To finish off my roadmap work, I’ll now look to small caps and the Russell 2000 Index. For a better, more detailed look at why my wave structure is pointing me this way, review my ES roadmap (click here).
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #1
So it looks to me that the RUT is making an ABC correction, and that yesterday we likely completed the 2nd minor wave of the final C-wave move. After a minor bounce, I would argue that we need to head down to the 1.618x extension target to complete the entire price structure.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #2
A closer look at the C-wave shows me that we have likely only completed two of the three waves you typically see in a C-wave. Therefore, I think that the bounce out of yesterday’s low is likely to find resistance in around the 1422 level before flushing down into the C-wave low at around 1280.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #3
The C-wave timing window is similar to the one in the ES and the NQ … Wave C is often 1.0x the size of the A wave, and that would put the expected timing window at the January 2nd during the 6pm – 10pm candle.
I went through much of my more detailed thoughts about wave structure of the current correction in my earlier blog post about the S&P 500 (click here) so I won’t spend too much time stating why I think the NASDQ wave structure is the way I currently see it. I will skip directly to the charts …
Again, either my current read is right, or its not worth the time and effort to read/write it …. therefore, I won’t take this analysis any further than to look at my target for the current leg to complete into support in terms of time and price targets.
The same wave thoughts work here for the NQ as it did in my earlier ES analysis … I am looking for a minor bounce out of today’s low and then a push down to the 1.618x price target.
Note that the timing window for the NQ is a little tighter than the one I have for the ES … it appears that the NQ is likely to find it final support level before the end of the calendar year, but at a level that is about 8% lower than today’s close.
Ok … so where the hell are we in this whole correction thing? One of the reasons why I always try and see where we are in terms of wave structure is to try and help me get some perspective … emotion affects every trader, and by stepping back and trying to determine where the wave structure tells me we are at, I hopefully can make some good trading decisions.
Let’s look at the most important index, the S&P 500 … I will start by stating that my common thought through this whole post-Oct correction was that the correction was coming off of an important all-time high in the market, and therefore, it made sense to expect the correction to be multi-legs/complex rather than just a simple ABC correction.
I think that odds are in that the high earlier this year is the highest level we see for a couple of years (minimum) so I want to make sure that I that I give this correction enough respect to not expect the norm.
I call this my bullish or “Bull Tard” scenario. No disrespect, but so many people/perma-bulls are calling for an Xmas rally that I have to think that would be too easy for Mother Market to give all of us. Besides, I like to see completed wave structures before I get too confident about a reversal in price direction.
What can I say about the above chart? Well, I can definitely see a bigger, more complex ABC structure building. And if I look at the timing extension target window, an argument could be made that the minor C-wave of the bigger C-wave is right at the logical time window extension target … i.e., the minor C-wave is equal in time to 1.618x the minor A-wave (exact target is the 2am – 6am eastern time zone candle).
However, when I look at the bigger C-wave, I am not seeing what I typically would expect to see in terms of price structure. C-waves are typically 3-wave structures and a quick glance at the above bigger C-Wave only reveals what appears to be 2 waves so far.
If I’m wrong, then price should bounce from about today’s low, and take out the SLOT resistance zone on the way to retest the all-time high. If I’m right, then after a minor counter-trend bounce, price will push down once last time to complete the minor C-wave and the bigger C-wave.
Also, C-waves typically terminate closer to the 1.618x extension price target and not right at the 1.272x target level at the chart above suggests (especially for larger more complex price structures).
Here is what I believe is a more realistic road map for the ES contract …
Ok, so let me tell you why I think the above chart makes more sense … first, I want to see a 3-wave structure for the bigger C-wave and for the smaller C-wave of that bigger C-wave. The above chart gives me that.
In terms of a timing window … when I look at the final bigger C-wave, I would expect the smaller C-wave to be at least 1.618x (and possibly 2.0x) the time length of the smaller A-wave. The above chart paints a 1.618x and that 2.0x time target window.
The 1.618x paints right at the 6pm-10pm window on December 27th while the 2.0x is right at the Jan 3rd 2am-6am time slot. Time windows are approximations but they often paint pivot points pretty close to bang on.
If the ES contract is to complete a 3-wave structure, I think there is a good chance that we will get down to the 2392.25 level. Does that level make sense at all when you step back and look at the ES from a bigger time frame?
S&P 500 Index Futures Contract (ES) – Daily Chart #1
As you can see from the above daily chart, my read of the daily price stucture for the ES is that we just completed a large 3-wave price structure at the October 3rd high … wave rules state that traders should expect a consolidation/pullback that will find support in the SLOT support zone drawn using the entire move higher.
That means that the ES should make it back probably to the 61.8% level or 2240 … yikes!! That is about 11% lower than today’s close.
Typically, the first push lower will find support just outside the SLOT support zone (i.e., just before the 50% level at 2375). Here is how I would expect price to complete the correction into the SLOT.
S&P 500 Index Futures Contract (ES) – Daily Chart #2
I’ve drawn the above waves using the 2392 and Jan 3rd target for the end to the bigger A-Wave (i.e., the corrective wave we are getting close to finishing here now).
The corrective bounce should find resistance around the 2737 level (61.8%) and then complete down into bigger support at around that 2240 level.
This is all big sky thinking, and we have to see how this first wave down completes before we can start thinking about an even bigger support level. Nonetheless, I think that the October high in the ES is a very important level that will stand as the high for quite some time. The correction off of that high has to be complex and painfull … I think the above road map fits that type of scenario.
Bottom Line – I think that we are close to support for the first leg of the large and complex corrective wave off of all-time highs. Unfortunately, I think the low from today was just the end of the second wave in the last leg into support for that bigger first wave lower.
We are likely to see some type of bounce, and hope for an Xmas rally before all hope is washed out with a flush into around that January 3rd time window/2392 target level.
Lots of hand wringing with the FAANG stocks and other tech market darlings. I continue to own AAPL Jan $160 calls and short AAPL Jan $160 puts as I expect AAPL to make a nice tradeable bottom. I added to both my positions today and I am full-up with the calls but will add to my short put positions into year-end if we can get more weakness next week. Here are my charts …
AAPL – 195 Minute Chart
I still think we have already or are in the process of making a final 3rd-wave low in AAPL. I doubt we make higher highs, and I think that the SLOT resistance will stop any bounce over the next couple of months.
I see lots of positive divergence in price momentum (panel #2), MA Spread (panel #3), DI+ (panel #4) and weakness in the trend strength histogram (panel #5).
AAPL – 30 Minute Chart
To me, the $163.33 low in AAPL was made with an unclear wave structure … that is why I am not definitive in my conclusion that a 3rd wave low has already been made. It could have been, but I do not see confirmation via an obvious completed wave count.
I extended the last bounce off of that $163.33 down to a new minor low … the 1.272x extension target shows us a possible price of $160.95.
It looks to me like AAPL has just completed a 3-wave price pattern into support.
AAPL – 65 Minute Chart #1
As you can see from the above chart, the 3-waves look pretty obvious. What is also obvious is that AAPL is not likely to hit their prior all-time highs any time soon. SLOT resistance is in the $198 – $219 area and the Point of Control since the correction off of the all-time high is $220.30.
AAPL – 65 Minute Chart #2
Since the quarterly earnings report/announcement of no longer providing iPhone sales figures, the Point of Control level generated during the stock selling is $179.04.
Bottom Line – lots of charts look like we have made some type of tradeable low … AAPL is another leading stock that looks like it should bounce here for a couple of weeks at least.
I wrote a blog post about Downtown Josh Brown’s bullish call on JPM back on November 2, 2018 (click here). Bottom line is that he proclaimed JPM as one of his favorite stock pick/set-ups … I thought it was just bouncing into resistance.
Here is the chart from that post …
JPM – 65 Minute Chart (November 2, 2018)
Here is the current chart …
JPM – 65 Minute Chart
The 61.8% SLOT level was once again a very important resistance. You can see that we are pretty close to the C-wave 1.272x extension target. When I look at the C-wave up close, I do not see a nice normal wave structure, so I am a bit hesitant to call the end to the bigger C-wave move here. The move lower might be done here but maybe we need one last new minor low to complete – we’ll see.
Banks as a sector have shown all sorts of problems the past while in comparison to the overall market. I think JPM and the rest of the banking industry will continue to be laggards as a slowing in the economy gets baked into the stock market.
Although today’s price action was not what market bulls would have wanted considering how we gapped higher and then trended lower for most of the day, the price wave created by today’s action still keeps possible the read I talked about in yesterday’s road map (click here for that post).
S&P 500 Index Futures Contract (ES) – 30 Minute Chart
Once we see that we are bouncing higher out of a new minor low tomorrow sometime (probably in the morning, then we can watch to see if resistance around that 2726 level (61.8% resistance) will hold and whether or not my read of the bigger price pattern is accurate.
Bottom Line – while not ideal, the price action in the ES today still keeps in play a bigger bounce out of yesterday’s low.
So where is the market heading? Some people think it is headed lower, some think it has to rip higher into the Xmas rally. I have a bias that we are not finished the corrective pattern off of the all-time highs, but the exact day-to-day correction will unfold however it plans to unfold. I just watch the wave action and react as they are painted on my charts. Here are the current charts …
S&P 500 Futures Contract (ES) – 30 Minute Chart
The S&P 500 Index futures contract (ES) looks like it made a 3-wave move down right into the lower support level on my broadening price pattern. That could mean that this portion of the bigger current wave structure down is complete.
If the ES contract has made a low, it would make sense that the NASDQ has also made a low or is close to making a low … the above 240 min chart could be bottoming right in this 1.382x timing window.
If I am right about a bigger more complex corrective pattern, then possibly we go up with the S&P 500 into resistance before pushing lower into a final bigger Wave-C low. If that is the future path for price, then the ES is likely to carve out the following pattern.
S&P 500 Futures Contract (ES) – 240 Minute Chart
Both of these C-wave support levels could be reached right around the end of 2018.
McClellan Summation Index – 65 Minute Chart
The McClellan Summation Index has flipped bearish and needs to get back above the 20EMA and the ATR resistance levels to flip the market underpinnings back to the bullish side of the ledger.
Bottom Line … maybe we are going to bounce from here. I posted some FANG charts on Stock Twits and Twitter earlier today and you could argue that the charts look more likely to bounce than they do to continue collapsing. Any bounce happens from the smaller time frame before they expand to the bigger time frames – its pretty simple to watch for that bounce therefore.
If you read that earlier post, you will note that the three prior smaller corrective bounces in this move lower all came in at the 1.382x time window. That prior symmetry is why I think the 1.382x window will work again this time. That implies that the timing window for the bigger B wave corrective bounce is for early in the morning of December 10th. Note from this morning’s post that the timing window for the ES futures contract is tomorrow morning, so having the Q’s hang around until next Monday would imply lots of chop for the next several days.
The more important item to keep track of is the actual bounce and where resistance is found … here is the current chart for the Q’s.
You can see that the prior corrective bounces in terms of resistance, failed right in the low 50%’s … so I am looking for both symmetry in the time window (1.382x) and price (around low 50%’s). I have noted a possible sooner timing window on the chart above because of how the S&P 500 chart looks to be finding a sooner timing top (tomorrow morning). Timing windows are usually pretty close for the S&P and NASDQ 100 so I have to keep aware of that fact.
If I look at the bigger broadening price pattern, I see a possiblity of price going all the way down to the lower support line. That seems like a long way to go, but I am keeping an open mind, if in fact we do head lower to a bigger C-wave support target.
Let there be light …. the Donald seems to have delivered once again with China, and the market is gapping higher coming out of this weekend’s dinner date with the Chinese President. Time to take a look at the markets to see where we are versus our road map …
S&P 500 Index – 195 Minute Chart #2 (November 21st)
You can see from the above chart that I am expecting the market to find resistance right above the a-pivot high (2815.15) Since the market has not opened and therefore, the S&P Index does not yet show us the indicated move, I will use the ES mini futures contract as a substitute for the S&P 500 cash index.
The a-wave pivot high is 2818.00 on the ES futures contract … the high so far overnight is 2814.00. I am showing my timing windows on the above chart as well.
You can see that the minor-a wave high (purple) for bigger B (red) came right in at the 1.382x timing window … the minor-b wave low (purple) for bigger B (red) came in right at the 2.0x timing window. It appears that we are pushing right into my expected resistance level for the end of bigger wave-B (red) here at the 2.382x extension window which is scheduled for tomorrow in the overnight trading session (2am – 6am).
So the proof in the pudding will be shown the next couple of days … let’s look at the wave structure of the last move here into what I think will be resistance.
You can see from the above chart that the minor-c-wave into the B-wave high is making what looks like a normal 3-wave pattern. It looks like we are near the end of the minor 3rd wave which will also mean that the B-wave is complete.
If we do find resistance and start to move lower, I think that would be proof that we are going down to complete the bigger ABC structure. My minimum C-wave target is the 1.272x extension target which is around 2510 on the ES futures contract.
Bottom Line – most traders will be thinking that this move of the last week or so is the start of the Xmas rally and that we are headed higher to make new all-time highs. I obviously don’t believe that we are ready to do that, and we are, in fact, about to start the biggest, most viscous part of a corrective wave (the c-leg). I want to watch closely here over the next day or so to get confirmation that the B-wave is indeed complete and we are beginning the next leg lower.