Tag Archives: technical analysis

Expanded Flat Corrections – A Real Life Example | 1st September, 2017

I mentioned in comments on Thursday that I wanted to illustrate a real life example of an expanded flat. The concept is important when trading corrections.

S&P 500 daily 2017
Click chart to enlarge.

I did not have to go far back at all to find a good example of this very common corrective structure.

This expanded flat is in a second wave position within the final wave up of intermediate wave (5), which may have ended primary wave 3 at the last all time high.

Within expanded flats, both waves A and B must be three wave structures. Wave B is a minimum 1.05 length of wave A, so it makes a new price extreme beyond the start of wave A.

There is unfortunately no rule stating a maximum length for B waves within flats. There is a convention within Elliott wave that states when the possible B wave is longer than twice the length of the possible A wave the idea of an expanded flat should be discarded based upon a very low probability. I have seen a few expanded flats though which in hindsight were correct that had B waves that were longer than twice the length of their A waves.

The longer wave B is in relation to wave A the longer wave C should be expected to be. Here, wave C has a good Fibonacci ratio to wave A. Wave C of an expanded flat should move substantially beyond the end of wave A. The whole structure has an expanding sideways look to it.

Expanded flats are very common (only zigzags would be more common). It is my judgement given nine years of professional daily Elliott wave analysis that expanded flats are the second equal most common corrective structures alongside combinations.

What technical signals may give an expanded flat away? The answer lies in the strength, or lack of it, in wave B.

S&P 500 daily 2017
Click chart to enlarge.

Within wave B, some weakness can be noticed from:

– Very slight divergence at the end of wave B between price and RSI.

– Strongly declining ATR.

– Strong divergence at the end of wave B between price and Stochastics, after Stochastics has reached extreme.

– Declining volume.

Published @ 03:13 a.m. EST on 2nd September, 2017.

Volume and Breakouts – Is it Necessary? | 11th August, 2017

This chart was published two days ago. At that time, it was warned that the possible upwards breakout of the 8th of August lacked support from volume and may turn out to be false:

S&P500 Daily 2017
Click chart to enlarge.

That was proven correct. The strong downwards movement from the S&P comes on a day with an increase in volume. This is a classic downwards breakout.

When a downwards breakout has support from volume, that adds confidence in it. Downwards breakouts do not require support from volume; the market may fall of its own weight. Price can fall due to an absence of buyers as easily as it can from an increase in activity of sellers. But when volume supports downwards movement, it may be more sustainable, at least for the short term.

This downwards breakout was predicted by strongest volume during the consolidation being a downwards day.

This volume analysis technique looks at the presence or absence of support from volume on the breakout after a consolidation period to tells us how reliable the breakout may be.

Original post published @ 12:17 a.m. EST on 12th August, 2017, on Elliott Wave Gold.

Volume and Breakouts – Is it Necessary? | 9th August, 2017

After a consolidation price will break out. The presence or absence of support from volume on the breakout tells us how reliable the breakout may be.

Gold Daily 2017
Click chart to enlarge.

Pennant patterns are one of the most reliable continuation patterns. But in an upwards trend the breakout should have support from volume.

For price to keep rising it requires increased activity of buyers. Upwards breakouts that do not have support from volume are suspicious.

This upwards breakout comes on a day with slightly higher volume, but the balance of volume for the session is downwards. Stronger volume during the session supported downwards movement, not upwards.

The breakout is suspicious and may turn out to be false.

While volume is important for upwards breakouts, it is not so important for downwards breakouts. The market may fall of its own weight.

Original post published @ 04:47 p.m. EST on Elliott Wave Gold.

NZ50, Auckland Property Market, and HSI Elliott Wave Technical Analysis – 12th July, 2015

I’ve been following the New Zealand stock market for a while now. This is the first time I’ve shared this analysis with members and the general public.

I’ve also more recently with interest been watching what’s happening in China and Hong Kong.

Note: This analysis is not a full Elliott wave analysis, but just the analysis I’ve already done for these markets to date.

NZ50 ELLIOTT WAVE AND TECHNICAL ANALYSIS

NZ50 monthly 2015
Click chart to enlarge.

For the NZ50 to confirm a bear market I would want to see:

1. A breach of the aqua blue bull market trend line by a close of 3% or more of market value below that line. (The trend line is breached on the daily chart at 5,846.97, so we need a close at 5,674.56 or below.)

2. A new swing low below the end of primary wave 4 at 5,097.08.

3. A breach of the maroon trend channel on the monthly chart.

While the bull market trend line is not breached by 3% or more a bull market should be expected to remain intact. Primary wave 5 may yet continue higher.

I am confident that my labelling of primary waves 1 through to 4 is correct. Primary wave 3 is just 1.1 points short of 2.618 the length of primary wave 1. This is a remarkable Fibonacci ratio between waves which lasted 10 and 54 months, respectively.

One cause for concern at the monthly chart level is there is so little divergence between price and RSI at the recent high. The last time the NZ50 saw a big bear market was preceded by years of strong persistent divergence between price and RSI. That it is not happening now may indicate primary wave 5 may not be over. There is no Fibonacci ratio between primary wave 5 and either of 1 or 3.

NZ50 weekly 2015
Click chart to enlarge.

Primary wave 2 was a deeper 0.43 flat correction, and primary wave 4 was a more shallow 0.08 zigzag.

Within primary wave 3, there is no Fibonacci ratio between intermediate waves (3) and (1), but intermediate wave (5) is just 0.9 points longer than 0.382 the length of intermediate wave (1).

There is negative divergence between price and MACD at the weekly chart level.

NZ50 daily 2015
Click chart to enlarge.

At the daily chart level, primary wave 5 is off to the left of the chart. Within primary wave 5, there are no Fibonacci ratios between intermediate waves (1), (3), and (5). Intermediate wave (2) is a 0.29 zigzag and intermediate wave (4) is a 0.14 flat correction; there is perfect alternation.

So far, since the last all time high at 5,927.10 on 16th March, there looks like what is a clear five down on the daily chart which was followed by a three up. Another five down has made a new low very recently and thursday last week saw a new low below that, and so this movement cannot be labelled A-B-C because a new low has been made after it was done. It would better be labelled 1-2, 1-2. This indicates some strong downwards movement next week as the middle of a third wave down begins.

ADX does not yet indicate a trend, however, and the market has been moving sideways in a range although the movement has a slight downwards slope.

The bull market trend line which goes back to June 2012 was breached about 5,846.97. If next week continues down as I expect, and we see a close at 5,674.56 or below, then I would have a little more confidence in expecting the NZ stock market is in a bear market. Next week shall be interesting.

AUCKLAND PROPERTY MARKET TECHNICAL ANALYSIS

Auckland Property Market 2015
Click chart to enlarge.

There looks like a fairly typical looking bubble developing in the Auckland Property market (Auckland has about 1/3 of the NZ population, so this is our largest market). The problem with bubbles and the problem with highs is they’re ridiculously difficult to pick an end for. Therefore, in this instance, I would use trend lines: if the lines are breached to the downside, then the bubble has most likely burst.

While New Zealand’s government debt has been rising in recent years, it is still relatively low in comparison to other countries. Currently, the debt is at 35.9% of GDP, so the country may be in a reasonable state to weather another economic downturn. However, household debt is not looking very healthy and looks to possibly have just last month reached new highs, over 160% of disposable income. It may be that recent entrants into the overheated Auckland property market are over-leveraged and are not ready to withstand an economic downturn.

The magazine cover on the chart is from the NZ Herald Property supplement section, from March 2015, and meets the criteria for a classic magazine cover indicator of a bubble / high.

New Zealand was affected economically during the Global Financial Crisis (or Credit Crunch), but not on the same scale as the USA or Europe. Comments from members and readers in New Zealand (or world wide) about NZ50 and Auckland property market are welcomed.

HANG SENG INDEX ELLIOTT WAVE AND TECHNICAL ANALYSIS

HSI monthly 2015
Click chart to enlarge.

The most recent rise on HSI, from the end of primary wave B, does not look at all like a third wave, not even the start of it.

The big drop for the GFC (to the low of October 2008) subdivides as a three. The following wave up also subdivides as a completed three, but it is less than 90% of the prior drop. So this cannot be a big flat correction and is more likely to be a huge combination, or less likely a double zigzag. A combination may be more likely because they tend to have deep X waves whereas double zigzags tend to have rather shallow X waves.

Within cycle wave X, primary wave C subdivides as a completed ending expanding diagonal. Because the diagonal is expanding, there is no (theoretical) limit to how long the final fifth wave can be so most certainly it could continue higher yet.

For a bear market to be indicated for HSI I would want to see the following things:

1. A new swing low below the last major low at 23,252.63 (the end of minor wave B within intermediate wave (5) ).

2. A breach of the bull market trend line (on the daily chart below) by a close of 3% or more of market value. This line is not yet met.

RSI did not reach overbought levels on the monthly chart just before the DotCom crash of 2000 – 2003, but it did though for the crash prior to that, the Asian Crash of 1997, which was preceded by RSI twice reaching overbought levels (but it showed no divergence).

At the peak of 2007, before the Global Financial Crisis, RSI was heavily overbought, but there was no divergence and RSI moved strongly higher right up to the peak and then fell with price.

Again, RSI is close to being overbought (not there yet), but it does not appear to be a reliable indicator for HSI (unlike the S&P500).

Volume data for July is incomplete (because the month is incomplete), and the volume for June shows an increase beyond that of May, and both months have reasonable volume. This increase in volume supports the fall in price.

Volume spiked on the last upwards month for April, which is very typical behaviour for the end of a rise in price.

HSI daily 2015
Click chart to enlarge.

The double trend line has worked so far nicely to show where the bull market has been finding support.

The ending diagonal is most likely complete, but it is still possible that intermediate wave (5) could continue higher. When the bull market trend line is breached, then the fifth wave zigzag would break below the (2)-(4) diagonal trend line, which is the same as the bull market trend line, so the possibility that intermediate wave (5) could continue higher would be extremely unlikely.

The recent fall on HSI is 20% of its market value. ADX is clear and strong: there is a trend and it is down.

The high for HSI was 29th April. NZ50 had its high later, on 16th March.

Russell 2000 Elliott Wave Analysis – 1st October, 2014

Click on charts to enlarge.

Russell 2000 monthly 2013

Data available extends back only to the end of 1987. Data begins with the 1987 “crash” which I am labeling a cycle degree second wave correction.

A five wave impulse for a super cycle wave (I) ended in March, 2000.

Ratios of cycle degree waves within super cycle wave (I) cannot be accurately calculated without all data from the start of Russell 2000 in 1984.

Super cycle wave (II) is seen as a complete expanded flat correction, with a shorter than usual C wave (which is not truncated because it does move very slightly below the end of cycle wave a). Cycle wave c is 45.87 points longer than 1.618 the length of cycle wave a, a variation just less than 10% and so acceptable. Super cycle wave (II) is a 50% correction of super cycle wave (I). Super cycle wave (I) lasted longer than 12 years (it begins when Russell 2000 began) and super cycle wave (II) lasted 9 years.

At 1,691 super cycle wave (III) would reach 1.618 the length of super cycle wave (I).

I am changing my wave count for RUT within super cycle wave (III) to see cycle wave III as over and cycle wave IV underway. Cycle wave III is 26.76 short of 1.618 the length of cycle wave I.

Cycle wave IV may not move into cycle wave I price territory below 745.95.

Russell 2000 weekly 2013

Super cycle wave (III) is incomplete. Within it cycle wave III is probably complete.

Cycle wave IV looks like it is subdividing as a flat or combination. Within it primary wave B should move higher and may make a new high above 1,213.55. Cycle wave IV may find support at the lower edge of the channel.

Draw the channel using Elliott’s first technique: draw the first trend line from the highs of cycle waves I to III, then place a parallel copy on the low of cycle wave II.

Cycle wave II was a shallow 39% zigzag lasting 10 weeks. Cycle wave IV is showing alternation in depth and structure. So far it has lasted 13 weeks and it is not quite halfway through.

Cycle wave IV may not move into cycle wave I price territory below 745.95.

Russell 2000 daily 2013

The final fifth wave of primary wave 5 to complete cycle wave III subdivides perfectly as a five wave impulse.

The downwards movement for primary wave A fits best as a zigzag, with an expanded flat for intermediate wave (B) in the middle. This sees the downwards movement labeled minor wave B within intermediate wave (B) as a zigzag which has a better fit than my last analysis. However, it is very difficult to see the upwards wave of minor wave C within intermediate wave (B) as a five because the middle of the third wave does not fit. I suspect something is wrong in my wave count at the beginning of this movement, within minute wave i and minuette wave (i), but I cannot move the time frame for this data down to see the subdivisions on the hourly chart.

Intermediate wave (C) subdivides perfectly as a completed impulse. The final fifth wave may yet move lower. Draw a channel about intermediate wave (C): draw the first trend line from the ends of minor waves 1 to 3, then place a parallel copy on the end of minor wave 2. Only when this small channel is clearly breached by at least one daily candlestick above it and not touching the upper trend line will I have any confidence that primary wave A is over.

If cycle wave IV is subdividing as a flat correction then within it primary wave B must reach up to a minimum 90% length of primary wave A at 1,202.36. If primary wave A moves lower this point must be recalculated.

If cycle wave IV is unfolding as a combination then primary wave X has no minimum upwards point.

For both a flat or combination the upwards wave of B or X may make a new high above the start of primary wave A at 1,213.55. There is no upper invalidation point.

B and X waves can be time consuming. I would expect it to last about 13 weeks or longer.

Russell 2000 Elliott Wave Analysis – 14th August, 2014

By request from a member here is an Elliott wave analysis of Russell 2000 using data from Yahoo Finance.

Click on charts to enlarge.

Russell 2000 monthly 2013

Data available extends back only to the end of 1987. Data begins with the 1987 “crash” which I am labeling a cycle degree second wave correction.

A five wave impulse for a super cycle wave (I) ended in March, 2000.

Ratios of cycle degree waves within super cycle wave (I) cannot be accurately calculated without all data from the start of Russell 2000 in 1984.

Ratios within cycle wave III of super cycle wave (I) are: primary wave 3 has no Fibonacci ratio to primary wave 1, and primary wave 5 is 8.39 points short of 1.618 the length of primary wave 1.

Ratios within primary wave 3 of cycle wave III are: intermediate wave (3) has no Fibonacci ratio to intermediate wave (1), and intermediate wave (5) is just 3.81 points longer than equality with intermediate wave (1).

Ratios within intermediate wave (3) of primary wave 3 are: minor wave 3 has no Fibonacci ratio to minor wave 1, and minor wave 5 is 7.15 short of equality with minor wave 3.

Ratios within primary wave 5 are: there is no Fibonacci ratio between intermediate waves (3) and (1), and intermediate wave (5) is 6.44 longer than 0.618 the length of intermediate wave (3).

Super cycle wave (II) is seen as a complete expanded flat correction, with a shorter than usual C wave (which is not truncated because it does move very slightly below the end of cycle wave a). Cycle wave c is 45.87 points longer than 1.618 the length of cycle wave a, a variation just less than 10% and so acceptable.

Within cycle wave a primary wave C is 8.82 longer than 2.618 the length of primary wave A, and I am seeing primary wave B as a double combination: zigzag – X – flat.

Within cycle wave b there is no adequate Fibonacci ratio between primary waves A and C. Primary wave A is an impulse, and primary wave C fits perfectly as an ending expanding diagonal. I am confident this upwards wave for cycle wave b is a clear three wave structure, and so it is part of a larger correction.

Within cycle wave c there are no Fibonacci ratios between primary waves 1, 3 and 5.

Overall super cycle wave (II) is a 50% correction of super cycle wave (I). Super cycle wave (I) lasted longer than 12 years (it begins when Russell 2000 began) and super cycle wave (II) lasted 9 years.

At 1,691 super cycle wave (III) would reach 1.618 the length of super cycle wave (I).

When super cycle wave (III) is finished then a subsequent correction for super cycle wave (IV) may not move into super cycle wave (I) price territory below 614.16.

The weekly chart focusses on more detail within super cycle wave (III).

Russell 2000 weekly 2013

Super cycle wave (III) is incomplete. Within it cycle wave III is also incomplete. Cycle wave III may only subdivide as an impulse.

Ratios within cycle wave I are: primary wave 3 is 9.55 points longer than equality with primary wave 1, and primary wave 5 is just 3.77 points short of equality with primary wave 1.

Ratios within primary wave 3 are: there is no Fibonacci ratio between intermediate waves (3) and (1), and intermediate wave (5) is just 2.05 points longer than 0.618 the length of intermediate wave (3).

Within cycle wave III primary wave 3 has no adequate Fibonacci ratio to primary wave 1. It is likely that primary wave 5 will exhibit a Fibonacci ratio to either of primary waves 1 or 3. At 1,355 primary wave 5 would reach equality in length with primary wave 1.

Primary wave 1 lasted 52 weeks, primary wave 2 lasted 13 weeks, primary wave 3 lasted 126 weeks, and primary wave 4 lasted 10 weeks. None of these waves exhibit a Fibonacci duration nor do their durations exhibit Fibonacci ratios to each other. I would expect primary wave 5 to last about 52 weeks, and so the target at 1,355 may be met in about another 40 weeks.

Ratios within primary wave 3 are: intermediate wave (3) has no Fibonacci ratio to intermediate wave (1), and intermediate wave (5) is 8.35 points longer than 0.236 the length of intermediate wave (3).

Ratios within intermediate wave (3) are: minor wave 3 has no Fibonacci ratio to minor wave 1, and minor wave 5 has no Fibonacci ratio to either of minor waves 3 or 1.

Ratios within minor wave 3 are: minute wave iii is 3.54 points short of 2.618 the length of minute wave i, and minute wave v has no Fibonacci ratio to either of minute waves iii or i.

Ratios within minute wave iii are: minuette wave (iii) is 8.36 points short of equality in length with minuette wave (i), and minuette wave (v) has no Fibonacci ratio to either of minuette waves (i) or (iii).

Ratios within minuette wave (iii) are: subminuette wave iii is 10.9 points longer than equality with subminuette wave i, and subminuette wave v is just 3.12 points short of 0.618 the length of subminuette wave iii.

If intermediate wave (2) moves any lower it may not move below the start of intermediate wave (1) at 1,082.53.

Russell 2000 daily 2013

The daily chart focusses on the start of primary wave 5 within cycle wave III.

What is most clear about this chart is the structure of intermediate wave (1): a clear five wave impulse with an extended third wave. This indicates the trend is upwards at this stage despite a deep second wave correction which followed it.

Ratios within intermediate wave (1) are: there is no Fibonacci ratio between minor waves 3 and 1, and minor wave 5 has no Fibonacci ratio to either of minor waves 3 or 1.

Ratios within minor wave 3 are: minute wave iii has no Fibonacci ratio to minute wave i, and minute wave v is just 1.46 points longer than 0.618 the length of minute wave iii.

Within intermediate wave (2) minor wave C is 5.59 points short of 0.618 the length of minor wave A. Intermediate wave (2) is a typically very deep 81% zigzag structure. It is extremely likely it is over here. At 1,319 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).

I have drawn a base channel about intermediate waves (1) and (2). On the way upwards to the target for intermediate wave (3) downwards corrections should find support at the lower edge of this channel. This channel should not be breached to the downside. Upwards movement should breach the upper edge of the channel.

From this first analysis of Russell 2000 I can say that it does not exhibit Fibonacci ratios between all three actionary waves of its impulses, but it often exhibits Fibonacci ratio between two of the three actionary waves within an impulse. Much like the S&P 500, but better than the Nasdaq. This means that target calculation would increase in accuracy only towards the end of a movement; it is only at the end of a movement that targets can be calculated at multiple wave degrees, and because of the tendency for not all actionary waves to exhibit Fibonacci ratios targets should be calculated at least at two or three wave degrees. The target at 1,319 would and should change once minor waves 3 and 4 within intermediate wave (3) are complete.

Russell 2000 does not seem to exhibit Fibonacci relationships in the number of days, weeks or months a wave takes. This makes estimation of when targets may be met rather difficult.

Russell 2000 does seem to exhibit reasonably normal looking Elliott wave structures, and some of these structures are exceedingly typical looking (like the impulse of intermediate wave (1) here on the daily chart). This means that predicted directions should be quite accurate, if the wave count is correct.

AAPL Elliott Wave Technical Analysis – 24th April, 2014

Within the bigger picture this wave count sees AAPL in a super cycle zigzag correction which is just over two thirds completed.

Click on charts to enlarge.

AAPL daily 2014

Within the zigzag cycle wave b ended at 571.88 with a small truncation in the final fifth wave up.

At this stage I expect a big leading expanding diagonal is unfolding for a first wave at primary degree.

Within the leading diagonal intermediate wave (2) is a 72% correction of intermediate wave (1), and intermediate wave (4) is a 86% correction of intermediate wave (3).

I would expect intermediate wave (5) to be longer than intermediate wave (3) and to reach down to 484.54 or below. At 456 minor wave C within intermediate wave (5) would reach 2.618 the length of minor wave A.

Downwards movement is very slow and so the target may be yet another few weeks away.

Within intermediate wave (5) minor wave B may not move beyond the start of minor wave A. This wave count is invalidated with movement above 551.19.

At 252 cycle wave c would reach equality in length with cycle wave a. This target is about one year away.

AAPL hourly 2014

Within intermediate wave (5) so far minor waves A and B are most likely complete.

Within minor wave C minute wave i and now ii also are most likely complete.

At 480 minute wave iii would reach 1.618 the length of minute wave i.

The pink channel drawn about minute waves i and ii is a base channel. I would expect corrections along the way down to find resistance at the upper edge of the channel. Minute wave iii should breach the lower edge of the channel and should show an increase in downwards momentum.

Within minute wave iii no second wave correction may move beyond its start above 532.14.

FTSE Elliott Wave Technical Analysis – 2nd December, 2013

Last analysis expected that a second wave correction was over, but a clear channel breach and a clear five wave structure upwards on the hourly chart was required before I had confidence in the target. We did not get a clear channel breach nor a clear five wave structure upwards.

Movement below 6,708.52 invalidated the hourly wave count.

Click on the charts below to enlarge.

FTSE Elliott Wave Chart 2013

This wave count sees the FTSE in a fifth wave upwards at intermediate degree which should reach 7,103.67 minimum, and most likely above.

Upwards movement for minor wave 1 of intermediate wave (5) is ambiguous. It can be seen as either a three or a five. This wave count sees it as a five.

Downwards movement for minor wave 2 is now a complete double zigzag. The second zigzag in the double made only a slight new low below the first, but did move price lower.

At 7,406 minor wave 3 would reach 1.618 the length of minor wave 1. This target is still now about 20 trading days or sessions away.

Within the current downwards correction of minute wave ii at 6,526 minuette wave (c) would reach equality with minuette wave (a).

Within minor wave 3 minute wave ii may not move beyond the start of the minute wave i. This wave count is invalidated with movement below 6,316.91.

FTSE Elliott Wave Chart 2013

This 2 hourly chart shows the entire structure of minute wave ii.

Within it minuette wave (a) unfolded as a leading expanding diagonal. All its subwaves are zigzags, as they are most commonly.

Within minuette wave (c) the structure is incomplete, and I would expect more downwards movement. It looks like it may be unfolding as an impulse which would provide alternation with minuette wave (a).

I have drawn a parallel channel about minute wave ii using Elliott’s technique for a correction. Draw the first trend line from the start of minuette wave (a) to the end of minuette wave (b). Place a parallel copy upon the end of minuette wave (a). I would expect minuette wave (c) to find support at the lower end of this channel, and to be very likely to end there. When the channel is clearly breached by subsequent upwards movement then I would expect that minute wave ii is finally over, and the next wave upwards should have begun.

The next wave upwards is a third wave of a third wave, and I would expect to see a strong increase in upwards momentum.