The move from the Jul 2019 lows appears to be developing as an impulse wave (5 wave rally), a new high still appears to be needed, so I favor we still see minor new highs on both ZB and ZN. Whilst TLT remains above $136.00, I still think one more high can be seen, it’s then it can potentially offer a bearish setup for a move lower.
As TLT and ZB move to a new high, TYX is expected to make new lows to end the 5th wave of an impulse wave from the Jul 2019 high (2.67%). Expect the media to freak out, a rally on TYX (yields move higher) can develop from new lows.
Going into the FOMC we are currently tracking a few short term ideas, although personally, I prefer the expanded flat idea as long as the current rally from the Dec 2018 low remains in 3 waves. The large divergence between some highly correlated US and major world stock markets failing to confirm the new highs on the SPX, INDU, and NDX, in my opinion, is a strong clue to suggesting that the current new high on the INDU, NDX, and SPX is probably a [B] wave of an expanded flat.
What is an expanded flat pattern?
An expanded flat is a 3-3-5 pattern, waves [A] and [B] are in 3 waves and wave [C] is in 5 waves. The difference between an expanded flat pattern and a regular flat pattern is that wave [B] is allowed to move above the origin of wave [A] (aka bull trap) before a move lower to test the low of wave [A] (see image).
If the current rally from the Dec 2018 low remains in 3 waves, then its a strong setup to support a reversal and move lower, although we would need to see some evidence such as a 5 wave decline on a smaller time frame (15-30 mins) to offer us an initial clue to suggest a peak is in place for wave [B] before we turn very bearish and look for short setups.
Some alternative ideas I am watching, is a possible ending diagonal (bearish wedge) from the Dec 2018 low, so a down-up sequence is still needed, as well as a ‘blow-off’ type scenario. Although at this stage, I am still torn between either an ending diagonal from the Dec 2018 low or a [B] wave of an expanded flat pattern for the current idea.
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The strong decline over the last few weeks appears to argue for an impulse wave, I suspect it’s close to ending a 3rd wave, so an up-down sequence is still favored before it completes 5 waves from the May 2019 high.
I favor its very close to seeing a bounce for wave [iv], although I am still expecting to see further weakness for wave [v] thereafter once wave [iv] ends, however, I do think a new high on the GDX needs to be watched, as it too can end wave [iii] of an impulse wave, although in the opposite direction.
The better buy on DUST would be when all 5 waves are completed, but for those that are long Gold stocks, and want to consider a hedging strategy, then buying some DUST could be a good idea.
There is a way to actually count the current decline as a 5th wave of an impulse wave from the May 2019 high, however the look on the GDX is not that great, so the preferred idea on DUST is the idea shown above, but if needed then I would consider a possible peak in place on the GDX and low in place to end 5 waves on DUST if we saw a much stronger move above 14.00 – 14.50.
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A new high could well mark an important peak to the trend that has been developing from the Feb 2019 lows, ideally we see new highs to end wave 5 of a large impulse wave, with sentiment extremely bullish on Bitcoin, I would caution readers that are considering getting involved in this product or even buying Bitcoin to reconsider that idea.
If the current idea is an impulse wave as I am showing (5 wave advance) then it’s close to setting up for a large reversal and a substantial retracement in 3 waves. A pullback in 3 waves is the ideal area for those that want to buy, buying the market after such an advance, in my opinion, is akin to picking up pennies in front of a steamroller.
The recent gyrations over the last few weeks, appear to be taking the shape of a possible bearish rising wedge, Elliott Wave calls this pattern an ending diagonal.
Essentially it’s a terminal pattern. A strong move below $83.60 is needed to support a reversal, as it may still chop and grind higher but remains in the overall wedge shape. An impulsive move under $83.60, then $80.00 would be a strong sign to argue that its likely completed an impulse wave (5 wave advance) from the Nov 2018 low and potentially a much larger impulse wave from the 2016 lows, which would be significant as it can further support a large retracement towards $45.00 – 40.00.
I would watch the price action over the following days if you own this stock, as the rising wedge is a basic reversal pattern that is supportive of a pending reversal.
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