Where will the US markets end?

[Mercury]

Impossible to have much confidence in forecasting an all time high but some signals are still possible, especially on smaller time frame charts, especially if they mirror the larger scale chart formations.  I think the retrace hits on Nikkei and Dax will be the best signals in the end.

 

On the S&P there is an interesting set up emerging in the potential final wave rally from the 27 June low in that the Wave 3 (blue) is almost exactly the lame length as wave 1 (actually 1 point smaller).  EWT has it that wave 3 can never be the shortest wave and so that would mean wave 5 (the wave we have possible just embarked on of the post NFP rally holds) must be shorter than wave 3.  This means the max length is 121 points, which I have marker on my chart with a horizontal red line.  This point also intersects with a weekly tram line towards the end of Sept.  A breakout of the small scale Triangle could signal a rally up to this point, although I suspect this will be a choppy affair and not worth the risk trading Long (Nasdaq, Dow and Nikkei possible offer better Longs).

 

Similar set up on the DOW except that wave 3 is slightly longer than wave 1 so the same relationship does not hold as for the S&P.  There is a confluence of a long term Daily (green) and weekly (purple) top trend line pair in the latter part of the month.

 

The Nasdaq also has a shorter wave 3 but any wave 5 is likely to be curtailed by the 2 weekly trend lines that come together at the back end of Sept/early Oct.

 

With these markets we will be more reliant on the shorter time frame charts as the month progresses.  In terms of fundamentals, to the extent that anything except what the Fed says and does is relevant anymore, the end of Sept is obviously Q3 end and while reporting will not happen until Oct I suspect that bad results will leak out and the markets may start to get jitters before actual reporting.  If this produces a market top then once the reports start coming in [and I believe the trend since 2014 will not be suddenly and dramatically reversed in Q3, why would it?] any bearish move will be strengthened until the Fed has to act again resulting in a Santa Clause rally that delivers that shows up as an EWT 1-2 and then the real descent would being in earnest in early 2017.

 



 

[Guest Milloony]

Hi, interesting read... As a novice retail investor can you tell me if the raising of American interest rates will send Wall street up or down?

The only thing i can come up with is it will go up whatever happens but this can not of course be the case?

 

 

[Mercury]

A couple of thoughts occur  as follows:

1. If you review the copious threads in the forum you will see much comment on the state of the markets these days and how some believe that fundamentals do not signify anymore because the market is only responsive to central bank stimulus policy.  That will change eventually and when it does the market is likely to crash hard because the underlying economic conditions are not strong and nor are corporate earnings
2. The stock markets have been in a strong rally phase since early 2009 based on the central bank stimulus policies, which are about QE and ultra low interest rates, allegedly designed to stimulate the economy but has that really happened?  Therefore one could imagine that a withdrawal of QE and raising of rates would halt and possible reverse the bull trend.  We have had an end to QE in the US (previously also in thee UK but that seems to have started up again...) and it never ended in Japan and Eurozone.  We have had 1 rate rise in the US and since then a lot of talk, has the market fallen?
3. The reality is that reality seems to be suspended.  I do not think anyone can truly say what will happen on any specific data release beyond the short term.  The problem is that even if there is another rate rise in the US many believe that is all we will get and probably it will be reversed in due course.
4. The real thing to watch out for is sentiment change, that is what really drives markets.
5. Oh and one final thing, are you a novice investor or trader?  These are not the same thing... 

[Guest Milloony]

Thank you so much for your insight. As i see it the city traders who have to turn a regular profit are buying no longer on fundimentals just on the reality that if they don't produce they no longer have a job. The retail investor is always one step behind as an example what is the divi on the Ftse100 or wall street in say 2 weeks time? I can't find that information anywhere but it may have a big impact on my long or short position. By the time i find out its too late. I trade the Ftse100 dfb and Wall street dfb but also hold top 100 companies as 'normal' stock. Have done ok with oil and defensives . I suppose i am more of a trader than investor?

[Mercury]

No worries , sharing ideas is the whole point of the forum for me.  Also hearing from people who disagree with me...

 

In terms of trading vs investing you are clearly trading on IG, I guess most people do but some people use spread betting as a hedge for other investment so I wasn't sure from your first comment whether or not you may be one of those but it seems not.

 

In terms of investing, the only maxim I think worthy is "buy low, sell high".  All others seem to me to be creations by the FS industry to encourage punters to keep their money in the market and that is the only way FS professionals can make money - conflict of interest much?  Does anyone think now is a buy low time???

 

One of the real issues for both investors and traders is knowing when to sell and take profits.  There is also a school of thought that says there is no such thing as long term investing, every investment actions is essentially a trade, I subscribe to this view.

 

I agree with you on what is driving the city but some of the smarter ones (in my opinion) are out and yes they having been loosing clients, who are still greedy, but they are thinking longer term.  Some of these guys are very bearish and talking about being among those left standing with ready funds to capitalise on the end of a major crash and only investing is those vehicles that will thrive during a crash, of which there will be very few this time.  I believe we will look back on these times as a major event.  Most will lose a lot of money but some will make an absolute killing riding the crash down and being positions well for recovery, and not just on financial markets but property too.

 

Are you trading using fundamentals or technical analysis?  Obviously proximity to big data releases such as NFP and FOMC releases are short term volatile and can be a trigger for a longer term move but how do you decide on your trading if you believe, as you say, that fundamentals are not relevant?

 

IG issues weekly updates on divi impact and other sites such as Hargreaves Lansdown have a financial calendar, which details when individual stocks are going ex div.

[Guest Milloony]

Yes i also like the idea of a Forum, gives one a sense of hope that there are more ships on the ocean than just your own..

[Guest Milloony]

Regarding trading stances I like to try and trade on technical analysis however I would greatly appreciate your view on the wall street DFB. I appreciate it is a slow day for obvious reasons with my limited knowledge I can only see a downside this week as what can possibly drive it other than 'fresh' news?

I on the other hand 'suspect' a push to the upside this week as the market makers move in to take out stop losses and keep the money and volume moving. I am not a conspiracy theorist I just know the wheels have to keep turning. No market - no money. 

[Mercury]

I'm not the best person to ask about short term stock market moves.  It all depends whether you are a short term/day trader or a longer term/swing trader I guess.  I am the latter so for me there is no Long trade at all, I'm waiting for the wheels to come off and working with other markets (FX and commodities).  Although my speculative top calling analysis suggest the Dow could reach 19200 it is speculative.  My analysis on the Nikkei and Dax is firmer but really there is such little room to let any Long trades run that I prefer to store my acorns for later and place my bets on better set up markets.  In actually fact over time I have come to the opinion that (at least currently) the stock indices are more risky markets than others because they are wholly marching to the tune of the central bankers.  Commodities at least is still largely supply/demand driven and FX has wider impacting factors than just policy.

 

WRT "news"  I do not believe that news drives markets, rather news outlets report what has already happened.  The interesting thing is that Mainstream Media never seem to report the real stories.  Has anyone seen a mass of Q2 earnings fall articles?  No, only that they are meeting analysts expectation but why is that a good thing?  Most financial journos simply do not know what they are talking about and sadly joe public laps it up as gospel...

 

Let me give you an example.  In the hours and days after the Brexit vote many self proclaimed experts pointed to the FTSE100  and GBP performance in the immediate aftermath as clear evidence of what the markets thought of Brexit.  And then when the FTSE reversed and made new highs they pointed to the FTSE 250 as a "real" view of UK business rather than more globalised companies (in fact there are many UK focused companies in the 100!).  And then when the 250 recovered there was an eerie silence from these guys.  The fact the GBP had to fall because of the truly awful UK balance of payments was never mentioned. There have been several pieces about the hardships being endured by business as a result of the lower pound but hardly any about the positive benefits to foreign trade.  In short you simply cannot trust the news as a source for making trading and investing decisions, they don't know how the markets actually work.

[Guest Milloony]

Thank you again for your input, most appreciated. I Just don't see 19000 for Wall Street.  My argument is basic which relates more to human behavior than anything. The market predominantly moves via the city placing trades which can move the market, the retail investor either is lucky enough to ride on it (and comes out too early) or gets stopped out. Retail investors even with bigger volume days can neither move or influence the market price. Not enough fire - power and certainly no rhetoric which can be read and fed to the masses. Your comment regarding sentiment is an excellent one, how do we 'feel' about the market. Greed and fear will always prevail and at the moment 'the upside prevails' is what we are being told so hence the prophecy comes true. Non farm payrolls 'within tolerance' is the current strap line as this keeps the 'feel' of a bull market. What if the headline was 'Non farm payrolls disappoint as traders take money off the table in view of Fed uncertainty'. and what more do traders and the city fear more than anything.......... uncertainty. 

 

I agree the media manipulate the situation to suit themselves and really when you think about it how many people have you come across personally who only report back what they think you want to hear and try to cover mistakes by simply never mentioning them and hoping through time that story will drift away and a new story will be the new center of attention. Sound familiar?

 

I suppose the point I am trying to make is be strong enough to make your own mind up and think about who can benefit from whatever headline you come across. Most of the time it has nothing to do with fundamentals and is simply rhetoric no more and no less.

[donaldprice]

Here is an example of how rubbish the news is. Either by the time is announced it is too late, because the algos are now programed to have the news integrated into them and can now even read essential info, also anybody with a subscription to the FT (I do, but for general interest only) when they announce the amount of shorts on oil which was weeks ago, the price of oil was in W3 of C within that double zig zag we analysed, so a pretty poor short trade that would have made, and now today they say number of shorts on sterling have now levelled of (not suggesting to the opposite). This is why I go for that famous quote of eisntein (god does not play dice with the universe) meaning that every move will happen for a reason. When you see a rally like todays oil you always notice it will stop at such a specific point which was 0.786% fib from the previous bear trend. So yeh the news should be for ideas only, but technicals in my opinion should be the dominating factor. But everyone has their own strategy, therefore always worth investing serious time into it, and always try and improve it as well.

[donaldprice]

Interesting few weeks for the Dow, and therefore I thought I would share what I believe we have so far on the 4 hourly. So a few days before Yellen speech, DOW appears to be completing (Green abc) a really nice W-2 abc, before starting W3. However, to get to the summary, on the 6th sep, we appeared to rally again what look liked a nice 3 wave move, before sharply heading lower. Not stating that this is now the beginning of a bear market, heard for far too many years this story, but seems for the moment that today we have seen W3 impulse, strongest downtrend over 2 days since the yellen speech. But due to the seriously unlikely event that interest rates wont go up until after 1 of the 2 deranged fools get elected, this is most likely just a correction (Labelled in Pink) as an ABC.

By all means share your opinions if you see differently.



[Mercury]

My gut reaction was similar  however, just for the sake of clarity, it is not a correction until it makes 10-20% so this would just be a simple 3-4 retrace before a final push in wave 5 (I think this is what you are saying right?).

 

That said I have a nagging doubt about this now as everything is following my previous road maps.  You may or may not recall that I suggested the only markets that would make new all time highs were US Large Caps  (Nasdaq included) and that others would be in retrace mode.  Well both the FTSE 100 and Dax have hit exactly my initial retrace turn points and put in double tops and the Russell 2000 has also hit the 88.6%Fib.  The Nasdaq has also made a small double top and there ate H&S formations on both the Dow and S&P500.  The double tops and H&S are not of sufficient duration in the making to be reliable and could easily produce a failure into an other leg up.  Additionally the Nikkei has not yet reached natural turing points and is a bit more bullish in terms of signals.

 

My twin issues are that RSI has rapidly reached over sold (perhaps to be expected in a major down turn) and Janet is stepping up in a week and a half to announce the FOMC decision on interest rates.  If there are remaining Bulls out there they may view the sudden drop as an opportunity.  The COT is still overwhelmingly Bullish (albeit that this data was up to last Tuesday - i.e. before Friday's drop).

 

Therefore if we see a sharp counter rally next week we could see this as a 3-4 retrace and/or an ending Triangle/Diagonal with another leg up to go.  Alternatively we could see a return to the icelines (neckline and Triangle line breaks in EWT1-2 before a deep plunge if we have indeed just seen the top.

 

In any event I would not be confident to trade this move either way until things crystalise and am not getting excited about the prospect of the big short just yet.  However this is an encouraging sign for Bears that the Bull is in an ending phase.

 

Here are the charts I mentioned:



[donaldprice]

Hi Mercury, cheers for the response, in terms of indices I am more of a Dow and FTSE100 trader, but since we are primarily discussing the US, I will comment currently on the DOW. I too agree that 19000 is still on the cards, as this seems to me as more of a "cry baby" moment as central banks monetary policy is not having the magical effects nations where looking for (surprise surprise lol). However, I do like the triangle on the daily which since it is also corresponding with the 50% fib level. Therefore if this is simply just a retrace, which I do suspect, then we could see a nice leg up. However the ending diagonal does raise, an interesting point, of which could be fuelled by doubt of a raise in interest rates. Regardless of the reason, a very sharp downturn does seem to be on the cards.

It is interesting to second guess what Yellen's motives are. If you look back through decades on the DOW, the crashes of 87, 98. 2000 and 2008, when the bull market intensified, so did the crashes. The 87 crash of 500 points has happened several times over the last few years in-fact once or twice this year alone and yet nobody calls that a crash. But sticking to the point on this subject. If by raising interest rates you cause a decrease or correction in the stock market, then if their was a crash, the intensity would be much less, logically speaking. Not stating this is Yellen's idea, but I do suspect it has come to mind.



 

[Mercury]

I would not waste much time or brain power second guessing what central banks may or may not do nor especially what they may or may not be thinking.  I think a rate rise is possible this month but perhaps Friday's drop, if widely attributed to fear of a rare rise, may prompt another wait and see call from the Fed off the back of the poorer NFP numbers.  I think the end of the Bull will come with or without a rate rise and Friday's action was in keeping that that but again I am not yet convinced that this is the top.  I am sure many ardent Bears will be and will jump in but we have seen this before and it can be very costly.

 

If this is all about a fear of a rate rise then expect a rally ahead of FOMC as the Bulls begin to lean towards no rise.  With the FOMC release due on 22 Sept we can expect increased volatility (good for day traders if they can ride it but no good fr longer term traders who will get whip-lashed to death.

 

Related to this my analysis on FX suggests USD will drop back again to complete the EUR and GBP retraces and to see the completion of the JPY and CAD bear moves.  This would fit with a resurgence of the Bulls on stocks behind a no rate change ground swell.

 

However on Gold and Oil I see further drops over the coming week at least.

[donaldprice]

So hopefully, we can resume the continued ride to the 19000 mark form here now as it looks really unlikely now that Yellen will increase rates next week. But I must say, that what we have seen the last few weeks was really just a small preview of what can potentially occur. Many have been calling for a steep correction, which really does need to occur, but hopefully slowly and not hard down fast because this could be more devastating then we would have ever seen (not trying to sound like a Nostradamus theorist). Anyway, looking at the technicals, we could hopefully now start putting W2 behind and look forward to W1- of W3 for now. Just keep on dancing until the music stops.

 

[Mercury]

The Dow Daily chart as promised  As you can see there is a reasonably long term supporting trendline that forms the lower part of a Triangle with more recent price tops.  The supporting trendline is strong with several well spaced touches and rebound rallies.  For me this line must be broken for a change in sentiment.  If it holds higher highs are on the cards (confirmation with a break back above the neckline and the down-sloping Triangle line.  A Long at the supporting line is a decent bet (alternatively at confirmation of a rally with hourly candle close.

 



[donaldprice]

Cheers Mercury for the insight to this. I cannot see that Deutsche is going to be the bank that brings this down significantly, although banks have been in structural decline since 2008. Although it was difficult for me to work out what the present wave count is on the dow, as long as that triangle holds and bounces with a strong bullish candle then we can call of the retracement.



[Mercury]

EWT can be a challenge, especially on short timeframe charts, in complex retraces and nearing major turning points (In ending Triangles/Diagonals), which is why I also use classic charting techniques and Fibs.  EWT alone is not enough.

 

On the 4 Hourly chart you can see 2 possible near term scenarios:

1. That the 15 Aug top was a wave 3 and 12 Sept low a wave 4 with a nested 1-2, 1-2 there after, suggesting a strongish rally
2. That 15 Aug was a H&S top of the market and 12 Sept was a wave 1 of longer term bear move (red labels)

Ya pays yer money ya takes yer choice...

 

A confirmed rally off the lower support lines and areas of support (Dax) would support scenario 1, as would a higher high of course...

 



[donaldprice]

See this is the scenario that i was wondering if we where still in that retrace. Most notably from what i can remmber from EWT is that quite often is that retraces of W2 will usually be completely different from the retracement of W4. But this definitley looks plausible and i do like it, therefore similar conclusions. A good rally would confirm this view.



[Mercury]

Yeah the EWT1-2 often comes very early in a rally and can be an effective double top/bottom in that it can retrace to almost the same level as the previous wave turning point whereas EWT3-4s often take a long time and are complex.  That said it does depend where in the large scale cycle you are thus you cannot make too many generalisations, especially on lower time frame charts.

 

I am generally nervous about too many nested 1-2s as this often turns out to be the precursor to a complex retrace and can whiplash you to death.  At this point I cannot tell which scenario will play out so close stops are the order of the day as is not overloading any Long campaigns as the risk of the wave 5 being short is high.

[dash1]

I think the Dow should close hire tonight as some strong Company results and upgrades to buy have come out.

 

My only concern with this theory is that a lot of profit-taking has taken place on oil which may bring down energy stocks and of course, the whole Deutsche bank saga.

[donaldprice]

It is common I have found that with EWT that W2 can turn out to be a variety of technical patterns of which can sometimes overwhelm analysts, hence why it is always difficult to believe what you are seeing. However with this particular W count it appears to be highly probable that last Thursday nights retrace was simply W2- of W3 from what I can make out.

Charts below.



 

[Mercury]

US markets at a moment of truth!  Will it rally off the trendline or stage a breakout to the down side?  We should know before the close I am guessing...  I have shown the Dow here but same on S&P500.

 



[dash1]

We are all watching this quite eagerly. Has the big cell off begun?

[Mercury]

USD (DX basket) would really have to stage a breakout rally for a sell off on stocks to be confirmed.  Also need a confirmed break of the long term supporting trend line on both S&P and Dow for me.  Certainly not there yet.

[Mercury]

On this thread we have been having some fun trying to identify the top of the US large cap markets (i.e. the end of the bull run globally).  In reviewing the thread I was reminded that my first offering was end Aug/early Sept, in fact the charts showed Aug 31 but logic dictated the post US Labour day return to work in w/c 5 Sept (the historically traditional end of summertime from a markets perspective) was more likely.  Additionally I shared some stats whereby all the major crashes of recent times (at least since the '87 black Monday crash) have started and/or were backed up by an initial turn or big drop in Sept/Oct/Nov.

 

Looking at the charts just now I still see 2 scenarios (other than the crazy never ending bull cycle fueled by Central Bank vapour) as follows:

 

1. The Daily chart Triangle support holds for another leg up ending at long term upper tramline resistance (or who knows where...), coinciding with retrace resistance points on Dax and Nikkei (now that FTSE100 is in new all time high territory).  In this scenario USD should drop down to either of the lower support levels (see DX thread) before rallying hard.
2. The Triangle support is broken to the downside and the long slide down is on (note: it will take many months probably even more than a year so no rush...).  In this case USD should rally in correlation, possibly off the first lower Triangle resistance level.

I seem to be favouring scenario 1, which is odd because I am a 100% committed Bear on global assets (with the possible exception of Gold - jury not yet in on that for me as it could go either way).  When I looked back at the thread and reviewed the charts I noted that the S&P and Dow did in fact drop off on 7/8th Sept, in line with my initial technical forecast and completing a possible Head & Shoulders formation.  The markets have since put in a classic retest of the neckline, which held.  This is a classic bearish set up yet still I am not 100% convinced.  Why?  Because I know I have an uber bearish bias and I want to make sure that doesn't influence my thinking with confirmation bias.

 

The 4 hourly chart is more confused with the two scenarios still in operation.  The H&S neckline can be drawn slightly lower here (offering 2 additional failed retests) and there is also a slightly lower Triangle line (pink).  For scenario 1 (Long) to hold the current move must conform to a series of so-called "nested" EWT1-2 retraces.  If this is true then it would be particularly bullish (i.e. a strong rally would ensue after the so-called "coiled" Triangle consolidation phase.  However, in my experience, such nested 1-2's often fail and produce a strong move in the other direction.  Infuriating!

 

It is folly to seek to trade a market top, just as seeking to trade a retrace turn can kill you because you just don't know where it will end and we often keep getting just one more leg many times before it actually turns (familiar?).  You need a confirmation breakout to trade these set ups.  For me a break of the lower Triangle would be a good bearish signal to trade and until that happens I would tread lightly.

 

A final thought, I was reading an article over the weekend, which offered 2 main points as follows:

1. There is a lot more negative talk these day, than even say 6 months ago, and it has moved from outlier blogs to more mainstream media.  Some contrarians are citing this as a reason to go long but I disagree because the COT data shows the trend followers are still Long Stocks and bonds.  You can take contrarianism too far...
2. It would only take a 1% rate rise to cause up to $2.4 Trillion of bond losses, and a lot of serious commentators have suggested the next crash will be precipitated by a bond market crash and yet how many of us track the bond markets?

 

So net I am still tracking all of this against Q3 earnings and preparing for an initial shock off that, unless or until a major bull run breaks out I will remain bearish but wont trade it until I get either an irresistible turning point entry (I'll know it when I see it!) or a break of that strong Daily Triangle line.

 

But I am worried about confirmation bias so really want to hear how others are seeing it, especially if you disagree!

 



[dash1]

Hi. I think your argument is extremely valid and strong. Q3 earnings are going to either make it or break it. It kicks off in earnest tomorrow with Alcoa coming out with its number. While I am expecting a positive result out of them, we will then see the financial sector towards the end of this week.

 

I think that is where the challenges are going to start kicking in.

[donaldprice]

With regards to the FTSE100, their is now a more of a clearer correlation between a weaker sterling and money flowing into UK equities within the FTSE100 and because majority of cooperate earnings are made outside the UK, it only increases their margins even further hence why the FTSE 100 could easily surpass its previous all time high, especially if carney expands his QE program. In regards to the bond market, i think the first serious signs will begin when Dragi starts tapering of his QE bond buying bonanza of which will then see equities also react, which just demonstrates that when QE tamper gets threatened equities and bonds react sharply which further shows how over inflated stock prices are. A stronger dollar also places pressure on Europe and alike to also to cut back on current monetary stimulus and move in the direction of the US, hence why Yellen is looking for the perfect excuse not to raise rates, quite frankly i think she wants to cut rates and restart QE again, but that is just pure speculation of which may or may not materialize. But with a strong currency i seriously doubt she will reach her inflation target. 

[dash1]

It looks like the SMP 500 is above the 2160 level

 

That is a key level in my opinion.

[Guest Pierre]

Must say I can't agree with your wave 4 on all 3 charts