Monday, March 2, 2015

SPX and COMPQ: SPX Develops Symmetry; COMPQ Hits Long-Term Trend Resistance

Last update expected that the lows weren't in, and the market obliged by breaking 2103.76 during the session.  It still appears reasonable to expect another new low, because we have what currently appears to be an incomplete waveform.  Thus this is either the b-wave of an expanded flat (shown in blue), or a bearish nested wave, likely wave 1 of C (or (3)).  Targets are unchanged from last update, the main question is whether we have a small stop-grabbing rally first.

(If you're a member of our forum, there's only one new chart in today's update, beyond the charts already posted/discussed on the weekend thread.)

Bulls should stay cautious of the symmetry here, especially in the event of a sustained breakdown at blue support.  This type of symmetry is fairly common for topping (and bottoming) patterns.  This potential head and shoulders suggests a 15-point decline if it sustains a breakdown:

The issues discussed in the update of Feb. 27 are unchanged -- currently, unless we're building an ending diagonal c-wave, there are "too many waves down" and the current wave is still too short relative to wave A/(1), which suggests the lows are still not in.

COMPQ has reached an interesting long-term trend line (log scale):

And finally, I'd like to include a brief rant I posted in our forum regarding the Fed (and the rest of the world's central banks) and the challenges they face:

The problem for the world's central banks, as I see it, is a matter of the innate limitations of what can actually be predicted -- much less controlled. Global economics is an incredibly complex system; I would liken it to climate or weather, and there are simply too many variables to dumb it all down into any kind of manageable equation.

Let's run with the weather analogy: We can use satellites to track a storm headed toward my home island; we can use math to calculate its speed and distance, and roughly when it will hit; we can project its current track and guesstimate where it will hit. Those are the variables we understand and can account for. But those are not the only variables.

As a result, they still can't tell us if the storm will be a hurricane, a tropical storm, a tropical depression, etc. by the time it hits us.

In fact, they can't even tell us for sure if it will hit us (until the last minute). There are variables involved which they do not understand clearly, and which they cannot account for.

Of course, forget about trying to actually control the storm.

Economics is a similarly complex system. It is organic, so the variables we try to account for are in constant flux. Other nations, banks, and entities are often changing the playing field. People do the unexpected. These constant, unexpected changes to the system are occurring in little ways, but on a virtually infinite scale. There is just no way to account for all of it.

With the Fed, you're talking about a few guys in a room trying to predict how every other entity on the planet earth will be impacted by their latest policies. Then, how those entities will react to that impact, and how the actions of those entities will in turn impact them. No one can predict this, I don't care how smart they are.

Because the system can't be truly predicted, in essence, Fed policy can only be designed based on two things:

1. Past results
2. Speculation

And, on these lines, I'd simply mention that this "very intelligent" group of people is the same group who not only failed to foresee the real estate bubble, but then failed to recognize it even after it started forming. And, of course, the real estate bubble came about while they were trying to fix the fallout they caused with the bubble.

So next time we're tempted to pat them on the back for what a great job they've done since then, we should remember that they are only cleaning up their own mistakes.

Maybe I'm just cynical, but I can't imagine they're not making another one. They are currently trying to recover from the fallout caused by two past periods of massive excess -- by creating even greater excesses. Each time the fallout has been worse than the last. Each time they have been forced to apply greater firepower to recover. The bigger the bubble, the bigger the mess when it finally pops.

I can't imagine this doesn't ultimately end the same way. 

In conclusion, near-term, further downside appears reasonably likely.  At the next higher wave degree, the question becomes whether this is a fourth wave which will culminate in new highs, or a larger top.  Watch for a three-wave decline, followed by an impulsive rally to suggest the fourth wave.  If the decline instead goes on to form a fourth and fifth wave, then bears may have the start of something larger.  Trade safe.

1 comment:

  1. I'm no expert on EW, which is why I applied to forum Feb 9 (still awaiting activation as arthurk for username), but big picture I think it is more likely we are setting up for a "sell in May" this year with a top Mar-Apr. Then P4 declines into Sep-Oct. Top could be choppy like Jan. Possible event could be Brexit talks after Uk elections in May. 1st hr today SPX to 2114 Naz 5000. Naz 5150+ likely for top.