Market Meanderings 03/22/2020

On Thursday I noted a setup that I thought indicated the market would move lower. Overnight Thursday the futures were significantly higher, and that was looking unlikely. But at the market open, the SPX only moved slightly higher, to 2443.50. The index then sold of to 2378.08, before moving to the high of he day at 2453.01. From there the index moved steadily lower, with only a couple of failed rally attempts, finally closing near the low of the day of 2295.56.

I will discuss in more detail what I saw on Thursday, but thought a short discussion of my methods might be useful before I do that. My model is based on one relationship, and seems embarrassingly simple. Each wave breaks down into 5 smaller waves, and those smaller waves, when taken as points, exceed a certain correlation threshold, which is an R^2 value above .99. In the history of my posts, I have noted many, many waves, and each wave adheres to this rule. So the model is not complicated. The complication comes in correctly discerning the waves. So since stumbling across that relationship, I have tried glean what I could from others about correctly identifying waves.

Some waves are fairly straight forward, and are easy enough to follow. But waves can be infinitely complicated, as each can further break down into additional 5 wave sequences. The complicated the wave, the more difficult it can be to follow. it. As an example, I will look at the long term SPX chart.

Looking at the chart, Wave I began at 666.79, and ended at 1219.80. Taken as a point, it would be (666.79, 1219.80). Wave II would be (1810.10, 2872.87), and Wave III (2346.58, 3393.52). The R^2 value of the three points is .9925. So that would meet the requirements for completing a 5 wave sequence. And I guess the obvious question is how many false signals given? The answer is very few. Once the first and third waves are identified, a range for completing wave 5 can be given. If it turns out to not be wave 5, the wave will terminate either above or below that range. That is my model in a nutshell.

When I give targets, or what I have been calling primary targets, they are based on the range where wave 5 would complete to satisfy my model. At times I will mention secondary targets. While the above rule is absolute, and is true for every wave, I have always tried to find additional relationships. The holy grail of my model would be able to project each wave based on prior waves. So I have notice some other relationships that may usually work, but are not universal. So I try to distinguish between the two by using "primary" and "secondary" target labels. An example of this would be my 2030 secondary target for the completion of the wave down from 3393.52.

What I noticed was that the corrective wave generally completes based on previous points. If you take (Start of wave, End of correction), (End of correction, Wave III), and (Wave III, Wave V), again the correlation comes in above .99. So for this example, (666.79, Corrective Wave), (Corrective Wave, 2872.87), (2872.87, 3393.52). Now you can compute where the correlation is 1.00, and a likely target. For this example, the target is 2030. Sometimes the range can be large, but this method usually comes close. Should that target be broken, the next target would be computed by using the next lower high of the previous wave, or 2116.48.

All of what I do here is based on correlation of points. Some are experimental in a sense, so I want to make a clear distinction between those and hard Wave 5 targets. But I decided to discuss some of this to show that there is some method to the seeming madness, and not just numbers I pick out of thin air.

Which brings us back to Thursday. Given the previous wave set up, I think I mentioned Wednesday's 2280.52 low as a possible Wave 3. The implication being there wold be a move higher, followed by one more move lower to complete a 5 wave sequence from 3393.52. On Thursday we did get a move higher, with he SPX reaching 2466.97.

I consider waves to be fluid, reflecting the sum knowledge of investors, or speculators. So my labels are based on the most probable outcome given the wave structure. My view is that a change in structure reflects a change in sum knowledge. As long as the points themselves are not changed, adjustments to the count can occur up until a 5 wave sequence completes. So when I looked Thursday's action, I saw this:

Although the SPX moved higher through the day, it never seemed to have a lot of conviction. If the 2280.52 low was Wave 3, Wave 4 higher should have completed in a 5 wave sequence to the upside. When I looked at it more closely, I saw the first three moves higher as 2280.52 - 2359.75 - 2305.91 - 2409.81 - 2319.78 - 2431.03. (2280.52, 2359.75), (2305.91, 2409.81), (2319.78, 2431.03) has an R^2 value of .9962, and indicates a 5 wave sequence ended at 2431.03. The move from 2431.03 to 2385.83, when looked at on a smaller time scale, also breaks down into a 5 wave sequence. Then the move from 2385.83 to 2466.97 breaks down as (2385.83, 2432.27), (2408.31, 2456.50), (2421.08, 2466.97), which has an R^2 value of .9956, completing another 5 wave sequence. So the entire mve from 2280.52 to 2466.97 broke down into 3 waves, and not the expected 5. This implies that this move was part of a corrective wave that would mean a move lower below 2280.52. Then the corrective wave would complete with a move higher. Since we know the first and third waves, once we see the low (Wave d), we will be able to calculate the Wave e end point. That  would only be the second wave 2553.93, meaning 3 more waves down to complete that sequence. And since that would be the third wave down from 3393.52, it implies still another wave down after that.

So with the wave structure as it is indicates some work to the downside still needs to be done before any rally would occur. But I'll take a closer look at that once we see how the current sequence plays out.

And most importantly, everyone stay safe and well.

Thursday's Market 03/19/2020

A little pressed for time tonight, so I'll try to hit the highlights. The trading was a little choppier today than we have seen lately. For the most part the SPX continued the small rally from yesterday's 2380.52 low. But in interesting fashion. I count a 5 wave sequence from that low to 2431.03. Appears to be a complex corrective wave from 2431.03 to 2385.83, then another 5 wave sequence from there to the day's high of 2466.97. In other words three waves from yesterday's low to today's high. I would expect the wave to unfold in 5 waves, which opens up some interesting possibilities. Either this move higher ha not completed, or yesterday's low was but a first wave instead of all of Wave 3 from the 3393.52 high. Or potentially more downside to come.

For now we'll keep an eye on the levels mentioned yesterday:

A move above 2553.93 would likely mean at least a short term bottom is in.

Adjusting for today's move higher, support for a final wave of this move becomes 2290-2135. So a move below 2135 would mean there is more work to be done to the downside. If the SPX moves into the 2290-2135 range, 2466.97 becomes the level to look for a move higher.

To expand on the three waves up from today. If that holds true, the diagonal on the chart would likely be broken to the downside. Thinking in terms of the down waves I spoke of the other day, it means today's high would be the completion of 4 of 9 waves.

Market Update 03/18/2020

The SPX opened lower again this morning, dropping to 2385.34 before attempting to rally. That attempt took the index back up to 2453.57 before resuming the march lower to 2280.52, which proved to be the low of the day. From there the index staged a more robust rally through the afternoon, moving up to 2409.81 just before the close. This one again brought the SPX into overbought territory on the 15 minute chart. The low of 2280.52 is notable also, reaching the bottom trend line of what appears to be a triangle, which I, and several others have noted. That is the point where it staged the afternoon rally. It also brought the index into the zone that would complete a 5 wave sequence for the alternate count I talked about yesterday. So an area watch.

But for now I will still go with my primary count. In yesterday's post I stated that count would require the SPX to complete the final 3 waves before completing. With the action today, it os possible the SPX completed 2 of those waves with the move lower to 2280.52, and the afternoon rally back to 2409.81. With the SPX hitting overbought on the 15 minute chart at the close, 2409.81 may be the end of that wave. If so, and with just one wave to complete, it allows us to give some targets to look for. if my count is correct, and 2409.81 was the completion of a wave, the final wave projects to the 2254-2087 range. Not quite hitting 2030, but within that target range.

So as always a few caveats. One of the useful aspects of my model is giving specific ranges for targets, so it helps to clarify where to look, and gives you a specific point where you know something else is going on. So what to look for today:

If the SPX does not take out today's 2280.52 low, and moves above yesterday's 2553.93 high, it would be highly likely that my alternate cunt was in play, and the index might be in for a move higher.

If the the SPX moves into the 2254-2087 range, and then takes out the 2409.81 high from today, my primary count would be in play, and that would likely complete a 5 wave sequence from 3393.52.

If the SPX falls below 2087, it would mean that today's 2280.52 low was not the end of the 7th wave, but only a part of it. Which means the index would potentially have more downside.

And now, if nobody minds, I'd like to add a few personal words. So those interested only in the analysis can stop there.

First I'd like to thank Lunker for maintaining his blog. It can be a lot of work, and takes a lot of time, and I know I'm not the only one who appreciates the effort.

Secondly I'd like to thank those who have had kind words, and have shown interest in my work. It is more than greatly appreciated.

I started working on what has turned into my 5 Wave Model over 10 years ago. Similar in ways to Elliott Wave, but quite different in many respects also. So when I began developing the model, I started looking at Elliott Wave blogs because they were the closest thing to my work.At some point I stumbled across The Elliott Wave Lives On, by Tony Caldaro. For many  years I found it fun and enjoyable to share my work, and exchange ideas with others. For several reasons, which aren't important here, I decided to stop posting there, and stopped working on my own blog posts. I still followed to blog, mainly because of the respect I came to have for Tony, and his methods. One of the things that struck me about Tony was his commitment to sharing his ideas, and his belief that we owed it to others to pass on knowledge. That it was our responsibility. I was always amazed at his tolerance for people who were unkind in their words to him. Made me respect him more. I, along with many others, was saddened by his passing. But it also made me think about some things, and motivated me to start sharing my ideas again. I in no way want to compare myself, or my ideas to Tony's and his, but rather take some of philosophies to heart.

So my purpose here is simply to share my ideas. If you find value in them, use them, if you think it's a garbage, feel free to disregard them. I have tried to for over a decade, but it works. But it is not the magic bullet. Like every other method, it works wonderfully at times, and fails miserably at others. It is a tool that I hope some can add to their box and find useful.

I do not give financial advice. I do not give trading advice. I am not a trader. I trade, but I'm not a trader. I do not have a multi-million dollar trading account that I can take screen shots of. I am not perfect. My model is not perfect. My interpretations are not perfect. This is not my job. I have a different job. So sometimes my posts will be late at night, sometimes short, sometimes not there. But I will do my best to at least give a short update as much as I can. Some posts will be more detailed than others. As this is my own model, I will try to explain the terminology, and thought process the best I can. Feel free to ask questions if you'd like. I will answer as best I can.

So, again, I am simply here to share my ideas. It is a work in progress, so I will add things as I can. My sincere thanks again for the interest.