November 28th Update

S&P500

Today finished with a strong rally off of a down week last week.  We started the day up over 40 points, and ended up around 2.9% at the close.


We're closing in on year-end and it's been a while since I've really looked at bigger picture, so lets look at Weekly and Daily charts of the SPY.

Starting from the May highs of 137.18 on the SPY we see a clear five wave decline which I have highlighted in red.  This is a weekly chart, so in Elliott terms that means the larger degree trend is now down.  At the low, I've pointed out that the market was down 21.6% at that point.  We then saw a very sharp rebound extending into October 24th.  Following that sharp rally, we sold off again, but failed to make new lows last week, and we're beginning to bounce again.
To summarize, we know we have five waves down on the weekly chart, but the waves that follow are not very clear.  Let's look at the daily chart, and come back to the weekly and look at possible counts.

We are now just looking at the rally off the October 3rd low of 107.43.  The sharp rally we discussed above appears to break down into three waves, of which the third wave is a diagonal triangle (not really shown, but if you zoom in you can see it).  That makes this an A-B-C zigzag retracement.  Strictly speaking, this could be all that is needed before the next leg down resumes.  Corrections can be complex, as well, however, and this could also easily turn into a combination.
Following the October 24th high, we have a wave down which could be either a first wave of an impulse or an A-Wave, followed by three waves (blue lines) which appears to be an impulse wave in-progress.
So regardless of the outcome on the weekly, we still need to finish the impulse wave down on the daily if this is an A-B-C.  That means short term, we need to break last week's lows.

The bottom line:  If the October 3rd low stays in tact, then odds favor a complex (2) up extending into the beginning of next year.  If the October low is exceeded to the downside on high volume, then we will definitely be in the next leg down of the decline which will be a third of a third, and will do a bunch of damage to equities.

Going back to the weekly chart above, I've drawn out some scenarios.

1. A complex (2) which will be W-X-Y in composition.  Another way to state this is A-B-C-X-A-B-C, where we already have the first three wave A-B-C up, followed by a three wave decline in progress forming the X.  In this scenario, we finish X to the downside, and rally up into another A-B-C to complete Y and hence (2) early next year.
2. We are already carving out the beginnings of 1 of (3) down.  The fact that we have not made new lows yet would mean this is an extended third wave which is typically the case in an impulse wave anyway.  In this scenario, we are in the third wave of an impulse, ie ((iii)) of 1 of (3) down.  I threw the 1 tentatively out there in my weekly chart, but realistically, odds are it will break the October lows when it finishes.

Final word:

You can skip all the Elliott Wave mumbo jumbo and just look at what the Ichimoku trending indicator is telling you on the weekly chart.  The signal cross happened back on July 11th, warning that the market trend was changing.  Price broke below the cloud the first week of August confirming the downtrend, and all rally attempts since then have failed to penetrate upper cloud resistance.   In fact the green signal line remains well below the red base line and the lagging line remains below price.  In other words, this is saying the trend remains down.

 Silver

I suppose I should talk about silver since I have an active short position.  The fact is, it's a total mess, and has been hard to follow intra-day.  I'll show you why that is in a bit.

Let's start with the daily chart though.

Coming off the September 26th low of 26.13 on the silver futures, we had a very drawn out, but simple A-B-C correction.   The C-Wave ended up being a diagonal triangle.  The termination of the triangle occurred on November 8th with a high that day of 35.35. Following that was an apparent three wave decline.  What remains to be seen is whether the decline turns into a full five wave decline, as I suspect it will. 

Now lets look at an hourly chart to see the three wave decline in more detail, and what follows.  You can see the third wave down the decline subdivides into a wave with its own third wave extension (blue).  Following the September 26th low, all we have are three wave corrective moves in both directions, and they do not form any sort of triangle.  The only conclusion I can draw at this point is a complex W-X-Y formation, which could be a fourth wave on the daily chart.   Furthermore, the X is its own complex ((w))-((x))-((y)) formation.  Y can end here, but if it does, it will end well short of W.  A very real possibility is that Y becomes complex allowing one more push higher slightly at or above W.

The hourly chart is truly difficult analysis, and may be way off mark.  Sometimes when it's this ugly, you can just stay on the higher time frame and wait for the next wave to start.


Crude

I realized that I haven't posted on crude since November 14th.  I did a short term forecast on Friday that I forgot to post, but I'll show it now in hindsight.  I don't have any current positions in crude, as I'm still in wait and see mode.
In the 4H chart below on the crude futures, there is an (a) wave down followed by an a-b-c expanded flat correction (see my Education page) for (b), where b of (b) is a triangle.  I projected c of (b)'s termination by projecting a fibonacci extension of wave a from the termination of b.  In other words, wave-C often relates to wave-A by a fibonacci relationship.   In this case I used the 161.8% and 261.8% projections, since c was coming from such a low level.  In an A-B-C formation, C normally terminates at or beyond A.  This is a guideline, but one that is satisfied much more often than not.
Notice how price reversed off the 261.8% level almost to the tick!

We need to complete (c) down, which I believe is in progress.  A completed five waves down on the 4H chart will be the likely termination point for a fourth wave on the daily time frame.