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US Indices Short - the big one!

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Feeding from post on the "Great Bear is Upon Us" thread, where I posted the Daily chart for the Dow in the run up to Dec 2007 and the comparison to today's price action I now have a turn at the wave 2 (blue) point previously identified, which is a lower high than the 8 Nov high (it the turn and drop holds of course).  The case for the top already being in is already made but just to briefly reprise (weekly chart below):

  • The EWT count is credible for a Wave 5 completion (and super cycle wave 5 completion) at the Oct top
  • The Oct top is an effective double top with the Jan top, just a bit higher, which is similar to 2007
  • The bearish move down to late Oct/early Nov is consistent with a 1-5 motive wave, which is suggestive of a trend change (unconfirmed)
  • The rally back up to Nov 8 is an A-B-C form, which turned on the Fib 76% (very high but consistent with a counter trend rally).  This adds to the notion of a trend change
  • Now we have a lower high rally ending on a gap, which is about to be filled - over exuberance in a last gasp?
  • There is NMD at the Oct top (and additionally divergence in other oscillators, which were all overbought on the weekly chart and not yet oversold - more to go in the Bear, phase 1!)
  • The pattern is consistent with 2007, doesn't have to be but doesn't hurt...
  • The volatility of the whole of the 2018 price action is suggestive of an ending pattern as bulls and bears slug it out.  This means that the Bear camp is growing in numbers and power.
  • The recent rallies are too strong.  What I mean by this is that normally rallies build slowly at first if they are going to have staying power, this one burst out too quickly, expending all it's momentum and now may not have any more drive.  For this current rally to have staying power it would be signaling a massive Bullish phase to come (from an EWT perspective).  So I find myself having to either remain Bearish or seek a 5000+ point rally.  I just can't get with the latter on a Fundamentals perspective (yet!).

So where are we now?  The charts below show the Oct Top on the Weekly and the pattern I have discussed before on the Daily, including the turn at wave 2 (blue).  The Daily and Hourly charts shows the turn close up, which was on the Fib 88% (I have noted that recently we have seen a lot of 88% and double top/bottom retraces as things get volatile.  On the Daily Stochastic is over bought again, which often happens at a retrace end.  On the hourly, I have a set of channel lines, just broken this morning and being retested (however similar channels are not yet broken on other US markets).  I have a credible EWT count for a retrace on the rally to yesterdays turn (albeit very powerful, almost straight up..!).  Alas I do not have NMD, which I would ideally like but may not get owing to the strength of the rally, however this means I cannot yet rule out another leg up.  The Gap is not yet closed, nor on other US markets.

In summary then this is not ticking all my boxes but is a credible set up for me so long as other indices are aligning.  And boy is the Nikkei aligning...  I also have Gold and Silver rallying as projected, although that may have more to do with the USD at present.  The USD bearishness is the only nagging doubt, however if you look at 2007 you will see that USD (DX) did continue down for a few months as the 2007 bear started and only rallied when the market realised the game was up on stocks, so perhaps this is also aligned...

In the final analysis, in trading, you have to take a chance.  The point of technical analysis is to help identify big picture turns and trends (together with Fundamentals) and to identify higher probability that 50/50 trading points.  After that it is in the lap of the gods so good money management is required.  If this works out the the Dow could offer 5000+ points Short in the first phase.  This would dwarf any other set up (including Bitcoin and it's ilk) in my view.

 

DJI-Weekly_041218.thumb.png.92341574569636ea14d2ad51d25b1fae.pngDJI-Daily_041218.thumb.png.abe0dc0efafcb2c087d99b5e22369741.pngDJI-1-hour_041218.thumb.png.31a4f04aacd6f5bbfe826def5bfdc12e.png

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All the Gaps are now closed (inc. the Russell 2000).  The big 2 US large caps have all broken short term supporting trend-lines with a quickening bearish move.  And USD is rallying.

At the risk of tempting fate here (but what's life without a little risk!), in the words of Steve Eisman, Boom!

DJI-1-hour_041218.thumb.png.9e53bd8fc4f9d3d344fff609060871d0.png

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So that was fun!  The price action hammered down offering a nice bucket of points for anyone who went short at the Fib 88% turn and/or the channel breakout.  The swift drop meant I could move stops to break even and pyramid the move and then we got a relatively small relief rally as (I assume) the buy-the-dips trend followers stayed loyal to their approach.  But that move was repulsed by the Bears in the latter part of Friday as the drop resumed.  A little rally at the rail end of the day was the only spoiler on an otherwise perfect run for Bears.

So far so good but what happens when the markets open up on Sunday evening.  I have a feeling we might just see a gap down!  Why?  Well the US markets (at least the Dow and SP500) have arrived at key support but not yet penetrated.  The Nasdaq has been a bit more bouyant and still has a ways to go yet to get there BUT the FTSE100 and Dax have both broken through key resistance late last week and both the Nikkei and SP500 have made fresh lower lows, which negates all the rally scenarios I had (also the Russell 2000).  So for me the trend has indeed changed to a bearish one, time will tell if this is indeed the big one, we will need to see how it plays out, I have posted my long term bear road map before.  We could see another small 1-2 retrace before a penetration drop but either way a drop seems much more likely and once the US large caps join the rest of the world indices, well the Bull is surely slaughtered...

DJI-4-hours_081218.thumb.png.c7c2d393f322860eca6d5de40fcb7c98.pngDJI-Daily_081218.thumb.png.ed3e2f4cf51e367c5639fd9122fb810f.pngSPTRD-Daily_081218.thumb.png.868f3ada98e93578716036a358b4d1ba.pngDAX-Daily_081218.thumb.png.b5c5716f9b9aeccf1510a7ee29a3ad55.pngDAX-Daily_081218.thumb.png.e8214f99af206c494b0de39b083c3eb2.pngNIKKEI-Daily_081218.thumb.png.31ff82a874b07ebe2a15294dd4303def.png

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Price on all the US large caps has now made a lower low (Nasdaq did it in late November - still leading the way...) and the Russell 2000 has also made a lower low.  Dax and FTSE have as well but are on different tracks so this is less significant (the Dax lower low was in early Oct!!!  Even further ahead of the Nasdaq!).  Anyway the point is I am no longer making a case for the all time high being in and the market turning into a long term Bear, this is now a done deal for me.

Some Bulls will be thinking Santa Claus as a result of recent rallies, they will be disappointed (or worse!).  It is just a relief rally before the plunge (see charts below).

1704398160_SantaClausrallywish.thumb.png.578345d78fbae8847ec71ade2d8cfe5f.png

Cartoon courtesy of Hedgeye.com

On my Daily chart you can see the whole of 2018, as posted before.  Crucially we now have that lower low and a series of lower highs.  We got a fakeout through the potential neckline support and pin bar to kick off the current rally but the wave 1 (pink) bottom support has been breached (hence the lower low).  The current rally is conforming to an A-B-C pattern and, if correct, this should top out around the Fib 62% level (no 76 or 88% this time!).  A turn a drop here will be fast and furious and I will be looking for a breach of the previous wave 4 (pink) support levels from early Feb 2018.  I will also be looking to see correlated moves across all the major indices, especially perhaps the Nikkei, which is the only one (at least of the ones I track) that has yet to make an equivalent lower low.

 

DJI-Daily_121218.thumb.png.8995f55082f50e82c71fa3a7fc0e4485.pngDJI-4-hours_121218.thumb.png.fd8ebf6ea24b93374bf7f175dba6e9e9.png

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