Written by William Kurtz
The stock Indexes have completed (or nearly so) an "A-B-C" three-wave countertrend move which has partially retraced the first five-wave declines from the Indexes' all-time peaks. The Dow Industrials' retracement rose to about 55% of that decline before "hitting a wall" this morning and then closing lower on the day at about the 43% retracement level. The S&P 500 gapped higher on Opening, well above its 61.8% retracement, but "hit the same wall" and beat a hasty retreat, closing well below its 61.8% level.
Following the Indexes' advances this morning and their almost immediate plunges, they partially retraced this morning's declines and, once again, are at or near the old familiar retracement levels that we see over and over again. For examples, the 60-minute chart of the Dow Industrials (above) shows that the Dow closed today between the 38.2% and the 50% retracement, while the 60-minute chart of the S&P 500 shows that the 500 closed almost exactly on the 61.8% retracement line.
The exhaustion gaps which were left behind upon Opening of several of the Indexes this morning were swiftly closed (i.e., within the hour).
The Daily chart of the Dow (below) shows the five waves Down (1, 2, 3, 4, 5) from the July peak, those five waves comprising "Wave 1 Down" of the next higher "degree" of trend, which I've marked with a black "1." The 60-minute charts of the Dow Industrials (first chart) and of the S&P 500 (second chart below) also show that black "1."
Thereafter, each of these Indexes (and the others, as well) has executed a three-wave "A-B-C" upside partial retracement of the decline from its peak. Those "A-B-C" upmoves appear now to be complete, or nearly so, together with Wave 2 Up of the next higher degree of trend. I think that the odds are that these moves are complete now, which means that the Indexes should begin to drop early next week without first having surpassed today's Highs. (Surpassing today's Highs would impose a slight delay in the proceedings; but I think it's more likely than not that "the fix is in.") A price drop below last Tuesday's Lows in the Dow and in the S&P 500 (i.e., below the Low of wave "B" of the three-wave upmove in each, being 16518.06 in the Dow, and 1928.29 in the S&P 500) would be strong evidence that the upmove is over and that the major underlying trend has indeed switched from Up to Down. A drop beneath the July 7 Lows in the Dow and in the S&P 500 would constitute near-100% certainty thereof, together with the near-100% certainty that "Wave 3 Down" is in motion. We know that "Waves 3 Down"are very destructive. This one will be no exception, especially since it will be acting in concert (arm-in-arm) with other "Waves 3 Down" of higher degrees of trend - the grandpa of which was born in October 2007, and still has years of life remaining - and that this gang will tear up the landscape even worse than did the selloff from October 2007 to early March 2009.
If your "golden" stocks have been good to you, and if you would like to keep them, I respectfully submit that there is no rational alternative to "building a moat" around them right now. Now means NOW. If your Adviser hasn't already accomplished that for you (in a way that you can understand), he's asleep at the switch, and you need to light a fire under him. And if he doesn't respond to the heat, then he will not likely serve you well in a market selloff; and you and he should part company.
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