Stocks
After further analysis of the wave structure and other factors, I am backing off the more bearish outlook of the previous post even though stocks were weaker then anticipated last week. This week there may be a holiday rally and If the rally tops below last weeks highs, it could be B wave to be followed by a C wave down into early December. If that scenario plays out, early December may be a good time to add to positions.
The reason for the more bullish outlook is the wave structure, the wave count for gold and the seasonally strong period that lasts until early Spring. Gold is in a bullish wave three and still looks like it could go much higher. Since gold and stocks have been well correlated, that indicates stocks could also be in a wave three from the July low and in wave three of three from the November low. This count is shown below on the Dow. The running double three pattern in wave two is very bullish. The wave one of three possibility was first mentioned on 8/17 as an alternate count.
If that is the correct count, it gives rise to the following calculations for wave three. The length of wave three is usually 1.5 to 3.5 times the price movement of Wave one. That gives a price target for wave three in the 11720 to 16602 range. Wave three is usually 1 to 4 times wave one in time. That would give a time target for wave three sometime between 10/10/09 and 7/13/10. The wave count indicates quite a ways to go, so it may be toward the latter part of that range and probably not before February.
Chart: Six month chart of DJIA
Gold/GLD
Gold was strong again last week finishing near the highs of the week and above the 112.75 target. The wave structure is still very bullish. Next target range is 116 -118.
Stocks
With the move higher this week above last weeks high, stocks now appear to be forming a topping formation with a wave five completion possible between this Friday and Tuesday of next week. The 1121.05 area mentioned previously looks like the best target price for the high on the S&P500. The Dow and S&P500 are both in the area of a 50% retracement of the move down into the 2009 crash low. Because of that, and the possible count of five waves up from the March/2009 low, the correction could be the largest correction since the March bottom.
Gold/GLD
GLD met the 112.75 target price today. It is possible to count five waves up from the late October low, but with stocks possibly not topping until next Tuesday, it may work its way higher along with stocks, possibly even as high as around 117.
Gold/GLD
GLD has not yet reached the 112.75 target but has met the minimum requirements for five waves up so it could finish this up wave at any time. The five minute chart looks like it may finish waves three thru five by Tuesday, possibly around 111.35. A short term gold top would also indicate that stocks are also near a top.
Stocks
It is possible that stocks completed five waves up on Wednesday. But with gold likely not yet at its crest, stocks may form a lower double top early this week. It appears likely it will be a short term top and may bottom as early as the end of the week. Initial support is 10086 and 10003 on the Dow. The current wave appears more corrective than impulsive so it may be a B wave or X wave within a larger correction. That is also indicated by the fact that both the Nasdaq composite and NYSE composite have not gone above the October highs.
Gold/GLD
On Monday GLD hit 108.59, which verified the current wave is part of a larger wave three instead of a wave five about to complete, as discussed in Sunday's post. That is bullish with the next price target being around 112.75. Todays close of 109.61 is already more than one point above the 108.59 level with more then three points to go to reach the next target.
As for wave structure, it looks like it is in wave five of the move up from the 10/28 low. Based on that count and cycles analysis, the next price target could be reached sometime between Friday and early next week.
Stocks
Stocks are moving higher with gold and may top in the same time frame. Today stocks went past the 1093 resistance and also the October high indicating the next swing cycle on 11/14 is inverting into a high instead of a low. The wave structure is not as clear as gold but may now be in wave four up from the 11/2 low, to be followed by the final wave five. The 1.27 fibonacci extension of 1121.05 appears to be the most likely price target for wave five.
Also, since the October high was taken out, that may change the preferred wave count. That analysis will be provided in the next post.
Stocks
The s&p500 made a low on Monday at 1029.38, .62 points below the 1030 support level given last Sunday. Stocks then continued higher into the end of the week as forecast with the high of the week occurring on Friday morning. Cyclically, that high could have been the top of this short term up move however the wave structure does not look complete and also the s&p500 is in between resistance zones. We are also currently withing the next swing cycle zone(11/6 to 11/9) so it could go up for 1-2 more days into the next resistance zone at 1074 to 1077, which is not much beyond Friday's high. Next resistance is at 1085 and then 1093.
Gold/GLD
Gold had another good week, moving well beyond the October high and the target price of 105.5. Wave four ended on 10/28 with wave five either complete as of Friday or near complete. GLD is within a swing cycle zone that ends today but could allow one more day of higher prices since it occurs on a weekend. Initial support for a wave two low is 100 to 101 on GLD.
One thing to watch is the length of wave five. If it extends beyond 108.58 on GLD that would make wave three shorter than wave five and wave one, which invalidates the wave count as wave three can never be the shortest wave within a five wave impulse. If that happens it indicates we are within a larger wave three that would bring much higher prices sooner rather then later.
As has been stated previously, the long term gold chart patterns look very bullish and could bring much higher prices. For that reason it is best to do minimal amounts of profit taking at short term tops as the wave counts could be wrong and surprises will tend to be to the upside.
Gold/GLD etf
Below is the updated wave count for GLD that shows wave 4 which may still be in progress. The price low for wave 4 has most likely been made but there may still be more work to do timewise. Gold has held up very well compared to stocks during this correction. In anticipation of that possibility, I moved most of my GDX gold stock position to UGL(2x gold etf) in mid October.
Stocks
The updated S&P 500 wave count is below. The wave count for stocks is not as clear as for gold. It appears the best count puts wave five up from the March low to be at the October high or alternatively at the September high.
Fridays unexpected big down move took out Thursdays low with a price low of 1033.53, 3 1/2 points above the next support at 1030. If 1030 does not hold, the next support is near 1020, and then 990-1000(the strongest area of support). The next swing cycle zone is 11/2 - 11/4, so it appears the market may be making a low into that period as originally concluded on 10/28. The most likely time for the endpoint of an up move off that low still looks like the end of this week.
Overall, it looks like the most likely time and price for the low of this correction is 990-1000 in mid November.
Posts
Chart: Six month chart of DJIA
