Russell 2000, RUT (Delayed from 18th)

RUT may 20 2018

As far as triangles go, the one featured in the Russell 2000 index is closer to perfection than any of the others. The three wave nature of each and every leg within the triangle is less ambiguous and more plausible and the proportions of the sizes of the legs are pretty well classical, that is approximately 62% of the alternating preceding leg.

Assuming this is correct, at least for this index even though  any conclusions need not necessarily apply to others such as the DOW or S&P, then this pattern should terminate in less than a full month from now at least judging from the apex. A wild guess might be June the 20th. The triangle measures roughly 200 RUT points giving a target of about 1730.

Alternatively a diagonal may have started from the low of leg a, which then would be all of a 4th wave. Presently we would be in a minor wave 4 to be followed by wave 5 to complete the pattern. This could take a little longer but would not reach the same height as the upper trend line suggests a top at around 1640. This interpretation seems to be a bit far-fetched compared to the triangle proper.

Either way once completed these scenarios promise a sharp and violent reversal which you would not want to participate in. Particularly if the pink wedge actually applies, you might only have another 1 or 2 percent to go before you find yourself in the equivalent for stocks of Dante’s inferno.

S&P, Dow and DJT

S&P may 10 2018Dow may 10 2018DJT may 10 2018

Here we have the S&P, the Dow and, for a change, also the DT Transports.

The S&P has the clearest triangle. It is symmetric and looks pretty good. To be complete the thrust has to rise above the black line, the top of wave d. The Dow is roughly in the same position but needs to rise a little more. The transports do not have a triangle at all, at best it is a range and it is far from breaking out to the upside.

So far the move up does have some of the characteristics of a thrust. It has been up quite relentlessly for two days now.  If it does prove to be a triangle we should shoot up by about the measure of the “mouth” of the triangle. Then it is straight back down. We will see. This is a case where you do not want to count your chickens even one minute too early.

Walmart and China imports

WMT may 8 2018Fred china imports

Walmart is the largest private employer in the US.with approximately 1.5 mln. “associates” in the US alone and another 1 mln. elsewhere. It is a stock company but for all intents and purposes privately run by the Walton family. It has about $480 billion in revenue a year, the highest of any company in the World.

Despite the different timeframes of the above two charts it is hard to escape the notion that there is a strong correlation between Walmart’s stock value and the volume of exports from China, according to US customs. Moreover exports from China to the US pretty well equal sales by Walmart, both roughly at $500 bln.

So, after this very scientific evaluation, one cannot help but wonder what would happen to WMT shares if the US administration succeeds in its attempts to reduce imports from China by about $200 bln. over the next few years? Will the stock drop by 40% as well or a little further? EW suggest a drop to about $43, or 60% ( the high was at about $105), where the expanding diagonal triangle starts. What about jobs, jobs and jobs? Perhaps by a similar amount and definitely as an unintended consequence.