an encore to the DAX blog

stoxx 600 june 6 2017rut june 5 2017

Here we have the Stoxx600 and the Russell 2000. Starting with the Stoxx 600 a case can be made that a near perfect flat was completed in early 2009, followed presumable by a simple 5-wave 5th wave that should make a new high to complete the sequence. All that is missing is a small 4 and 5. Time wise the drop in wave 4 and the rise in wave 5 are now almost equal.

Looking at the Russell 2000 the argument could be that a very large diagonal started much earlier in late 2002. The proportions sort of argue against this, so it is more likely that a simple 5-wave 5th wave started in this index also in early 2009. Alternatively an expanding diagonal could also be fitted in from this point. In both cases a small wave 4 seems complete and we are now in 5.

Regardless of what count applies, the conclusion that we are close to a peak seems to be inescapable. What is truly amazing is that both these broad indexes, one for Europe and one for the US are at these levels. Particularly the RUT 2000 seems to confirm the adage that “the sky is the limit”  which, by the way, also follows from the discounted cash-flow approach.

NYA (NYSE) and RUT (Russell 2000)

NYA apr 23 2015RUT apr 23 2015

They come in all sorts of shapes but all are wedges. The structure is a 3-3-3-3-3, that is three legs up and two intervening legs down. Pretty simple but also very elusive as these things can go on for longer than you think. In fact, on the Russell we thought it was over about a month ago, where the little black arrow is. It was not. But fortunately the space between the lines is finite so we can now say that the RUT cannot continue for more than one month!

The other broad index, the NYSE has the same pattern but a little less sharp. If you look closely you can see that as recently as yesterday this index was trading at the same level as it did 10 months ago! Not much to show after all the efforts by nearly all the World’s central bankers to spike the punchbowl. In fact you cannot help wonder why they do not hire this British guy to spoof the e-mini S&P contracts and who was able to do 1000 points in a few hours without any money at all.

These wedges are very bearish patterns. Almost invariable the market drops back to the base and , more often than not, a lot further. These are, by the way, not the only indices that display these patterns. There are quite a few so there is all the more reason to take it seriously.

RUT , Russell 2000 update

rut march 20 2015

The index goes up and the technical picture deteriorates. In any event, it is possible that this , almost 6 month long, pattern is a 5th wave diagonal a.k.a a wedge. They are supposed to retrace right back to the base and do so rather fast. Perhaps Yellen’s sophistry, hairsplitting gobbledygook  can push the date of recognition even further in the future, but this chart is clear as a bell. Coming after a 25% rise it all seems to fit. Just for some perspective, below is the Bigchart of the Russell 2000. Clearly there is no bubble!

RUT march 20 2015 big

Russell 2000 and Dow, update

RUT dec 6 2013DJIA dec 6 2013

A month or so ago we called for a top at around 1150 on the Russell 2000, not including a very common throw-over. We are there today and, in the mean time the Dow has managed to catch up with the pattern. The patterns are obviously not the same in EW terms and it is beyond my pay-scale to determine if this is one big expanding triangle (as with the Russell) or a series of 4-5s as with the DOW or , alternatively, a complex A followed by a B. In any event it is not the Jaws of something, which, like the serpent in Loch Ness (yes I was there) does not exist. Regardless these are not pretty patterns as the next big move should be down. The FTSE with its initial 5 waves down back in May/June (not shown), has still not negated itself and remains bearish.