Friday, August 28, 2015
When I look at any individual month with an oil contract I will get different patterns between daily and weekly charts. No way can I find and equal wave 1-2 to match the physical size of my wave 3-4-5. Back in Jan/Feb 2015 the gold/oil ratio maxed out at about 29:1 after which crude oil jumped about $14 in price.
At this last major bottom the gold/oil ratio hit about 30:1, the most extreme that I have ever calculated. The crude oil price has already jumped about $8 and I think after a correction oil should go much higher. Oil could crash back to $41 before it cranks up again but only time can tell us if this oil rally is also a fake. Either way if it does end then I would be looking for diagonals waves as inverted zigzags will start to form. Worse would be a triangle forming in an unsuspecting 4th wave which dictates and end of a run as well.
The market crash into August the 24th was not a crash with a normal impulsive waves as the top clearly has overlapping waves. I can run the counter rally as a 4th wave rally just as easily but I think there is a bit more to go with our present rally. The SP500 did not confirm the DJIA as the SP500 fits a bearish rally much better.
We do have a long spike into the 24th which most of the time dictates a major bottom with an equally impressive rally going the other way. The Nasdaq suggests there is a long way still to go as it is riddled with gaps but one gap is now open below present price levels.
The VIX still has many open gaps below present prices so those gaps are all bullish indicators for stocks.
The rally in gold is now about a month old which I have labeled as a wave 1 at this time. I can convert this into a potential "B" wave just as fast as there is very little difference in the start of a zigzag and the start of a 1-2-3 wave structure. The XAU has broken to new downside lows as for the HUI,GDX and GDXJ they have produced double bottoms before this recent rally.
During the early August rally we have many over lapping waves which throws a pure impulse into doubt. Then the top in August fitted better into an ending pattern which would cap the entire bullish move we've had in the last month.
The rally so far just does not fit as well as I would like to see so we have to be patient to see how deep the next correction will go. Many times we just don't clue in fast enough to suspect a fake rally is taking place, then technically speaking that rally will completely retrace from its start by 100% or more. It usually takes at least one degree higher than anything I am using. It takes a Micro move to correct a Submicro wave count.
The majority of analysts and participants do not look at pattern as they only look at price and they have no clue in the difference between a big bear market rally or a bull market. If something moves 20% they call it a bull market and if something declines by 20% they start calling it a bear market.
With Elliott Wave from my perspective, it can gain 80% and be a bear market rally or even drop 60-80% and be a bull market correction. In a bear market rally all declines must eventually go lower than the last conventional bull market peak.
We all get excited when a bullish run starts but this is also when we have to scrutinize the pattern the most as many times all it takes is a few waves that don't comply to impulse rules.
Thursday, August 27, 2015
One thing I can always expect is that markets perform the opposite way once everybody recognizes a trend. Markets and its Elliott Wave patterns will never let the majority win with real money but the majority does win on paper at least during a bull market or the bears in a bear market.
In short, oil has made another turning and only time will tell if there is more power behind this rally. I started out with an impulse but any impulse can get trashed very quickly. Eliminate a wave count as fast as possible as there are always many others we have to try. If crude oil is starting as an impulse then there should much more upside to come which will also change the gold/oil ratio.
With the US dollar blasting higher gold has payed the price and dropped like a rock. Gold has also traveled well past any potential 4the wave nullifying any expanded pattern I may have had. Gold stocks have broken to new record lows and many times gold has to play catch up as many time gold stocks will bottom before gold itself does.
In the last day or so gold looks like it may be making a 4th wave turning but that could only lead to more false rallies as this last part will only fit into a diagonal. If the last several weeks was a false start then there is no other option but for gold to make a new record bear market low.
My price level for that would be the $1050 price level.
I have been working this US dollar decline as an impulse but this morning the US dollar has broken the mould and is just a few hundred points away from making a diagonal. The 1-2 wave can now end up as a zigzag which also fits into my bigger triangle picture. To help confirm this the US dollar must still rise well past any August 2015 peaks which I have labeled as a "D" wave in Minuette degree.
Gold has been paying the price for this US dollar rally as gold has also pushed much lower than anticipated. Some gold stocks have already pushed to new record lows confirming that gold stocks were in a false breakout.
As long as the US dollar is still destined to go higher, this will keep downward pressure on gold and gold stocks. Any decline in the US dollar should be choppy as that would indicate another correction and after every correction prices push higher.
Wednesday, August 26, 2015
The majority of analysts use the cash oil charts and seldom look at individual months. I do both as they don't all update at the same time. The chart above is in line mode and switching between daily and weekly settings seems to produce the same pattern at this time.
If we go back to the 2008 top and try and see what pattern has been emerging, I still don't see a completed pattern either a zigzag or a flat. If it is a zigzag then there is still much more downside to come, and even if it was a regular flat then the $30 price level would have to get hit. Most of the time "C" waves travel well past the "A" wave lows by about 61% which would make $21 as the main price target.
All this still makes no sense when the gold/oil ratio has hit 30:1 already. Also any 5th wave is usually as long as wave three is, when wave 1 is the shortest wave. In this case wave 1 is definitely the shortest wave. Imagine if oil did fall to $21 and the ratio stayed at 30:1 then we would get a gold price of $630.
All this makes no sense just yet, as any diagonal wave would not have to go so deep.
The US dollar run is getting very close to my top trend line which is the bearish sentiment (BS) trend line. If the US dollar is truly still on a bearish run then technically it should start to turn as we get closer.
Of course the entire drop could still be a zigzag then the US dollar will ignore the top trend line and blast right through it.
It's next to impossible to draw any decent trend lines but if this decline keeps going and hits the $1105 price level, (wave one peak) then it will no longer work for an impulse. I'm pushing it already but if my peak was an expanded "B" wave top, then gold is going to break out past my double top.
Expanded patterns usually happen in wave 3-4 corrections then the $1120 and $1115 price range can still get hit. That leaves about a $5 margin of error which is net to impossible to call at the time.
So far gold is still heading down so by the end of the day we should know more.
If we were fooled again as to a false start then the $1080 price level is the last support price before a downside breakout would occur.
The gold/oil ratio has backed of a bit from its insane reading and now is less insane at 28.65:1.
If the gold/oil ratio was normal we would be looking at an $80 oil price or a $550 gold price.
Tuesday, August 25, 2015
Many are blaming the decline in stock prices due to China stocks crashing. They may be right but the Shanghai index has always been in a big bear market rally so what is happening should not be a big surprise to any Elliott Wave analysts.
Blame it all on government interference if you like but most stocks in China have no real value in them. Many big name stocks have drop billions in just a few days and that was well before the Shanghai peaked out. All stock values is not real money, but electronic money which we are witnessing as going up in flames, electronic flames.
What we did get in the last few days are 2-3 open gaps which will all get filled over time, especially if this decline turns into an "ABC" crash. It would still have a bit more to go before each leg looks more equal in length but time can only help to confirm that.
Back in 2011 when stock mania started I think we ended on a "B" wave bottom from which we started with very choppy wave that overlap at some critical points. So far the entire bullish cycle since the 2009 bottom would be a "B" wave in Intermediate degree and from that we have to figure out exactly what type of wave decline we should be getting counting from the late June 2015 top.
Of course it could all be just wishful thinking but at every turning I have to go through the same logic and try and eliminate wave counts as soon as possible. The RUT never made such a big counter rally as the others did but most other gains were also quickly erased today.
From my perspective my largest degree I am working is a Primary degree in which I am only allowed 5 wave sequences in a certain degree and then depending on pattern I would only be allowed to have one set. In my case this would be 5 waves down in Intermediate degree. If this is the case then we are not even close to wave 1 in Intermediate degree so anything can happen well before we get there.
This is also where the SC and GSC wave counters could drop down in degrees but chances are good they will never do it as they all have been saying there is worse to come even worse than the 2009 fiasco. If any wave analyst is using Primary degree corrections or a Primary degree 5 wave run then they are working a much higher degree than I am. I already spent many years chasing the invisible GSC degree dragon and its younger cousin the SC degree dragon and I have not found anything that will fit.
This Apple stock price had a massive down spike with an equally massive run back which all seems to fit the same MO of any other Flash Crash we have had in the past. Notice the big open gap near the top which will eventually get filled, we just don't know if it will be this trip or another trip.
This is Disney's stock which also had a long spike with a very strong recovery.
DIS also has a huge gap open above which will get closed over time.
Now Home Depot also had a very impressive down spike, second one since 2014.
All Flash Crashes of the past has stock price go much higher and produce newer highs.
The last stock chart I have, is JPM which is probably the longest of all the DOW stocks that I looked at. These types of declines fit better into an "ABC" decline or the bottom could be a leading "A" wave. JPM also has a few gaps that all need filling.
I don't think humans are fast enough to do this as high speed algorithms would have no problem creating drops like this.
The gold top at about $1168 fitted much better into an ending diagonal 5th wave than a triangle correction. Gold has gone to far already to fit a 4th wave as it is still going sideways as I post this page. Crude oil is on a bit of a rally and hopefully it will continue as the gold/oil ratio hit 30:1 just the other day. Now it is at 28.8:1 which is extremely cheap when compared to gold, or when I use gold as the money. Flip flopping the ratio to try and forecast gold is a futile waste of time as we clearly saw crude oil declining as gold rallied. It is gold that will drag the price of oil around not oil dragging the gold price around.
Last time the gold/oil ratio was this low the oil price jumped $18.
My trend lines do not fit well and they will only tell me something after they have been pierced. I would not be surprised if gold created a false breakout one more time, which means a completed retracement would have to still play out.
I am working this as an impulse but in order for that to come true the Nasdaq and all indices have to resume their downward direction. I can't even come close to counting the SP500 or the DJIA this way so I am sure this wave count will fall apart sooner than later. The best I can do is a 1-2, 1-2 wave count and only two sets of 3-4-5 waves must still develop.
The only way to eliminate a wave count is by running it until it gets broken. I have one gap that just opened up below but I have 3 open gaps above present prices with the last one being open near the very top. The only question remains is "when" will these gaps close, not "if" they will close.
With such a long down spike completed, which would fit a Black Monday very well, there is usually much more to the rally than a simple wave three bottom. As long as stocks appear to be in a rally this could be viewed as a return to stock mania as it coincides well with the USD in a rally and gold in a decline.
This could be just a short term thing as gold may hold up the markets with inflated dollars.
Trillions of dollars have gone up in smoke recently burning up much of the money that has been printed in the last few years. Instead of calling it Burning Man, call it Burning Dollars. The only difference is that it's all electronic money that's burning which has never or will "never" see any ink at all.
What the rich lost in just a few days this week would have used up the entire cash money supply as that cash is only about 1.3 Trillion.
From one point of view the US dollar crash could have been a completed zigzag which dictates a complete retracement. Nothing is as it seems so the next best bet is that a 4th wave rally is underway with more yet to go before it comes close to my top trend line.
Gold is already reacting to this US dollar rally and the US dollar will continue to put downward pressure on gold until the US dollar is ready to turn south again.
Monday, August 24, 2015
The markets have now shown their true side of things as the VIX push all the way to 54 before instantly backing off down to the 33 price level. This cannot be maintained and something has to break and once the VIX heads down stocks should enjoy a strong rally. Even the SP500,DJIA and Apple created a down spike with a massive recovery immediately after that.
This has the makings of a reversal and this week will tell us more. The two lines I have drawn show the length of a single spike which also could not be maintained as the DJIA instantly recovered and spike higher. Apple spike all the way down to $92 before blasting back up to $107. Every major indices that has shown us a big drop also has shown us a big spike.
Yes, sometimes when this happens the trend keeps going down but there are may gaps that need back filling right now. Since the top we can see that now high quality impulse can be counted out which means the choppy decline and crash can be an ending diagonal pattern with the 5th wave being the crash wave.
There are big differences in oil between daily and weekly charts and this is a daily type from the Oct 2015 contract month. As is very obvious that crude oil has crashed some more but it is also adding another spike to the pattern. In the cash chart the crude oil is riddled with gaps which is very bullish, but also gold has not dropped as fast but still may do so.
When oil crashes but gold does not, this increases the gold/oil ratio spread and it now has jumped to 30:1 which breaks every record that I know of or that I have calculated this ratio in the last 15 years.
It also confirms that you do not want to flip flop the gold/oil ratio and try and forecast the price of gold with oil. If the ratio was normal crude oil would be about $82 right now.
Gold made one more run at a newer high which looks moralize an ending pattern than a 4th wave correction so I would expect that gold will go into a correction but it may take a little longer and go deeper than many may expect. Especially if stocks roar back. Gold created a spike up which also indicates a potential reversal is in progress.
It seems like the whole world is crashing and I will not be able to review them all at once. One big crash has been the US dollar and it is setting up for a 4th wave rally or it has just completed a potential "E" wave crash. Gold did not react very strongly to this but it may once the US dollar counter rally starts to play out.
If I feel a 4th wave is playing out then I will change my wave count without hesitation.
Sunday, August 23, 2015
Friday, August 21, 2015
When I look at this VIX and see how vertical it went I was amazed, not shocked but amazed because it also left 3 open gaps on the way up. No trend that goes vertical like this can be maintained as it is the highest speed that any asset class can travel it. If only they had a speedometer indicator to register these fast moves. This monster move at a minimum has to correct as this sure looks like a "C" wave up.
Virtually all other stock indices also added gaps with the Nasdaq have two open gaps. Even Apple has a big open gap at the $130 price level which still may get closed. There are numerous asset classes with many open gaps above and if they don't get filled this year I will be surprised.
When we look at the SP500 we see that in the last few days it also dropped straight down, the exact opposite of what the VIX had done. This drop had a very funny pattern in it that does not fit any impulse wave but can fit into an ending diagonal, with the last wave dropping like a rock. Of course the SP500 also added a gap and we have more gaps than what we know what to do with them.
Over all gaps will all get filled but when they get filled is guess work at best. I hope they will still fill this year as the market can come back with a vengeance.
When the markets drop like this the media usually declares the bull market dead but in reality it died back in July
In my last several postings I mentioned that a correction was due in gold. I still believe that as it may also be a much bigger correction than many of us may thing. Except for the gold bears of course.
Even at this point gold could blast up and add another leg to its bullish phase but this could also be part of a bigger impulse wave where the next move is down as stocks make a rebound.
Gold would have to create more sideways action with overlapping waves before I am confident that only a smaller degree correction is in progress. It is still a bit early to tell but I will update this page after the end of the day again.
If gold was in just another fake run then the decline would look more impulsive as it would be resuming its natural trend.
Updated Aug, 22, 2015
Gold has not changed much and if another impulse leg is on its way then gold would still soar.
I am looking for a correction and right now an inverted zigzag still needs to finish before gold plunges again. The US dollar is due for a counter rally so this would put downward pressure on gold.
Finally stocks have shown what they can do. This is the opposite of stock mania at least for the short term. You can use al sorts of reasons why the markets are crashing but North Korea and South Korea shooting at each other may be part of the reason. I could spend all day in trying to justify a crash based on fundamentals and they will all change in a very short period of time.
I have included one "ABC" with the trailing "C" wave as an impulse wave. This impulse wave is now pushed to the extreme and only the waves 3-4-5 remain to be filled. There are far too many overlapping waves for the entire move to be an impulse wave but we have to see if my corrections start to come in.
The VIX has exploded with a vertical move that cannot be maintained as straight up moves represent the highest speed that markets can move at. Since the $11 bottom 3 gaps have opened up as well and chances are good this market could be setting itself up for a reversal. This VIX is telling me that my DJIA wave count will get trash very quickly. I mentioned that $20 could be the next price level to get hit and the VIX did do exactly that. Now we have to see if a 4th wave correction develops after which the VIX can break the $30 price level.
Stocks have been hammered this morning and so has the US dollar but gold has soared. I have talked about this happening and it could last as long as the US dollar cooperates and keeps its new trend heading down. For now I am still running this as potential Minor degree wave 1-2 with a secondary wave 1-2 also being completed but in Minuette degree. This would have to lead into my Minute degree wave 1. In any impulse wave going up or going down, I have little room to allow it to wander of and do something else as when it does that the entire wave count should be under immediate review.
My wave 1-2 in Minuette degree may have to turn into wave 3-4 as the markets love to try and surprise us. There is still more to go as the pattern is far from finishing. Since my Minor degree wave 1-2 contains an inverted zigzag the US dollar has no choice but to completely retrace the entire wave 2 in Minor degree and travel well below 93.200.
If the US dollar turns very steep during this process then the USD could be in another "ABC" decline which would spell trouble for gold and gold stocks.
Thursday, August 20, 2015
This is a very different wave count I am showing but I have posted something like this already. I am going to have another look as it involves creating a running triangle inside a "B" wave. That June 2013 bottom had meaning to it as after that bottom you will notice that the gold bear market pattern changed and started to go more sideways.
This wave count gives us the potential for a rally that could take us to the $1500 price level. If the gold price is truly still bearish then it should run out of steam once it gets close to that price level.
This morning gold also spiked which is usually followed by a correction, but any other time could also be the end of a trend.
What happens if crude oil never hits the extremes the mainstream analysts forecast? Many times when a "C" wave crash is completing an ending diagonal will develop as well. I look towards these ending diagonals as they send a distinct message like this decline is coming to an end and a reversal can get very violent.
This may not happen as I would need a 4th wave rally and then another 5th wave down, all fairly bunched up. The gold/oil ratio has been hitting the extreme side as at one time we were a bit short of 28:1 Last time we got this extreme crude oil popped up $18 in a very short period of time.
Before crude oil crashed the ratio shifted to about 12:1 in a short period of time giving a warning that crude oil was going down in price. Now we have shifted closer to 28:1 making oil very cheap when compared to gold.
If we were to use oil as money trying to forecast the price of gold, then a normal ratio would put gold at about $600. That would be pretty depressing if I constantly use oil as money trying to forecast the price of gold. Yes, gold will always go up and down but I have never seen gold react so fast where oil as money even works.
Stocks are still dropping as I post this. If this decline is continue then no more wave 1-2s can be added. This is my least likely probability as overlapping waves usually means a type of "C" wave decline. In other words this market can come back with a vengeance as we have seen it happen before.
I could see a continued decline if some clean impulse waves were forming but this is not he case so far. I have two big gaps open above which still need to get closed and it would be a tough call if this gaps were to get filled this year. The Nasdaq may yet push north and give us a new record price which would then establish a 2015 high.
The markets imploded again this morning producing a very small downside breakout. One wave pattern we are guaranteed that we "don't" have, is the basic impulse wave. From my Elliott Wave Perspective what we do have, is a bunch of waves that overlap each other.
At 17,000 we are coming up to support which may happen by Friday. So far stocks are still heading down but we could be in an ending diagonal pattern that could see a sharp reversal. This pattern is finishing a correction or it is leading into the start of a bigger bearish correction.
Even though this looks very bearish, the markets can turn on a Friday and give us a surprise rally. If this is all still part of the bull market correction then we still could see a complete retracement and a new record high.
Wednesday, August 19, 2015
We hear from the experts that they think oil is still going to fall towards the $20 price level. OK lets have a look as $20 oil would dip well into my wave two and it would instantly turn my wave count into an ending diagonal 5th wave. At $20 I would have to move my 4th wave as the 2008 bottom would no longer fit.
All this may happen but remember at the top in 2008 they never even saw a bear market coming never mind two more world oil gluts. In a diagonal we are looking at mostly zigzag corrections where wave "A" and the trailing "C" wave should be the same physical length. If I used points traveled or full dollars traveled we have a $113 "A" wave. If I applied the same points traveled to my "C" we would get a crude oil price of $2! Obviously points traveled dose not work yet one of the EWP books I have spends a lot of time talking about this.
Then we can also take a physical measurement with a ruler and my "A" wave would be about 8 CM long. At a minimum we should get another 8 CM from my "B" wave top which only gets us to the $30 price level, still far away from a good looking zigzag. Even if we were in a big flat, the "C" wave in a flat can travel 60% below the "A" wave. ($21)
We are at a crazy gold/ratio already and the last time the gold/oil ratio got this crazy, oil jumped $18.00. If I flipped and used oil as the money, then a normal gold price right now would be well under $575.
Sure they may come up with all sorts of scary oil prices but they will never tell us where the oil price will go after their target is hit. It would not surprise me that eventually crude oil will see the $100 price level again and even blast past the 2008 peak one more time.
I am pushing this wave count to its limits and we should head into another correction, which may take longer to play out than the last one took. A strong spike usually indicates a strong correction or even and end to a trend. It all depends what type of pattern gold is going to make if another leg up is coming.
The gold/oil ratio also expanded as oil dropped but gold soared. The gold/oil ratio is sitting at 27.63:1 which is on the extreme cheap side by any stretch of the imagination. The record so far has been 29:1.
Gold and oil will always come to a point where the ratio becomes equal again and then gets pushed to the other extreme over time.
If we had a normal ratio then gold should be at $615 and oil would be closer to $75.
It seems that the $16 price level is a resistance level going back many months. There are still two open gaps above the $16 price level which means stocks will still go down until those gaps are filled.
At the same time the VIX has been pushing from the $11 bottom to the $16 level, it now has two big open gaps below. To close those open gaps below, stocks would have to turn bullish. It's going to take effort for the VIX to breakout past $16 but it could go to $20 before it turns south again.
Even though stocks have dropped they have dropped with a pattern that looks corrective. The bears can scream and warn all they want but if the stock bull market still needs to retrace many of these overlapping waves, then the stock market will ignore all the bearish warnings.
With this wave count I am looking at it from a triangle perspective, which makes the 2011 peak a potential "D" wave in Intermediate degree. If that is one scenario I can run it for sometime before it gets trashed. Looking at it from a "D" wave top the bear market we are in can fit into an impulse with the 5th wave extended in a diagonal pattern.
The last 5th wave can even fit into and ending diagonal as the 4th wave dipped into my first wave. A "D" wave top will not give us some super mega bull market but anything close to a 60-80% retracement would work.
Even when gold stocks are over sold there are no buyers to jump in or not until gold stocks have gone up for sometime already. I have gaps at the 300 price level but anything between 300 and 500 would work. It is still a bit early to tell but if the market is bullish but also starts to contain more overlapping waves then we know that a Minor degree "B" wave bull market is in progress.
Any correction would work inside this "B" wave except another zigzag.
If any rally is far more impulsive looking then this could also mean that gold stocks can travel much higher. This HUI chart broke to new lows with a three wave pattern which is a very good sign as they fit into the diagonal family of two very well.
Tuesday, August 18, 2015
With the record low in 1993 silver completed a 13 year bear market after which it started a new pattern creating higher lows in the process. Over the years I tried many different wave counts but was always fooled due to the fact that the majority say the bull market started in 2001. 2001 was a secondary low and at best a truncated "E" wave.
Since 1993 the choppy waves do not justify counting out any impulse type waves but fits a diagonal wave structure much better. The other option is a big triangle wave structure and we are in the "E" wave which would have much further to fall.
Since the mid 2013 bottom silver has started to act differently with tight overlapping waves which again best fits any diagonal wave structures falling into my leading "A" A "B" wave rally would have to develop retracing 60-80% of the entire bear market which would leave the trailing end "C" wave to finish the silver bear market. That, "C" wave could dip into wave 1 in my Intermediate degree or into the Oct 2008 gully around the $8-$9 price level. After which silver should blast upward and make a new record all time high price peak well over $55 or more.
Those that are forecasting $200 silver or even $1000 silver are smoking something as you can bet that maximum optimism would be reached first and it will all crash again.
Any potential future 5th wave in silver would also have to be a diagonal type wave structure.
This is an intraday chart set with 1800 bars so it will incorporate a bigger picture. There is a huge difference between a daily chart and weekly chart where it is next to impossible to create a consistent wave count. Right now I am using the Oct contract which is only 20 cents away from the cash contract. The gold/oil ratio sits at about 26:1 which makes oil very cheap when compared to gold.
I never use oil to forecast the price of gold as others use the GDXJ to try and forecast the price of gold.
Gold will always move dragging the ratio with it until such a time when it may hit 12:1 or even 10:1
The public will never know that this ratio is being hit and then it will be a surprise when crude oil crashes again. At its peak in 2008 the gold/oil ratio was closer to 9:1, it has come a long way since then and they are still calling for $20 oil.
$20 oil may come true but not before a good bull trap gets triggered spreading doubts as to how much longer this oil bear market will last. It is after a sustained decline like we have had, when bear traps can happen.
Any bull attack can send crude oil right back up to $65 as the world oil glut disappears. Most fundamentals news releases are lagging in nature so bearish oil news you hear about is already too late.
Crude oil popped up only a few dollars at this time but it should break out from my channel lines this week.
I think there is more to go in this gold correction but it should push to newer highs one more time. The impulse I started is being pushed to the limits as any further downside will overlap some critical wave structures. Even if this were a bearish rally and more upside is still to come we should get more hints when diagonals waves start to form on the way up.
Also if gold starts to flatten out or keep going sideways for a much longer time period then this would also indicate that a bearish rally is in progress. Good quality impulse waves have fairly stringent requirements and once they do not behave in such a manner it is always a good idea to throw them out and find a better fitting wave count.
We should find out soon if my small degree 4th wave will hold as there is very little room to move. The sharp spike down created this morning is a good sign as they usually are "C" wave declines. Once you have a "C" wave decline anywhere we know a 100% retracement will happen.
One thing about any impulse move being up or down, they have their limits as to how far they can go . If it goes to far then it no longer has the look and feel of an inverted wave 2 and therefore must be abandoned as quickly as possible. The US dollar has started to reach that point but I will stay with the count until it is clearly broken.
Many currencies have imploded with some declines being engineered by socialist policies like China has which may be keeping the US dollar up because of a perceived safe-haven status. In the end the US dollar will join the destruction just like it has done many times before.
On top of that no trend last as they eventually all will die, the only problem is that we don't know the exact time period when trend do reverse.
My big US dollar top could be a "C" wave of a triangle and the US dollar would crash down a "D" wave of a triangle. That would drag out the gold bear market for several more years as gold will never go up or down because of physical buying or selling. If you notice many fundamental news stories about gold going up due to buying always comes out after gold has turned up already.
The US dollar should have shown its true colours but the end of this week otherwise we could be looking at an upside breakout.
The last thing I want to do is push the limits of a wave two as every major wave counter did in 2009-2010. The US dollar is not on some GSC or SC degree as even Cycle degree is not clear enough at this time as well, but the US dollar sure can crash back down and break new historic record lows.
Of course the majority would be in a shear panic to get out of US dollars and into gold but when that happens and all experts are hyping the gold bull market then chances are good it is time again to dump all the gold assets.
Monday, August 17, 2015
I had a quick look at a few gold related indices and ETFs to see how well they confirm to golds pattern. I looked at the XAU,HUI and GDX and only the GDXJ is the one ETF that has a higher low like gold did. Short term this may not be a problem but longer term it will as we would be missing a complete 5 wave sequence.
Since GDXJ already had it's inverted stock split chances are slim that this will not happen again except it may consolidate back again in the future.
I am going to use this GDXJ in a ratio compared to gold and using several locations to give us a rough range we come up with a recent low of about 60:1 presently about 52:1. The other extreme for a top was in 2011 when gold was at $1920 and the GDXJ showed it was at 180. At the 2011 peak gold stocks were extremely expensive as that ratio hit 10.66:1. Crude oil was a bit more expensive before it crash as well.
Over all we end up with a gold/GDXJ ratio range from 10.66:1 (expensive) to 60:1 being very cheap.
Even though a newer low range can still be established we have something to work with.
The majority of analysts flip flop the ratio and try to forecast the price of gold with it.
The price of gold will always move as gold is always adjusting itself to inflation, it's just many think we have to see prices rise before inflation becomes real.
Janet Yellen is not going to manipulate gold down as that would cause deflation and deflation is what the Fed is more afraid of.
I may talk about price action many times but price action always translates into a pattern. Within the Elliott Wave Principle (EWP) or the "little blue book"as I like to call it we have a core of 5 patterns, but 13 patterns once all the variations are included. "WXYXZ" is not a new pattern or not even an old pattern but it is a lazy way of wave counting. I have never used WXYXZ waves but only as an example for a talking point. I use the basic "ABCDE" in its place.
On the intraday charts in gold we had a bottom in late July and what formed after that started out as an impulsive type pattern, but there should be more to go if I am correct. The US dollar should also see more downside at the same time. On a daily chart this showed like the pattern was bunching up and usually indicates a trend reversal is near.
Gold has to impress us much more as the bulls have to get sucked in again and join the gold bandwagon one more time. I am using a "C" wave as a bottom but a "D" and "E" wave may still be coming. In a bigger bullish move we should see the pattern change from "ABC" corrections to more and more inverted "ABC" moves. When this does happen and we clue in that it is happening then diagonal waves are starting to take over and dominate. This is when the gold bull market will come to an end.
This scenario may take sometime before it shows itself and many times we can be caught up in a bullish phase and completely ignore the diagonals that are forming.
The higher gold moves without crude oil tagging along the more the gold/oil ratio will spread. The faster this happens the higher the odds will be that crude oil will also turn. Right now we are sitting well over 26:1 meaning one ounce will buy 26 barrels of oil.
Many may not use gold this way as they flip flop on the ratio and try to forecast which way the price of gold will go. Try the flip flop with a house or your wages and the answer will sound silly once you do. The last thing you would do is divide the house price into a single gold ounce.
When it comes to analyzing final charts the majority only pay attention to price. They will jump on anything that has gone up for a while, and eventually it will be called a bull market.
Anything to do with the EWP is all about pattern and price means very little. For an example if a price plunge were to happen in a 4th wave type bottom, the majority will be selling this bottom if it breaks a certain price. Even after the price downside breakout did not change the fact that we had overlapping waves for many weeks before that.
Now imagine if we were at a potential wave two bottom and the smart money buys it as the dumb money is selling it as fast as they can. One of the best positions we can be in and the general public is selling because it does not meet their price criteria. Over and over I have seen fund managers sell out and as soon as that news is announce the asset class turns into the biggest bull market since 1932.
This happen to gold stocks in 1999.
Since the May peak in this DJIA chart the pattern has not changed any for the section I am showing. For the rest of history that little move down will have overlapping waves in it. Technically we cannot fit that section into a high quality impulse wave and therefore I have to treat it as part of a corrective cycle in the bull market or the leading pattern into the next bear market.
Since we have multiple tops it will take some time to sort out which peak is still part of the bullish cycle. Remember ultimate highs or secondary highs can be part of expanded patterns which can produce surprise crashes just before they roar of in a bullish leaving everybody stunned as to what just happened.
From the May decline the pattern looks much like an ending diagonal which does not happen at the beginning of a bearish phase, but sure can happen in a "C" wave.
I am still working a potential big triangle. From the 2009 bottom it is very difficult to force the wave counts into great looking impulse waves. Combined that with the 2010-2011 correction which looks like an expanded flat, the entire bullish phase would be a big bear market rally from an Elliott Wave perspective. The majority will call anything that moves up a bull market regardless of what type of a pattern it makes.
The majority will always get caught in a bull market because they make no effort in looking at patterns but they obsessed with price. In the first two main chapters in the EWP there is little to no talk about price as the EWP all has to do with pattern. If this inverted pattern is correctly identified from the start, then we know that eventually this so called bull market will get completely retraced.
To stay in sequence I have to use Minor degree or smaller for all the corrections as if I don't my degree sequence will creep higher and higher. At the top I am working a potential 4th wave which could turn into a leading "A" wave just as easily. Over all my entire trailing "C" wave is very extended but matching the Russell 2000 very well.
The markets can always surprise us especially if we miss any expanded patterns. Expand patterns usually happen in any "B" wave and any 4th wave situation.
There is about a 50 cent difference between the crude oil cash chart and this September contract I am using. On any daily chart the pattern is completely different but most analysts work with the cash charts. Very few check with the next busiest month like I do as sticking with one chart only will distort any wave counts as well.
If we look at crude oil back to the 2008 peak we have a crash and then a counter rally and now since mid 2014 another crash which seems to never want to end. Every trend eventually dies and oil will not be an exception. The excuse that, "It's different this time" will not work as time will always make it different. What is never different are the range of human emotions that develop at every major top or bottom. If we try and look for a pattern that connects the 2008 peak we do not have any that are completed. Any zigzag or flat would have to go much deeper to even come close to a completed correction.
Crude oil has imploded in the last 6 weeks or so with extremely small counter rallies. This would have the potential to be a "C" wave down but crude oil could also be forming an ending diagonal which can form on the tips of "C" waves. This could mean a crude oil rally back up to the $60 price level, (but not above it) before another swing right back down to another record low. This would end a 5th wave of an ending diagonal and a new bullish trend would then follow.
Any big flat would have to go well below the 2008 bottom before it even comes close to having the right look and even then trailing "C" waves can take a decline 60% below any "A" wave bringing us closer to the $21 price level.
I always use gold as money when calculating the gold/oil ratio. I can buy 26.37 barrels of oil with one ounce of gold US dollar gold which I express as a ratio of 26.37:1. This makes crude oil extremely cheap, about the same as the 1999 bottom was. We had a world oil glut then and we have another one now but all world gluts produced bull markets after the glut, so this time the same thing will happen.
The only difference is time as we don't know how long it will take to clear up any glut.
Saturday, August 15, 2015
This time it took me very little time to fill in all my wave counts and even my "D" wave top is still alive. Market action in the last year or so has not forced me to abandon my "D" wave scenario at this time. Of course as soon as I say that, the Russell 2000 turns and blasts north one more time.
We are looking at the 1300 price level for a top at this time and if more downside is to come we know anything above 1300 will never get hit for a long time. I am looking for an "E" wave down in Intermediate degree which would contain three moves in Minor degree. (ABC) Unless something extraordinarily happens like the next president keeping the markets propped up, my first "A" wave could take us to the 2011 bottom between the 650 and 550 price levels.
If we end up getting a strong "B" wave counter rally all the stock bulls would get into another trap before the final leg down in stocks. Gold stocks are a good example of what can happen with stocks on the trailing "C" wave. Eventually we should end up getting a flat like looking bottom as it would be about the 4th time it has already done this.
I am sure all the stocks bears will be out in full force but when the RUT gets down to old levels we know that a big reversal is nearing. I think there is very little chance that a 5 wave sequence in Primary degree can even form, and I have had none since this so called bear market started back in 1998. Every wave counter that is working in SC or GSC degree will eventually need to get a 5 wave sequence in Primary degree, yet hunting for 15 years or more they still have not found a single set anywhere.
I am explaining things from my low degree wave counting perspective, and the "D" wave now has to get confirmed in the next few years.