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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Time is running out for the Stock Market

Stock-Markets / Stock Markets 2011 Oct 22, 2011 - 12:45 PM GMT

By: Anthony_Cherniawski


Best Financial Markets Analysis ArticleThe is an interpretation of the Broadening Top formation by Edwards & Magee’s Technical Analysis of the Stock Market. The Elliott Wave analysis would give us a triple zig zag. Both interpretations suggest that this pattern is “buying time.”

The time element in this equation has to do with Triple Witching Friday. Today is when options, futures and options on futures all expire simultaneously. The house wants to see those October put options to expire worthless, which apparently they will. If there was a large decline, options sellers would have to “gamma hedge” their positions by selling shares of stock in an already thin market. The same goes for futures and options on futures.

But the formation is storing up energy for the decline that follows, which may be a crash. The average decline beneath the lower trendline of a Broadening Formation is 20%, giving us a target of approximately 956. This is similar to the pattern that prompted me to call for a crash in early May, 2010.

There are so many iterations of the Elliott Wave count that it is hard to keep track of them all. But, as they say, all roads lead to Rome. That is to say, there is no doubt now that we are finishing a Wave 2. The Fibonacci retracement is a little more than 50% in either count and the retracement from the October 4 low has been 17 calendar days, or 13 trading days, a completed cycle.

The completed cycle of the May 2010 flash crash took only 10 days from high to low. The probability of a repeat of that experience is better than 50% at this time.

Now, for the big picture. We can see Broadening formations at all degrees of trend in the equities indexes, including monthly.

Another analyst, who will remained unnamed, is calling for a Head & Shoulders neckline at the 666 low in the SPX. The target of a Head & Shoulders pattern at that level results in a negative number. That is the basis of my disagreement with his analysis.

A Broadening Formation at the monthly level, however, yields an average target of 460. There is yet another analysis of the Elliott Wave relationships which posits that the most common relationship in an A-B-C formation is that A = C, (or, A seeks equality with C). This suggests that the average target for (C) may also be at or near 460.

The $XEU (Euro) has run up against neckline resistance at 139.00 for the second time in a little over a week. Although the completed Head & Shoulders pattern failed to meet its downside target, Recent action has resulted in a second Head & Shoulders pattern that may result in a much more significant decline. Since there seems to be a rising correlation between the SPX and the XEU, I suggest that the XEU may also be preparing for a crash.

Have a great weekend!



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Disclaimer: The content in this article is written for educational and informational purposes only.  There is no offer or recommendation to buy or sell any security and no information contained here should be interpreted or construed as investment advice. Do you own due diligence as the information in this article is the opinion of Anthony M. Cherniawski and subject to change without notice.

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24 Oct 11, 07:48
No crash coming......


The difference between May of this year and now, is night and day. Back in May....bullish sentiment among INVESTORS was running rampant. Thus, there were a lot of POTENTIAL SELLERS that had not yet sold. The "bull-to-bear ratio" was close to 3 to 1. Fast forward to today, and you have the opposite. The bull-to-bear ratio is about .8 to 1.0. The sellers HAVE ALREADY SOLD. is the buyers turn. Market will continue up from the October 4th bottom in this leg until we once again get too many buyers on board. But that is not likely to happen for a couple of months or more.

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