over bought territory I have a fairly high confidence level with this set up.  It remains to be seen if the 4 hourly and hourly charts offer additional signals for a retrace reversal as we get into the end of the month.

 

Alas the Triangle top line on the Daily can be drawn in a number of positions, as usual, but the 2 that I like show hits on the various retrace resistance lines at some point in the last 2 weeks of September.  Hopefully this will get narrowed down as we approach the end of the month.

 

I will post on the other stock indices separately, which show corroborating analysis.

 



[donaldprice]

Interesting article from HSBC with the DOW possibly topping out with a head shoulders pattern.

http://www.valuewalk.com/2016/09/technical-patterns-october-1987/



[Mercury]

Already there  and it is a credible scenario but I'd give it 50/50 at best with my bias being that it is just an EWT3-4 with a later top to come.  a break of the upper Triangle would strengthen my resolve on this as the neckline has not proved strong resistance at this point.

[donaldprice]

Yeh i just noticed that as i was reading it, we already surpassed it. Although a credible scenario, i think this now shows that HSBC's alternative W-count is now invalidated. Seems like OPEC it was willing to come to a conclusion this afternoon. USD CAD worked out quite well, took ages for the drop but finally happened. But hedge funds still maintain a bearish view and appears that this was largely short-covering. It seems Saudi Arabia are starting to realise they dont have the dominante force they used to have, once oil surpasses 50-60 shale producers will have a greater incentive to just switch on the taps again. I dont think it is going to be a pretty end of the year for 2016. Watch closely lol. 

[Mercury]

I prefer to watch the S&P to determine the top of this market , it being the largest market and if you look at it there is a similar H&S and neckline as on the Dow but the neckline has been well punctured for the second time this afternoon while the Dow is only at the neckline for the second time.  I don't know why the media and analysts focus so much on the Dow when the S&P is the all important market...  Anyway the S&P has a more bullish stance to me but we will need to see it break the Triangle and until it does the scenarios remain at 50/50 for me.

 



[donaldprice]

Mercury you now how the likes of Bloomberg and CNBC are like, DOW is all to them haha. Mind you its better than the BBC, who commented 2 days ago that the reason bank shares where down was because of Brexit, not one mention of Deutsche. So typical, mind you SKY is just as bad all pro-remainers. I was however worried with my analysis on the DOW however few days back as it was making a significant retrace which made me question if we where still on a pull back. But appears that we are not for now. I think like with all W-5's is that their impulse moves seem for delicate and less vigorous than their counterparts, but that could me lol. Onwards and upwards for now.

[Mercury]

LOL!  Yes you are right about the MSM .  I don't know whether it is political bias; sheer incompetence or just headline grabbing but they never seem to get their reasoning right.  They remind me of children who come up with the most bizarre of reasoning for things and never look beyond the obvious, which is usually wrong...  Cognitive Dissonance; Confirmation Bias, egocentricity, take your pick: Post Hoc Ergo Propter Hoc!

 

Anyway, back to the technicals, I was looking at the Nasdaq to see if I could use it as a gauge, it being the most buoyant of the US large Caps and with the most outlandish P/E ratios, and there was an interesting note from John Burford (tramlinetraders.com) where he suggested a quite hefty rally phase now (behind further CB actions I guess) but after a short EWT1-2 retrace off the Sept 22 high.  [Now I don't want to misrepresent him (having got the slap down for that recently) so to be clear this is my interpretation of what he was saying so check it for yourselves].  I don't agree with him at this point, although I can see the technical scenario.  If we do see a clear 1-2 retrace off the Sept 22 high then I would have to look at this again.

 

For now my bias (and it is a bias so watch out!) is for a further final run up to a conclusion BUT I don't think the run up will be clean, rather a slow crablike sideways grind up, probably in an ending Diagonal/Triangle form.  I expect this to be filled with whiplash moves and, for me at least, not worth trading.

 

So in conclusion 2 main scenarios seem to be prevalent:

1. That slow grind up to a conclusion, which for me fits with the current uncertainty over the economy in general, what the Fed really mean to do re rates and a likely disappointing Q3 earnings season, never mind geopolitical events
2. A short EWT1-2 retrace off the Sept 22 high as part of a long strong rally in large scale wave 3 up to who knows where behind ongoing central bank madness (can't rule it out thought can we...!)

Clearly a fresh higher high above Sept 22 level without that EWT1-2 would result in a strong leaning towards scenario 1.  Let's see...