February 18, 2015

New Highs Arrive – Where is all the Fanfare? Wednesday’s Chart – Updated Elliott Wave Count -Monthly $DJIA

bull-market-teshia-artDid I miss something? I don’t remember hearing any shouts of joy or any applause when the S&P moved to new all times. Nor did I hear any shouts or applause when the NASDAQ-100 pushed to new 15 year highs or when the Russell 2000 finally and I mean finally moved up to a new all time high after languishing in the doldrums as the balance of the broader indexes pushed higher. I wonder if the S&P sent the buyer of the top a certificate designating them as that lucky buyer. Probably not though, since the market continues to push to new highs. In fact, it almost feels like there are a group of traders who are begging to be the lucky winner of buying the absolute top. Well, maybe that is just how I feel because I’m usually the one who is trying to sell the top tick – an impossible feat these days – but that is the contrarian trader in me that just won’t quit.

arewethereyetThe markets finally made it though, and while I can’t say the highs are in just yet, everything is happening according to plan. What I mean by that is that as a student of Elliott Wave one learns the mechanics of the wave structures and also the personalities of the different waves in progress. For example, within a 5-wave structure the third wave is normally the longest and the strongest within the sequence. We can now apply that same statement to the various degrees within the larger pattern in progress. Now the next piece of the puzzle is that within a 5-wave structure wave 5 will ultimately move higher or lower (depending on the direction of the trend), but without the same power or strength seen in the 3rd wave. Those that have been reading my analysis over the past year or so know that I have been consistent in calling for new highs while also calling for a correction to take place first. This has remained the case for months now and progress towards the ultimate high continues to unfold without any hiccups yet. However, I have been also repeating myself that the broader indexes will likely move to new highs on “negative input”. Has that been the case – you bet!

geopoliticalSo where are we within the larger picture? The DJIA has now joined the new all time high club and while the volumes have been all but present I believe there are still additional new highs to come. We haven’t really seen any strong capitulation nor have we seen a flood of new money coming in believing the markets are “breaking out” from new highs. This leaves me with the same opinion in that the markets continue to “chug” along in fulfilling their destiny. At the moment I continue to favor the May to July window for the penultimate top to be registered, which is likely to coincide with the FED actually raising rates, (maybe at a faster clip than what is currently expected). Or perhaps one of the several geopolitical situations swirling around the globe will crack open leaving a swath of destruction similar to an F-5 tornado moving through the Midwest. I also need to add that I don’t expect the markets to “crash” immediately off of the high tick. Can that occur, of course, but the reality of it occurring is not as strong. Having an understanding of Elliott Wave will allow you to put some context around what and how the next leg down will look like. Since the pattern in progress is a bull market of Grand Super Cycle degree the expected correction or bear market will be signaled by an initial 5- wave decline of at least Cycle degree. However, I suspect it will go unnoticed by the majority of analysts and traders due to the failure to recognize the “writing on the wall.” It is likely to go unnoticed until the “point of recognition” which is normally within a third wave within a third wave. This is a point where the masses begin to have the “oh crap” moments and to be honest we are several months if not a year or more away from that.

elliottwaveThe idealized Elliott Wave progression of a five-wave sequence could be viewed as follows, bear in mind the large the degree the greater the psychological impact as well as a greater financial impact:

  • Bottom (start of wave 1):
    • Large degrees: questions of existence, survival: depression; war.
    • Intermediate degrees: recession: “panic”; limited wars.
    • Minor degrees: often accompanied by “bad news.”
  • Rebound (within wave 1): From undervalued levels, recognition of survival.
  • Test of Lows (start to bottom of wave 2): Fundamental conditions often as bas as or worse than those at the previous bottom. Underlying trend considered down. Does not carry to new low.
  • Powerful Wave (start and formation of wave 3): Strength. Breadth. Best fundamentals. Increasing real prosperity. By the end of wave 3, the underlying trend is considered up. Wave often subdivides. Is never shortest wave.
  • Surprising Disappointment (start to end of wave 4): Signals the best part of growth phase has ended. Does not enter price territory of wave 1
  • Final Advance (start to finish of wave 5): Market performance and fundamentals improve, but not to the levels of wave 3. Psychology creates overvaluation.

Now let’s update the current market position. The surprising disappointment, which marked the completion of Grand Super cycle wave IV, was the financial collapse of 2008 – 2009. Unfortunately, the majority failed to realize that the best part of the global growth phase had ended. Off of that low, the final advance began. True to form while the market performance and fundamentals have improved they have not and are not likely to equal the levels of wave 3. However, the psychology has certainly created a severe overvaluation as the broader indexes continue to push to new highs. With all of the aforementioned in mind let’s take a look at the current chart, (included below) for the DJIA.


The current Elliott Wave count reveals that the DJIA began Grand Supercycle wave V off of the 2009 low. Within wave V, four waves of SuperCycle degree are complete as labeled on the chart below in gold (I, II, III, IV). Therefore the market began the final Supercycle wave V off of the late 2014 low. Within wave V it appears that Cycle waves 1 and 2 are complete with wave 3 in the beginning stages. A common relationship within 5- wave structures is that wave 5 is equal in length to wave 1. If this proves to be the case within the current structure we can begin to formulate a possible zone in which the entire sequence will complete – wave V would be equal in length to wave I at 20,643, approximately 2600 points away. The market does not however, need to reach that level to complete the larger structure in progress. The internal count will take precedence to price level and may well come in below the level mentioned above or above it. As the sequence progress we’ll be able to refine the target(s). More importantly though is the reality that the market is completing a bull market that has been unfolding since the beginning of the 20th century. That makes it over 115 years old. Is it any wonder that most analysts can’t envision anything but a continuous climb higher?

keyinsandRemember the key is being able to reduce and separate the “noise” from opportunity. This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. Opportunity continues to knock on our doors. While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

tradersThe Logical Signals Trade Room is up and running. We have an outstanding group of members that have already begun contributing across the board from trading indicators, patterns and products, to computer software and hardware. Thus we are ready to move on to phase two of membership/subscriptions. Now that a core group has been established we have a few additional spots for other traders that may have an interest. Phase two, though will be somewhat more involved in that prospective members will get a chance to talk in more detail on their trading goals, experiences and expectations with me and possibly other members before deciding to join. At this early stage it is important to continue to steer the room in a direction that favors all of the members. Should you have an interest please contact me at Michael@logicalsignals.com I should have the updated “Invitation to My Trade Room” under the Trade Room tab back in place soon. Presently we have 10 to 15 additional spots open before closing this room until next year.

Steer the course and don’t compare yourself to everyone else. You are not they and they are not you. Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves. Don’t be swallowed up by the chaos and false emotions swirling around. Remember it’s just a number.