Elliott Wave Analysis is often misunderstood by most, and those that attempt it will most likely have to give up. The first and foremost thing to understand is that it is a complex marketing tool that can take upwards of two years to become proficient at labeling. The way a pattern is labeled carries with it post-pattern consequences. If those actions are not carried out, the pattern was wrongly labeled, and another labeling scheme must be thought. The best book I have ever come across for seriously learning Elliott Wave Analysis is from a book titled Mastering Elliott Wave by Glenn Neely. The book is very complex, particularly Chapter 3. With practice, chapter 3 can be ignored and the remaining 11 chapters applied. I will not go into any more detail, as it is a very complex subject and it does take a lot of time to understand.
One point I will address however is the pattern that forms when waves 1, 3 or 5 extend. The figure below shows the visible patterns that form when a particular wave extends. Knowing what wave extends will provide information on the retracement pattern, depth of the correction etc. etc. For a quick quizwhat pattern below resembles that of the HUI? The answer is a fifth wave extension. When the fifth wave of a pattern extends, the decline will not retrace the fifth wave entirely, or 150ish in the HUIs case.
Figure A- Chart showing different forms of wave extensions.
This issue has no commentary or other little things that might usually be included due to the volume of information present. The analysis presented in this issue is the USD Index, HUI Index, S&P 500 Index, and the US 10-Year Treasuries Index. Each index has two charts showing different indicators to gauge the moves, and one Elliott Wave chart to plot out the anticipated market moves. The HUI section will have more meat to it, since this is my favorite market currently.
US Dollar Index
Figure 1 shows the USD with Bollinger bands, Gann fan lines and full stochastics set at 55,21,34. The stochastics curled over quickly since the last issue, giving a clear sell signal. One to three weeks is needed for the 34 and 21 day BBs to come together before we get more downside. The 1x1 line has channeled most of the USD decline, and is likely to continue the trend. Figure 2 shows the 50 and 200 day moving averages, and the MACD. The USD pattern has fallen beneath the 50 and 200 day MAs, and the MACD lines are just above the longer term down trend line. Both the fast and slow lines are about to cross and head south
Figure 1. Daily USD Chart with Bollinger bands and Full Stochastics.
Figure 2. Daily USD Chart with Moving Averages and MACD.
The Elliott wave pattern for the USD is shown in Figure 3. The wave pattern was thought to be of a longer duration, but the stochastics issued a sell signal making the wave pattern complete. The move for wave [4] was a triple combination which was flat-x-non-limiting triangle-zigzag. The move down was labeled 1.(1).[5] as best can tell by the pattern that has unfolded so far. Wave (2) should retrace wave (1) by the Fib retracements shown on the right hand axis. The length for wave [5] is hard to determine since waves [1] and [3] were of similar length (see last update). Wave [3] was extended in time and complexity (longer than wave [1] but not by 161.8% minimum price extension requirement). The green circle shows the expected bottoming and the green arrow shows the anticipated move upwards. The move up should last 1-2 weeks, but the way the markets are being juggled, who knows.
Figure 3. Elliott Wave Analysis of the US Dollar Index.
Amex Gold BUGS Index
Figure 4 shows the HUI with Bollinger Bands and full stochastics set to 89,21,55. The stochastics channel is still rising, and the %K and %D lines has another 2-3 months prior to the end of this move. After seeing how quickly the USD stochastics curled over, attention should be drawn to the fact that things can change quickly. The 21 MA and 34 MA usually come together prior to downside in the HUI. Also, the 21 MA should go sideways to signal a top is in place. Look for multiple confirmations, that the trend is at the end, then it probably is. Figure 5 shows the HUI with moving averages and MACD. The MACD with the setting of 5,34, 5 has been reliable thus far in getting the sell signals.not near the top, but close enough. The EW pattern is still incomplete, and the MACD still has more room to run. 2-3 months prior to topping out so watch carefully.
Figure 4. HUI with Bollinger Bands and Full Stochastics.
Figure 5. HUI with Moving Averages and MACD.
The Elliott wave count for the HUI is shown in Figure 6. There is the remote possibility that wave 5 of the entire impulse is complete, but highly unlikely.too many things suggest more upside. The preferred count is that we are in wave (iv).[i].5. A break of the 2-4 trend line would suggest that the alternate count [i] and [ii] of wave 3 were complete and we were nearing the end of wave 3. There are around four alternative counts here, and it is very difficult if not impossible to state what exactly will occur. If I was to pick one pattern and it went that way right now, it would be luck. With the current labeling scheme, and the larger degree labeling (see update from two weeks ago), 258-268 stands as the current target for the HUI. So..
1) We are in wave (iv).[i].5
2) Completed wave 3 and are now in wave 4.
3) In wave [ii].5.
4) Mega bullish wave [iii].3 and last but not least and the least probable
5) Wave 5.(5).[1] is complete.
Figure 6. Elliott Wave Analysis of the HUI.
S&P 500 Index
Figure 7 shows the S&P 500 index with Bollinger Bands and full stochastics set at 55,21,34. The BB pattern here is at a juncture and is a tough call. The upper lines are flaring out to a possible ribbon formation. The lower BBs are getting set for a decline. Tough market to call. The stochastics have been slowly descending for the past two months. The %K is about to cross over the % D line again. Figure 8 shows the S&P 500 Index with moving averages and MACD. The MACD is in an up-trend, but appears to be in a triangular formation, with the faster moving line set to cross the slower moving line. The S&P have been topping now for months, with little room to go. The pattern is a tough call based upon the indicators, although the charts say a move down, the markets can move up to keep surprising us.
Figure 7. S&P 500 Index with Bollinger Bands and Full Stochastics.
Figure 8. S&P 500 Index with Moving Averages and MACD.
The Elliott Wave count of the S&P 500 Index is shown in Figure 9. The wave pattern is quite apparent when looking at the chart with the Elliott hat on. Waves [i].5 and [iii].5 are of equal length (49), which has two possibilities of equal occurrence. Firstly, we have completed wave [iii].5 and in [iv].5 currently to head up in [v].5 to complete the impulse pattern. Secondly, we completed wave [i].5 as a zigzag and are now in wave [ii].5. Waves [iii].5 and [v].5 are to follow to form a terminal impulse (ending diagonal) with waves [ii] and [iv] overlapping. This could stretch into October. It is highly unlikely that we have any downside for now, as the pattern is incomplete. Minimally we need one more wave up, 10-15 points to complete the pattern. Watch the lower trend line, a drop to 1000ish is suggestive of the terminal impulse scenario. Upward top is maximally 1060.
Figure 9. Elliott Wave Analysis of the S&P 500 Index.
10 Year US Treasury Index ($TNX.X)
Figure 10 shows the stochastics have a rising channel, suggesting the bottom of 32ish should hold during this decline. The BBs are suggestive of 1-2 weeks of sideways action prior to more downside. Figure 11 shows the moving averages and MACD of the 10-year treasuries index. The MACD is in a longer-term decline phase with the current MA lines above the downtrend line. The decline is about to continue with the 50 day MA crossing the 200-day MA near the top of the pattern.bearish.
Figure 10. 10 Year Treasury Index with Bollinger Bands and Full Stochastics.
Figure 11. 10 Year Treasury Index with Moving Averages and MACD.
The Elliott Wave analysis of the 10 year US Treasury Index is shown in Figure 12. Due to the high degree of internal overlap all over this pattern, I thought the best initial count to slap on the wave pattern down since 2000 was a corrective wave structure. The move since April is impulsive, so it reasons that we are in a larger degree upleg of the T-Bill Index, with a decline ahead currently. The (W)-(X)-(Y) pattern of the move down was a double zigzag pattern. I haveto treat this wave structure as a fractal at the Primary degree, since I have not looked at any prior data to fit the count. However, the current wave pattern could retrace up to 80% of the decline minimally. There is a high correlation of the HUI/TNX when compared to the HUI. The HUI is breaking out against it. The bottoming of the wave 2 we are currently in could take 2-3 months, which would correspond with the HUI and gold topping out. The move up would imply that wave [1] of the HUI was complete, and wave [2] was underway if the pattern moves up as anticipated. This is a new index I am looking at tonight, and may be subject to change. I will have to familiarize myself more to have a higher degree of confidence in this count.
Figure 12. Elliott Wave Analysis of the 10 Year Treasury Index.
Summary
The USD is set to rise for the next 1-2 weeks to retrace the decline (see the last update for the USD, did what it was supposed to, but the higher degree count was terminated). The decline should last into December, prior to an expected partial retracement of the move down from 120 next year.
The HUI has four probable counts, and no brief description exists. Examine Figure 6 for 10 minutes to get the gist of it (a lot of info, although at first glance it appears otherwise). Most point to the HUI still moving up now. We could get sideways action for one month or so, but that depends upon what pattern develops.
The S&P 500 has one more leg up to complete the pattern since March 12, 2003, or we have downside to 1000ish, then form a terminal impulse to complete wave 5 of the pattern. I do not see evidence of a decline as yet, based upon the EW patterns. If I went exclusively on the indicators, I would have said a decline should occur now.
Last but not least and the least confidence I have with this pattern, the EW count I have places an increase in the US treasuries coming up, which would imply higher interest rates or suspected inflation building. The move down since 2000 is a corrective structure based upon a lot of internal wave overlaps, and at the larger degree.
Thats it for this week
