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Mar 312015

Elliott Wave Analysis of Cisco Systems Inc (CSCO) by Sid from  Click on the charts to enlarge.

This continues my series on Dow 30 components.

CSCO monthly linear 3-31-15

As you can see on the monthly chart above, after crashing over 90% in a 5-wave impulse from March 2000 through October 2002, CSCO has been stuck in a long, sideways consolidation.  Probably the most important aspect of Cisco’s “recovery” starting in October 2002 is that the initial rise into November 2007 was a clear 3-wave zigzag, shown outlined in green on the chart.  That corrective initial rise cannot be wave 1 of a bold new 5-wave impulse rally to new all-time highs.  Rather, it suggests that after a corrective period, Cisco stock is likely to make new lows below the 2002 low before the next, large-degree rally phase can begin.

That initial zigzag from 2002 through 2007 was followed by downward ABC zigzag into August 2011, which I’ve outlined in red on the chart.  While it is possible that the November 2007 high can be labeled as Primary (burgundy) W, and the August 2011 low as burgundy X, it seems more likely that CSCO is carving out a Cycle (teal) Degree Wave B triangle.  That expectation is supported by the character of the upward price movement since August 2011, which is more jagged and complex that any of the other waves since 2002.  Typically, within a contracting triangle, “wave C subdivides into a zigzag combination that is longer lasting and contains deeper percentage retracements that the other subwaves.” (Elliott Wave Principle, Frost & Prechter, 10th edition, 2005, page 90).

CSCO weekly 3-31-15

The weekly chart above shows more closely the complex, choppy, overlapping nature of the rise since August 2011.  The upward movement since December 2013 is especially volatile, and appears to have started with a leading expanding diagonal for Minor (blue) wave A.  The subsequent blue wave B was quite brief, if I have it labeled correctly, as was the following blue wave C.  Despite the brevity of those most recent waves, it seems most likely that the Primary (burgundy) wave C top is “in” for Cisco for several reasons (shown on the weekly chart above):

  • Wave C burgundy has already retraced burgundy B by a deep 78.6%.
  • Wave D (burgundy) of the 13-year-long (so far) triangle is likely to coincide with the next Hurst 4.5-year cycle trough, which, according to Sentient Trader software analysis is due in early 2016.  If a triangle is truly underway, further new highs would not fit well with an expectation of triangle-like proportionality.
  • Weekly MACD histogram divergence appeared at the early March 2015 high.

CSCO daily 3-31-15

Additional evidence that CSCO recently made a large-degree trend change also appears on the daily chart (above):

  •  The very recent downward movement from March 2 though March 26 has occurred in 5-waves.
  • A potential head and shoulders top is currently under formation.

QQQ monthly 3-31-15

One last side note:  Why has Cisco stock been so weak since its November 2007 “recovery” high, while the tech-heavy Nasdaq index has ripped relentlessly to the upside starting in November 2008, almost to new all-time highs recently?   A comparison of the monthly chart of the Q’s (above) with the monthly chart of CSCO (shown earlier in this post) is truly shocking.  Is it a coincidence that November 2008, (the bottom in QQQ), was the exact month that QE1 was announced?  And if QE caused the difference, what do mortgage backed securities have to do with tech?  And why would QE affect the larger tech-heavy index so dramatically, but not the traditionally highly correlated Cisco stock?

Further scrutiny of the charts of the two items indicates that they magically parted ways for good in about July of 2010, with the highly visible stock indices being the big winners moving forward.  Is it a coincidence that the price of Cisco stock diverged from the larger indices immediately following the May 2010 flash crash?  I doubt it.  It seems more likely that at least some of the “distortions”  showing in the markets in recent years resulted from market “protections” enacted after the flash crash, and not necessarily from the gradual effects of QE.


Mar 282015

Elliott Wave Analysis of Caterpillar Inc. (CAT) by Sid from  Click on the charts twice to enlarge.

This continues my series on individual Dow 30 components.

CAT monthly 3-27-15

In my main count of the Dow Jones Industrial Average, 1978 marked the end of a cycle (teal) degree wave 4, but in CAT, the sideways movement from the 1970’s continued all the way through to 1984.  From that 1984 low, (shown on the monthly chart above), its easy to see 5 waves up into 2007.  I’ve labeled that rise from 1984-2007 in Caterpillar as cycle (teal) wave 5, and therefore the end of supercycle (olive) wave 3.

CAT weekly 3-27-15

Then, as shown on the weekly chart above, CAT carved out an expanded flat from July 2007 through March 2009.  I’ve labeled the March 2009 low as Cycle (teal) degree wave A.  That labeling was supported by the fact that the following rise into May 2011 stopped going up at just slightly beyond a 1.382 relationship with wave A (teal), a very common relationship between wave B and wave A within an expanded flat.  And until there eventually was a slight new high in February 2012, it appeared very likely that cycle (teal) wave B had ended in May 2011.  That slight new high in 2012 was a big deal though, because it indicated that cycle (teal) wave B was still underway.  Also, because the pattern from the 2009 low into the 2012 all-time high does not constitute a completed Elliott Wave pattern, it appears likely that cycle (teal) wave B remains incomplete to this day.

The slight new high in Feb 2012 also indicated that while the drop from May 2011 through October 2011 appeared at first to form as a 5-wave impulse, that simply cannot be the case.  So I’ve labeled the drop May through October 2011 drop as an intermediate (black) wave A in the form of an blue ABC zigzag.  (It also could have been labeled as blue WXYXZ.)  That was followed by over 3 years of complex sideways movement that I’ve labeled an intermediate (black) wave B triangle, ending in November 2014.  The strong downward movement in CAT since November 2014 appears to be a terminal thrust from that triangle.  That downward movement should finish as a 5-wave impulse, and appears to be incomplete, although downward momentum is currently waning.

CAT daily 3-28-15

As shown on the daily chart above, downward movement from the November 21, 2014 high is interesting because it may have a wave 3 (blue) inside of it that is shorter than blue wave 1 was.  Wave 3 of a five-wave impulse cannot be the shortest of waves 1, 3, and 5, so this may be indicating that wave 5 must be shorter that wave 3 was.  If my blue wave 3 label is placed correctly, blue wave 5 cannot end below 69.69.  Also, notice the possible bullish divergence already showing on the daily MACD.  Downward momentum has definitely been slowing since late January.

So why would Caterpillar stock bottom soon, and rally to new all-time highs over the next few quarters?  Compare the correlation between CAT stock and the price of copper in recent years by comparing the weekly copper chart (below) with the weekly CAT chart shown earlier in this post:

Copper weekly 3-28-15

Both CAT and Copper carved out expanded flats into their late 2008/early 2009 lows, and then rallied to large (primary-degree) tops in the first half of 2011.  Subsequent downward movement in both has been corrective.  It also appears that copper put in an important 18-month Hurst cycle low in late January.  Also note that the rise from late 2008 in copper through early 2011 was in 5-waves.  5-wave upward impulses during that exact period also appeared in several other highly correlated items, including AUD/USD, Hang Seng, Kospi, and Platinum.  That 5-waves up was followed in all those items by a multi-year partial retracement, dropping into very recent 18-month cycle troughs in all, suggesting that many commodities and commodity related items (like CAT stock) may very well be set for a push back into all-time highs over the next several quarters.

If that is to occur, “king dollar” may very well be finished going up, and inflation may be in the every early stages of rearing its head, as the following long-term Elliott Wave interpretation of the US Dollar Index (DX) suggests.  Especially significant (and outlined in red on the chart) is the 3-waves down from the 2001 high into the 2008 low.  Generational trends don’t end with 3-wave moves into a major low, unless it is the 5th wave of an ending diagonal.  If a down-slanting contracting ending diagonal started at the 1985 all-time high in the US Dollar Index, the 2008 low can only have been the end of wave 3 within that diagonal.  Wave 5 to the downside may have started last week.

US$ DX monthly 3-28-15

What does all of this suggest for the US stocks market moving forward?  How about Gold and Silver?  The German DAX?  Oil?  Currencies?  Bonds??  What can or will the FED do about all of this?

Please join me for my weekly “Counts” webinar, where I go over all of my multi-time frame, main and alternate Elliot Wave counts and associated Fibonacci price targets for many of the world’s major stock markets, commodities, currencies, and bonds.  Hurst cycle analysis is considered on almost all items.  A recording of the webinar is automatically made available to all subscribers immediately afterwards, whether in attendance “live” or not.  Also, all “Counts” webinar subscribers receive my EWP Screenshots (muti-timeframe screenshots of SPX, DAX, Gold, Oil, Bonds (TLT), the US$ (DX) and the EUR/USD currency pair) on Sundays, and again on Wednesdays that week.


Mar 182015

Elliott Wave Analysis of The Boeing Company (BA) by Sid from  Click on the charts to enlarge.

BA monthly 3-18-15

This post continues my coverage of individual Dow Jones Industrial Average components.

My long-term Elliott Wave count for Boeing (shown above) indicates that a Supercycle Wave 3 ended in this item in 2007.  Importantly, the downward wave that followed into the March 2009 low counts as a clear corrective (5-3-5) zigzag.  Then, the rise since 2009 appears to be carving out a corrective ABC, with the wave B within that structure forming a triangle.  That triangle is important.  Triangles cannot appear alone in a wave 2 position.  So a 5-wave move up from March 2009 is not expected.

This logically leads to the March 2009 low being labeled as Cycle Wave A, with the upward movement since 2009 as an almost complete Cycle (teal) Wave B.  Cycle Wave C to the downside is therefore due to follow, likely ending below the extreme of Cycle (teal) Wave A.  That would complete an expanded flat for Supercycle Wave 4.  It is also possible, but less likely that Supercycle Wave 4 will be a “running flat”, with Cycle (teal) Wave C unable to quite make a new new low beyond the extreme of Wave A.  A short wave C is less likely though, because wave 4’s typically retrace wave 3’s by 30% to 50%, with a Fibonacci .382 retracement being most common.  That would take Boeing stock down to $12.47 in about the year 2020, which is well below the 2009 low of $29.05.

BA weekly 3-18-15

On the weekly chart (above), the Primary (burgundy) Wave B triangle (from May 2011 thru September 2012 is shown more clearly.  That triangle also explains why upward movement has been so strong since late 2012.  Thrusts from triangles are generally quite relentless.  However, once thrusts from triangles are finished, the pattern is complete, and the thrust is typically quickly retraced in full.

Hurst cycle analysis of BA indicates the same thing I’m seeing is so many other items, a coming 4.5-year cycle trough due in early 2016, followed by another in late 2020.  I am therefore projecting that the coming downward movement into early 2016 will likely be just Primary (burgundy) Wave 1 within a larger 5-wave downward impulse.

BA daily 3-18-15

Finally, on the daily chart (above), Intermediate (black) Wave 4 appears to have finished in mid-October 2014.  From that point, all that is needed to complete the cycle-degree pattern is a black wave 5 to the upside, internally subdividing into 5 blue waves.  It appears that waves 1, 2 and 3 blue are already finished.  Wave 4 blue may be complete, but seems likely to extend a bit further.  This is because wave 4 blue hasn’t retraced blue wave 3 by at least 30% yet.  That would occur at 147.36.  A 5th blue wave up would be required afterwards to complete the pattern.  Because wave 3 blue was “extended” at about twice the length of wave 1 blue, an extended blue 5th wave is not expected.


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