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These are the questions we all want answering. The gap down last week from the Greece announcement that there would be announcement, potentially it could suggest a possible truanted high in place at 2130. Although we have yet to see a 5 wave decline from 2130SPX, so depending on the outcome to the Greece, may or may not push the markets much lower, although I would favor a large gap down should the vote favor leaving the Euro, similar to last weekend.
Where are we?
We went into last week with the idea of a possible high in place as a truncated 5th wave at 2130SPX. Although the surprise announcement after the US markets had closed I think caught many by surprise, hence the large gaps down in many risk markets.
Although the close on Friday left it with the option of seeing a new all time high, should the market decide it's not completed; truncations are very rare, so I was a little concerned that we may be a bit early. But with the gap down on Monday it suggested that we may well have a truncated 5th wave at 2130SPX, the COMPQ and the RUT had made new all time highs as well, so there was every reason to think we need to be looking at a truncated peak.
Looking at the internals from 2130SPX it could do with a minor new low to suggest a 5 wave move from 2130 and potentially the first wave of a larger pattern that will see the 1800 area over the coming months.
The pattern that appears to be tracing out is what Elliotticians call an ending diagonal, this is a terminal pattern that is usually seen in a 5th wave position of an impulse wave, so we are counting this as the end the trend that started from the Oct 2011 lows. So once wave 3 or wave C is finished, we should at least expect to see 1800, that being the point of origin to the suspected ending diagonal and a natural wave 4 target.
RUT (Russell 2000)
When you look around at some of the other US stock markets I see a similar picture and that a potential ending pattern could well have ended. The RUT needed a minor new high to complete a possible ending diagonal, we got that new high and it's subsequently reversed, although at this stage it's a tentative idea but I think it has strong grounds to suggest wave 3 or wave C is now complete and we can see a larger decline towards 1000.
This is another market that I have written about, but the strong downside again is supportive of a potential peak in place for wave 3 or wave C, so I would expect to see a large move lower to target the 550 area for wave 4.
I recently posted an article suggesting that there was enough gyrations in place to suggest some caution, with the strong decline this past week it again is supportive of a possible peak now in place for wave 3 of wave C, although like the NDX it ideally could do with a bit more downsize to possibly complete a 5 wave decline from the new all time highs, that would further help the bearish case.
The Dow Transports appear to have already decided that a high was in place for wave 3 or wave C and well ahead of some of the other markets. Staying below 8590 keeps us looking lower as the trend is clearly down. I am targeting the 7000 area for wave 4. If a peak is in place for some of the markets above then we should see the other markets play catch up soon.
Once of the reason that could be suggesting a possible peak on the US markets is the idea that the VIX could have put in a low, I have showed this chart a few times in articles, but the strong break out is exactly what we were expecting. So again supportive of a possible peak on the US markets.
The 12 area is like a granite floor, should the VIX break 12. I would think is an issue for the bears on stocks.
Whilst some of the other lesser known markets could have started the much awaited correction/pullback. There is still a possibility that we see new all time highs in markets such as the SPX and DOW (not shown), although we will have to adjust the short term ideas based on the reaction next week. Overall I still do feel there is a large amount of risk for those still insisting to buy the dip, I have been pretty much bullish for most of the year from Jan 2015, but it's now that I have turned my attentions to looking for a large decline now as I think the reward now warrants the effort.
Finally I want to wish all my American members and readers a happy 4th Jul.
Until next time,
Have a profitable week ahead.