Month: April 2015

XEG, iShares TSX capped energy

Hamilton

xeg apr 28 2015

It is not often that you get a clean, unambiguous, 5-wave sequence. This certainly looks like one. Furthermore, subsequent to hitting a low in December of last year, this iShare has rebounded in what, at least to this point, looks very corrective. Perhaps to $15,95 to meet the 200 day moving average might do the trick. This would fit well with our outlook on crude oil that should retrace to about $60 in our opinion (see latest blog). As 5 waves never stand alone we would normally expect a continuation downward. Normally is the right choice of words as when we look at the bigger chart picture one could argue that the above 5 wave sequence is actually the second drop in a pattern that started a few years ago.

XEG april 28 2015 b

The big drop from $29 to $11 of course corresponds with the drop in crude from $143 to $31 or so. That was wave A. Following that you should get the standard a-b-c rebound which seemed to be complete early in 2011 having retraced about 2/3 of the original drop. Wave C down should have started and , being a C wave it must subdivide into 5 waves. So far it definitely has not done that which may warn that something else is going on. One possibility, and this is not all that farfetched, is that the a-b-c was not complete and become a lot more complex. The 4 year pattern, from 2011 to 2014, is very symmetric and could, perhaps, be viewed as the b in a more complex a-b-c. That could imply that we are now in c up towards, say, $23/$24. Only then would the big C down start.

   A war between Saudi Arabia and Iran, which is already going on in Yemen, could easily escalate and, if that were not enough, could block the two straights through which a good part of the World’s oil travels.  For the sake of the argument let’s suppose that “conflict”is quickly resolved, but at the same time the World falls into a serious recession and also becomes more aware of alternative energy sources. The electric car becomes a workable alternative and GM announces in 2018 that it has just built the last 4-cylinder internal combustion engine! Who knows but energy is not all that clear right now.

FTSE update, another wedge.

Hamilton

ftse apr 25 2015

Another nice example of a well formed wedge is in the FTSE, London.  Here wave 4 seems to have taken the better part of a year, then we get the spurt up starting in October for the wave 5 wedge. Here again not everything is absolutely clear. The wave 4 could have ended in January as a triangle, which pushes the whole structure forward. That is a little unlikely given that most other spurts or thrusts also start in October. If this count is correct the top could already be in and if it is not there are only maybe 20 to 30 points to go.

Both the RSI and MACD support the notion of a top here.

Nasdaq update.

Hamilton

Nasdaq apr 23 2015

One of the many indices is the Nasdaq, which we show here separately. Apart from having a very nice wedge, it also has the distinction of having made it back to where it was fifteen years ago, at least in nominal terms. Unlike the RUT this one is actually up about 25% in a year, an amazing ketch-up feat.

     The wedge could have started in October of last year. However, it is also possible to start it a full year ago, in April. There is some leeway in how one can count the wedge, but what is fairly clear is that there is little room left between the boundary lines. Interestingly, the RSI has been dropping for the entire period of this wedge. The MACD was flat for most of that time but has been dropping for the past three months or so.

Time to chose between practice and theory perhaps? Fish or cut bait?

r n elliottjanet yellen

My money, if I had any, goes on R.N. Elliott at this time.

NYA (NYSE) and RUT (Russell 2000)

Hamilton

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.