Failed Wolfe setup

Close but no cigar!

There are many rules around Wolfe waves. More importantly - symmetry, tagging the trend lines and fib extensions (127.2 or 161.8).

We had a setup on the daily SPX chart until about a couple of weeks ago. Alas, it got killed.

Rally in GLD

Looks like GLD has been beaten pretty badly in the last two years. Since peaking in September 2011, it has languished in a range.

I present a weekly and daily chart that offer an opportunity to the upside in GLD at least in the short term. Long term, I don't know but I would guess that it looks good for GLD regardless of where the market goes. This is because it should spike as an inflation hedge or as a safe haven during a crash.

In the weekly view, we see the stochastic oversold and curling up and the price coming up against what has been a good support these past two years. So, from a weekly perspective, I would imagine GLD bugs taking a stand here.

The situation is similar on the daily front. Lot of selling the past few months and what looks like a 5 wave down (or a double zigzag, take your pick). Regardless, the stochastic are oversold again and the price is at support (same as the weekly). I will buy on Monday. It will be good luck if we spike down on Monday to allow me to pick up cheaper. Typically, you find a reversal for 1-2 weeks at this point in the chart (could be a correction to the upside or a trend change). With options next week and the week after that in GLD, this would be a good call buying opportunity IMHO.

Fib extension points to 1582-86 as end of rally

In a previous post [here], I used Fib extensions on impulses in the direction of the trend since 2009 bottom to arrive at a possibility of 1583 being the end of the road for this rally.

In this post, I apply the same methodology on a shorter time frame, specifically since Oct '12 to see if it validates the conclusions from the previous post.

In the attached chart, you see at least 5 waves in the direction of the predominant trend marked A, B, C, D and E. There is another wave C* identified in Red. I will go into details later.

You can see that -

• B is 161.8 extension of A
• C is closest to 127.2 extension of B (but misses by 20 points leaving me to question the relationship)
• D is 127.2 extension of C

And we are now currently in E.

If E is 127.2 of D, then the end of the road for this rally should be around 1582.

However, I do not like the large gap in the fib extension between B and C. Perhaps, it is because B and C are not related. It is quite possible that C, D, E are waves in a larger wave C* that holds a relationship with B.

If so, C* should finish at 1586 or thereabouts.

So, we have two targets 1582 and 1586 from this post and 1583 from the previous post. Targets are taken from different timescales and they line up. All indicating that 1582-86 could be the end of the road for this rally.

Fib extension calling for an end to the rally

A few months ago, I presented my research into Fib Extensions [here] and how I found 127.2 and 161.8 extensions to be pervasive in the direction of the trend. A point to note is that more often than not, the next impulse in the direction of the trend peaks/ends at 127.2 or 161.8 fib extension of the previous wave.

In the chart below, I identify 4 waves in the direction of trend marked A, B, C and recently D. You can clearly see that B ends at 127.2 fib extension of A. That C ends at 127.2 fib extension of B. Will D end at the 127.2 fib extension of C ? Will SPX turn back after hitting 1583 and setting an all time high?

Earlier today, I pointed out [here] the megaphone pattern is asking for SPX to turn back from slightly below 1600.  This coupled with 161.8 extension and 127.2 extension confluence as shown in the chart below, could be indicating that we are close to end of this rally. We should set an all time high as DJIA30 has already done. SPX typically follows DJIA.

Megaphone blaring - caution ahead

Megaphone or broadening top pattern in SPX. Per literature on the web, occurs in a period of high volatility with the market thrashing in both directions.

Though this pattern has been successfully demonstrated in short time frames (days/weeks), I think we are about to see it in a decade long setting.

The past decade(s) has been nothing if not volatile. If this pattern holds, we are in for a lot of doom and gloom. Does SPX turn around near 1600? Are we in for a few years of stock market decline? Perhaps till the next election?

See for yourself -

Weekly inside bar update

Five and half months ago, I posted about the weekly inside bar [here] and commented that it may dip and then reverse again based on a previous occurrence. It was not all fluke. It was based on observations on smaller time scales.

So, how did it go? Pretty much what I said. The following week's bar was red which was then bought and reversed in the week following that.

Of course, there was a deeper retracement to follow after the knee jerk reaction. But that is for another post.

Hello World...

It feels so good to be refreshed and back. Took time off the market as I felt the addiction was getting too strong. I was spending way too much time away from what matters most in life. Needed to step back, relax and enjoy.

This weekend, the urge surfaced again. So, here I am, with some commentary on what I see happening. Some research and mostly SWAG (Scientific Wild Ass Guesses!).