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Jul 112014
 

Elliott Wave and Hurst Cycle Analysis of the U.S. Stock Market by Sid from ElliottWavePredictions.com.  Click on the charts twice to enlarge.

Many Elliotticians (including myself) regard the Y2K peak in stocks as the Supercycle wave 3 top.  Supporting evidence includes the record-high RSI reading at that peak, as shown on the quarterly DJIA chart below.   While many times, RSI readings reach their extreme at the wave 3 (burgundy: 1987), and show divergence at the end of the 5th wave (burgundy: 2000), I’ve found that if the 5th wave is extended (as it was from 1987-2000), the RSI will reach its extreme at the end of the 5th wave, as it did in Y2K. The significance of the 2000 high cannot be overstated, as panic buying pushed price action into a parabolic mania from 1995 into the Y2K top.

DJIA quarterly 7 13 14 1024x528 Elliott Wave and Hurst Cycle Analysis of the U.S. Stock Market by Sid from ElliottWavePredictions.com

Since 2000, stocks have generally been moving in a sideways, boom and bust pattern.  Rather than attach European data going back centuries to the beginning of the DJIA to develop a combined ultra-long-term count, it appears to me that because the 1929-1932 correction was a 90% crash that lasted only 3 years, it was most likely a wave 2 within a larger 5-wave impulse.  It seems unlikely that it was a wave 4 at very large degree because of the extreme depth and brevity of the move.  Wave 4′s typically retrace the entirety of the preceding 3rd wave by 30 to 50%.  Not 90%.  Also, Wave 4′s are typically long-lasting sideways affairs (like triangles), while wave 2′s are more likely to be sharp and deep (like zigzags or double zigzags).  I’m therefore counting what I see with my own eyes, with over 100 years of data to look at, and have labeled the 1929 top as supercycle wave 1, and the 1932 bottom as supercycle wave 2.

Using R.N. Elliott’s trendline system, I’ve connected the extremes of supercycle wave 1 (1929) and 3 (2000), and have placed a parallel copy at the extreme of wave 2 (1932).  R.N. Elliott found that wave 4′s will typically challenge that trendline, using it as support before a 5th wave to the upside ensues.  I therefore believe that supercycle wave 4 is still underway, as price hasn’t even moved into the lower half of that trend channel yet.

The topping pattern since the Y2K top can be one of two Elliott Wave patterns in my opinion.  My main count is that the 2000-2009 period was an “expanded flat”, and because price did not move into the lower half of the supercycle Elliott trend channel, I’ve labeled 2000-2009 as cycle (teal) wave A within what will likely end up being a long-lasting ABC “flat” for supercycle wave 4.  Cycle wave B of that flat has been underway since March 2009, and may have topped a few days ago (July 3).  B waves are typically accompanied by low volume, and continue higher on lousy fundamentals.  Those characteristics have certainly been present ever since the 2009 low.  Wave C of the flat would be next, and should move down in 5 waves, likely ending below the 2009 low, completing an expanded flat for supercycle wave 4.  However, a new low below the 2009 low is not required, as a more rare “running flat” is also possible.  As long as Central Banks around the globe continue colluding to debase their currencies, I find it quite easy to accept that wave C may not be able to take out the 2009 low (using nominal pricing), as the value of the fiat measuring unit (the US Dollar, in this case) may continue to be forcibly shriveled.  If wave C ends above the 2009 low, but moves down from near current levels in 5 large waves, supercycle wave 4 will go down in history as a running flat.

The pattern I find second most likely since Y2K is that of an expanding wave 4 triangle.  Edwards and Magee referred to this pattern as a “megaphone”, or “broadening top”  This happens to have been the exact pattern seen in stocks from 1966-1974, but that was at one lesser degree of trend.  It is therefore possible that supercycle wave 4 is carving out a larger fractal of the most recent cycle-degree wave 4 pattern.  If the expanding triangle interpretation is correct, Wave D of the triangle is likely finished, or very nearly so, and wave E must take the form of a crash to below the 2009 low next, moving downward in a massive and aggressive ABC.

A closer-up monthly chart of the topping process since January 2000 in the DJIA is shown below.  Notice the broken RSI trendline, followed by the RSI most recently testing the underside of the broken trendline.  This is textbook RSI behavior before a breakdown.

DJIA monthly 7 13 14 1024x527 Elliott Wave and Hurst Cycle Analysis of the U.S. Stock Market by Sid from ElliottWavePredictions.com

Now for a new idea.  I’ve been incorporating Hurst cycle analysis along with Elliott Wave now for almost a year now thanks to Sentient Trader software.  This allows me to combine the expected Hurst cycle peaks and troughs, even at small degree, with Elliott Wave, and its associated Fibonacci price targets.  The combination of these two tools is quite powerful, as Elliott Wave/Fibonacci is great for projecting how far price movements will go, but is lacking in its ability to project how long it will take for price to get there.

Hurst analysis essentially unveils the “tempo” of the natural underlying “rhythm” of the market.  J. M. Hurst believed that there are numerous “cycles” operating within the market simultaneously, some long-term, some shorter term, and some in-between.  These cycles combine to pressure price to the upside or downside.  The more cycles that are sloping to the upside simultaneously, the more upside pressure there is, and vice versa.

In my experience, at significant trend changes, the market switches gears, and starts marching to a different underlying rhythm than it was prior to the trend change.  Since I am counting the Y2K top was the last significant (supercycle) trend change, I believe that Hurst cycle analysis starting at the Y2K high best measures the underlying “rhythm” within the market at this time.  Below is a screenshot of the Sentient Trader, Hurst Cycle analysis starting at the March 2000 price top in the S&P-500.  I’ve made some additional notations on the chart.

SPX Daily organic Hurst analysis starting at the Y2K top thru 6 27 14 1024x576 Elliott Wave and Hurst Cycle Analysis of the U.S. Stock Market by Sid from ElliottWavePredictions.com

Many economists acknowledge the existence of a naturally recurring, 4.5-year business cycle.  When markets ebb and flow naturally, history shows a tendency toward cycle “troughs” about every 4.5-years.  J.M. Hurst documented this phenomenon in his cycles research many decades ago, and economists like David Stockman often refer to the 4.5-year business cycle still today.  Notice that the Sentient Trader software, when the analysis is started at the Y2K supercycle wave 3 top, places a 4.5-year cycle trough at the 2002 low.  The next 4.5 year cycle trough was in July 2007, just before the late-2007 market peak.  By the way, it is not unusual for cycle troughs to occasionally be placed at price dips that aren’t obvious as large cycle troughs on the charts, especially when there is a very long, strong trend underway (like 1982 though 2000), or when central bank and/or congressional interventions are as prevalent as they’ve been in recent decades.  Case in point:  legislation promoting easy mortgage credit for the masses is widely believed to have largely contributed to the market bubble continuation into the 2007 peak.

Then, the next 4.5-yr cycle trough is placed at the October 2011 low, and not at the March 2009 low.  This is quite interesting, as the October 2011 low was the stock market low since Y2K when priced in gold. This indicates to me that the extraordinary, experimentally huge intervention into the economy by the Fed starting in November 2008 (QE1) may have artificially stopped the stock market from continuing (nominally) downward into its natural 4.5-yr cycle trough in October 2011.

So, if October 2011 was the last 4.5-yr cycle trough, the next large-degree cycle troughs are expected in March 2015 (18-month cycle), and then March of 2016 (the next 4.5-yr cycle trough).  Notice on the chart that the over-arching 4.5-year (53.9-month) cycle crested on 12/31/13, and the 18.1 month cycle crested on 5/31-14.  That means that starting last month, there are two large-degree cycles now applying downward pressure on the U.S. stock market.   The last time this occurred was in early 2010, just before QE1 ended in March of that year.  Interestingly, those events were followed closely by the flash crash of May 6, 2010, a market correction of 15%, and the inception of QE2.

Labeling the October 2011 low as the most recent 4.5-year cycle trough also helps explain some of unnatural price action since March 2009, from an Elliott Wave perspective.  What if March 2011 was the natural end of Cycle (teal) wave A?  See the weekly chart below for the “food-for-thought” depiction.  The labeling does not follow Elliott Wave rules, but attempts to show what the wave count might have been, had the Fed not been distorting the markets by constantly f?/king with the unit of measure.

DJIA weekly 7 11 14 with Oct 2011 as cycle A low1 1024x526 Elliott Wave and Hurst Cycle Analysis of the U.S. Stock Market by Sid from ElliottWavePredictions.com

Notice the interpretation of 5-waves down (outlined in red), from the October 2007 high though the October 2011 low.  Notice the timing of QE 1 (Nov. 2008), and the resulting prolonged upward grind for black (intermediate) wave 4, followed by an unnaturally short 5-waves down through the October 2011 low.  From an Elliott Wave standpoint, there are some very fishy goings on throughout the entirely of black waves 4 and 5, when attempting to interpret the nominal price action.  For instance, I remember thinking in realtime that the initial blue wave A up from the March 2009 low had a lousy (pink) wave 3 inside of it, with choppiness at the wave 3 of 3 (point-of recognition) section.  The same thing goes for the following blue wave C starting July 2010.  As a matter of fact, there is a conspicuous absence of strong wave-3 mid-sections within all upside lower-degree waves ever since the March 2009 low.  Also, the blue waves 3 and 5 from August through October 2011 saw price continually trying to pound lower over the 2-month period, and I remember thinking in realtime that there must be some “mysterious force” putting a floor under the market, especially after the July 2011 Fitch downgrade of U.S. debt.

So what does this all mean in today’s market?  This “distortion adjusted” interpretation would allow the upward movement since October 2011 to be counted as a double zigzag, which may have ended just a few days ago (on July 3), or may find a slight and final new high in mid-August (according to the latest Hurst cycle analysis). Note that the expected mid-August peak might also be the extreme of wave 2 within a downward 5-wave impulse starting July 3.

Ultimately, had the dollar not been systematically and dramatically debased since the inception of QE1 in November 2008,  the rise since March 2009 would not have stretched as far as it has in relation to price action prior to November 2008.  Duh.  This makes it very easy to accept the continued labeling of the overall rise since March 2009 (or October 2011!) as a cycle-degree wave B (teal), despite it reaching a fairly elongated 1.618 times the length of cycle wave A (teal), when labeling the nominal March 2009 low as the end of cycle wave A.

So why wouldn’t the Fed just taper the taper, and start printing more heavily again to keep the market moving upward forever? Because this isn’t 2008, 2009, 2010, or 2011. It’s July 2014, and they’ve already “broken the bank” by blowing up the Fed’s balance sheet, and it hasn’t worked. Not for the middle class it hasn’t. So we’re on to them, and their constant lies about the condition of the economy, inflation and employment. Their actions have stolen the expendable income AND savings from the middle class. And without a strong, employed, and spending middle class that doesn’t require sub-prime credit to sustain itself, the house of cards WILL FALL. The recent comments coming from the CEO’s of a number of retailers tell the real tale of what’s ahead.

As ugly as all that sounds, I want everyone to know that deep down, I am an optimist. In my opinion, deep economic corrections create amazing opportunities. And not just opportunities to make money going short as a trader. There will be opportunities to invest in great companies at a deep discount fairly soon, and opportunities for entrepreneurs to protect and grow their businesses, while debt-ridden, unprepared competitors fall to the wayside.

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Please join me for my weekend “Counts” webinar, where I go over all of my long, intermediate, and short-term Elliott Wave counts and associated Fibonacci price targets for many of the world’s major stock markets, commodities, currencies, and bonds.  Hurst cycle analysis is integrated into the analysis of all items. All enrollees will receive access to a recording of the webinar afterwards, whether they are in attendance live or not. All webinar enrollees also receive my “EWP Screenshots” on Sundays and Wednesdays.

For those who speak a language other than English, or don’t have time to view a 2.5-hour webinar, you can receive my long, intermediate, and short-term analysis of the SPX, DAX, Oil, Gold, Bonds, US$, and Euro two times per week via my EWP Screenshots service. Here’s more info about EWP ScreenShots . .

If you are interested in Hurst Cycle analysis, I highly recommend Sentient Trader Software!  Here’s a link to find out more about the same highly beneficial tool I’m using: Starter Bundle – Training Course – FLD Trading Strategy and EOD Trader Edition Monthly Rental.  I also find that the DTN IQ data feed works quite well with Sentient Trader.

Sid
http://ElliottWavePredictions.com

Jun 192014
 

Here’s an opportunity to receive rare e-book access to the classic 1978 investment book “Non-Random Profits” by Ray Hanson & Robert K. Mann.

NRP book cover small 240x300 Opportunity to receive rare e book access to the classic investment text Non Random Profits by Hanson & Mann

All Eleven-Quarter-Stocks subscribers this month will receive a free bonus from one of the authors of Non-Random Profits, Robert K. Mann:   The “Non-Random Profits” in  ebook format!  (Additional research has been added in this e-book edition).  FYI:  Rare original bound editions of the long-out-of-print book typically sell on the internet for over $100.

The June 2014 11-Qtr-System monthly webinar will be Monday, June 23 at 8pm (EDT) (5pm PDT).  This month’s guest speaker will be none other than Robert K. Mann, co-author of the classic 1978 investment book “Non-Random Profits”.  Mr. Mann will be discussing his many decades of experience with the 11-Qtr-System (referred to in the book as the “Ideal System”) in a conversational webinar format with Sid Norris of ElliottWavePredictions.com and ElevenQuarterStocks.com.  Planned topics of conversation include:

  • Why and how the original book was researched and written
  • How many of the “Ideal System” qualifying stocks have fared over the years since the book was written
  • Some of the additional subtleties of trading the 11-Qtr-System
  • The importance of accurately determining the current market position within the 4-year stock market cycle
  • Much more!
  • Webinar attendees will be able to present questions

Only Eleven-Quarter-System subscribers will receive invitations to the webinar, as well as a access to a recording of the webinar afterwards (whether in-attendance “live” or not).  Subscribing to the Eleven-Quarter-System is easy, and is quite affordable!  (The first month is 1/2 price:  only $12.50).  Cancel anytime.  Here’s more info on how to subscribe . .

For more information about Robert K. Mann, here are some of his recently published articles.

Sid

http://ElliottWavePredictions.com
http://ElevenQuarterStocks.com

Jun 162014
 

JNK weekly 6 16 141 1024x528 Elliott Wave Analysis of Junk Bonds ETF (ticker JNK) by Sid from ElliottWavePredictions.com

JNK daily 6 16 142 1024x528 Elliott Wave Analysis of Junk Bonds ETF (ticker JNK) by Sid from ElliottWavePredictions.com

Elliott Wave Analysis of Junk Bonds ETF (ticker JNK) by Sid from ElliottWavePredictions.com.  Click on the charts twice to enlarge.

On the weekly chart, after the large 5-wave downward impulse from late 2007 through March 2009, junk bonds recovered (partially) via what appears most likely as a corrective ABC zigzag, culminating at the .707 retracement fib in May 2013.  Notice the tendency of junk bonds to form a significant cycle trough about every two years:  March 2009, October 2011, June 2013.  If this pattern holds, the next 2-year cycle trough will be due about mid-2015.  The expectation of a strong move down into mid-2015 fits nicely with the Elliott Wave count as shown.

On the daily chart, after the contracting diagonal ended on May 8 2013, a strong 5-wave downward impulse ensued through June 24 2013.  That wave was very likely a wave 1, which set the new trend direction in junk bonds as DOWN.  The subsequent upward movement has been choppy, overlapping, and corrective, and counts best as a complete (as of today) WXYXZ triple combination.  Notice that the upward movement from June 2013 through today has also formed a traditional bearish rising wedge.

Hurst cycle analysis is projecting downward movement starting now through mid-July, followed by a partial retracement though mid-August, followed by a strong move to the downside into November.

Sid

http://ElliottWavePredictions.com
http://ElevenQuarterStocks.com

Jun 092014
 

TF 360m 6 9 149 1024x527 Elliott Wave Analysis of the TF Futures Contract   Russell 2000   RUT   by Sid from ElliottWavePredictions.com

Elliott Wave Analysis of the TF Futures Contract – Russell 2000 – RUT – by Sid from ElliottWavePredictions.com. Click on the chart twice to enlarge.

Evidence is mounting for strong (wave 3) downward movement in the Russell 2000 to commence shortly:

  1. There were 5 waves down from the March 3 high (in the RUT cash index) to the April 15 low.  The 5 waves took the form of a leading expanding diagonal.  Diagonals are typically deeply retraced.
  2. Subsequent upward movement started out choppy, overlapping and corrective, and appears to be carving out an expanded flat for intermediate wave 2 (black).
  3. Minor wave C (blue) of the expanded flat appears to be in its final stages, needing only the completion of minuette (green) wave 5.
  4. The duration of intermediate wave 2 (black) would be 1.382 times the duration of wave 1 (black) on June 13.
  5. The Hurst 37.6-day cycle topping window spans from June 10 through June 18.  June 13 is the center date of that window.
  6. Wave C (blue) within wave 2 (black) would equal wave A (blue) at 1182.5, which is right in-between the .786 and .764 Fibonacci retracement levels of wave 1 (black).
  7. Minute wave 5 (pink) within wave C (blue) would equal the net traveled by Minute waves 1 through 3 (pink) at that same level:  1182.5.
  8. The P/E ratio in the Russell 2000 is a whopping 84.39 according to WSJ.com. One year ago it was half of that.
  9. Advisor bullishness is at record high levels.  Higher than at the 2007 peak.
  10. In recent months, record levels of margin debt has been utilized to push stocks to all-time highs. Margin debt has also eclipsed 2007 highs.
  11. Hurst cycle analysis is projecting no further new highs after the 6/10-6/18 window, and expects substantial downward movement into a large cluster of cycle troughs due in late November.
  12. If the Fed was really able to backstop any kind of substantial market correction, all of the crashes of over 35% since 1913 would not have occurred. (1916-17, 1919-21, 1929-32, 1937-42, 1968-70, 1973-74, 1987, 2000-02, and 2007-09.

Sid
http://ElliottWavePredictions.com
http://ElevenQuarterStocks.com

May 312014
 

SPX weekly main alt 5 31 14 1024x527 Elliott Wave Analysis of the S&P 500 (SPX) by Sid from ElliottWavePredictions.com

SPX weekly main 5 31 14 1024x528 Elliott Wave Analysis of the S&P 500 (SPX) by Sid from ElliottWavePredictions.com

Elliott Wave Analysis of the S&P-500 (SPX) by Sid from ElliottWavePredictions.com. Click on the chart twice to enlarge.

Many Elliotticians are counting the rise since March 2009 as a cycle-degree wave B now, and many are counting the internal wave structure of the cycle wave B as a double zigzag. The weekly chart above provides evidence that the rise since March 2009 may actually be carving out a triple zigzag, and shows several supporting pieces of evidence:

1) The initial primary degree (burgundy) wave W sports a common Fibonacci relationship inside of it, where intermediate-degree wave C (black) is almost exactly .618 times wave A black (@ 1352.67).
2) Burgundy) wave Y also includes a common Fibonacci relationship inside of it, where wave C black is almost exactly equal to wave A black (@ 1687.78).
3) Within burgundy wave Z, wave C (black) is currently very close to where it would be equal to wave A (black) times .618 (@ 1916.57).
4) Burgundy wave Z would equal Burgundy Y times .618 at 1938.79.
5) MACD did not indicate black C-to-A divergence at the end of waves W or Y (burgundy), but appears to be setting up to show it now, near the end of black wave C within burgundy wave Z, the final wave within the pattern.
6) The entire rise since March 2009 is just slightly above where it would nearly equal the net travelled by cycle-degree (teal) wave A (March 2000 through March 2009) times 1.382 (@ 1891.35). Wave B’s within expanded flats commonly end fairly close to 1.382 times wave A.

I have other wave counts, and I show them on multiple timeframes during each of my weekly “Counts” webinars, but the Fibonacci relationships within this triple-zigzag count are fairly compelling.

Sid

http://ElliottWavePredictions.com
http://ElevenquarterStocks.com

May 042014
 

URA daily 5 4 141 1024x527 Elliott Wave Analysis of Uranium & Uranium Stocks by Sid from ElliottWavePredictions.com & ElevenQuarterStocks.com

URRE daily 5 4 141 1024x528 Elliott Wave Analysis of Uranium & Uranium Stocks by Sid from ElliottWavePredictions.com & ElevenQuarterStocks.com

Elliott Wave Analysis of Uranium & Uranium Stocks by Sid from ElliottWavePredictions.com & ElevenQuarterStocks.com.  Click on the charts twice to enlarge.

Since just before the Tsunami hit Japan in March 2011, the Uranium ETF: URA lost over 79% of its value through the October 2013 capitulation low.  From that low, URA appears to have carved out a bullish leading expanding diagonal, and has, within the last few days, now retraced .786 of that rise. (Diagonals are typically deeply retraced, and .786 is the deepest major Fibonacci retracement level.)

Additional technical reasons to expect a bounce in Uranium and Uranium stocks: 1) the downward movement from the March 5 high though the April 30 low appears to be a complete, or very nearly complete corrective double zigzag.  2) Hurst cycle analysis is projecting a very large 23.8-week cycle trough low to occur between April 1 and May 9, so URA is well into the latter days of that window.  3) The Stochastic indicator, set on a very slow setting of 41 on a daily chart is starting to bounce from a deeply oversold condition.  4) On-Balance Volume (OBV) is showing an uptick since the April 30 low.

Several Uranium stocks are moving in very similar patterns to Uranium itself, and appear to be primed for a bounce.   See the attached chart of URRE as an example.

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Please join me today for my weekly “Counts” webinar, where I go over my main and alternate Elliott Wave counts and associated Fibonacci price targets for many of the world’s major stock markets, commodities, currencies, and bonds. Hurst cycle analysis is always considered, and integrated into the Elliott Wave picture. THAT is the most unique thing about my service, and the reason why you should consider subscribing to one of my services.

A recording of the weekly “Counts” webinar is made available to all subscribers immediately afterwards, as well as multi-timeframe screenshots of my analysis of SPX, DAX, Gold, Oil, Bonds (TLT), the US$, and the Euro. A Wednesday set of updated screenshots on all of the above listed items is also included for subscribers. Here’s more info, including how to subscribe.

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FYI: Monthly update, the ElevenQuarterStocks Non-Random-Profit “Ideal System” Model Portfolio is currently up 20.8% YTD, while the DJIA is slightly negative for the year.

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Sid
http://ElliottWavePredictions.com
http://ElevenQuarterStocks.com

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