There has been much talk of whether the US indices are copying the price structure of the market from 2011 or 1998 where we witnessed big downward corrections. Many ellioticians argue that the decline from our all time highs is impulsive and we are currently in a wave 2 corrective bounce. As always I try to keep things simple and not overanalyze it. The first thing that comes into mind after watching the daily charts in SPX DJIA and NASDAQ is that we see 3 waves down. Many basic Elliott wave rules are broken if we try to squeeze a 5 wave count of the decline…many perma bears look at it this way. I disagree, however I have to agree with them to the point where the rise from the August lows is far from . The overlapping price formation and the 3 wave structure tells me that we are most probably in a corrective wave B.
As can be seen in the Daily charts above where I show the 3 major indices in the USA, I believe we are in the final stages of the B wave up of a bigger correction that needs to complete with a big C wave down that will bring the indices back to August lows and maybe lower. The Daily Stochastic Oscillator in all 3 indices is in overbought levels while several breadth indicators (not shown here) show momentum decreasing.
My wave analysis tells me that at least a pull back should come soon as we near completion if not already completed 5 waves up from the September lows. So a pull back in SPX for example around 1960 is justified even if the bigger wave count is wrong. Lets also not forget that we have also reached the price levels of the multi month break down that occurred in August. This is important resistance area.
In our last chart shown above in DJIA we are also showing the Volume by Price, where we observe huge differences between the volume levels near the highs of the index with respect to the lows in August and September.
The main conclusion I derive from all of the above is that we are at price levels where we should be closing longs and/or opening short positions. Opening new long positions is very risk at current levels in my opinion.
As always, thank you for taking the time to read my latest post.