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Saturday, March 7, 2015

Saturday, 3/7/15 update

Have we seen a stealth top in the ES?  The selling last week would seem to say so, especially the powerful downdraft that occurred on Friday.  Market tops tend to be sneaky, hence the ferocity that bear markets tend to exhibit - a lot of folks get trapped in their longs and subsequently hit the exit door in a panic.

It is possible to continue the count suggested last week:

However, there is a thing in EW analysis called proportionality which says that subwaves within a larger wave tend to be proportionate to one another.  As can be seen in the above count, the suggested Intermediate W4 (purple) is way out of proportion to Intermediate W2, which only lasted a day and a half and traveled 24 points.  So it's unlikely that this alternate is correct.

So that leaves us with the idea that the Feb 25 high at 2117.75 concluded the rally from 1973.75 low of early February.  Applying that idea to the chart also leaves some proportionality problems, but nothing near as drastic.  Five waves up can be counted from the Feb 2 low, however it's not the most aesthetically pleasing.   But this is not an art contest, and reality needs to be recognized:

There is one final consideration, and that is that Major W5 (blue) may extend.  In that case, the Feb 25 top only marks the high of Intermediate W1 of Major W5 with Inter W2 in progress and Inter W3, W4 and W5 yet to occur.

There is good evidence that the Primary W III high is in as of Feb 25.  There appears to be a major paradigm shift underway in the financial markets.  That shift involves interest rate expectations, with everyone anticipating that the Fed will soon be raising those rates.  As a result the US$ has been on a bull tear in recent months, and now it appears that the bond markets have topped and have moved into a bear trend of at least intermediate term and quite possibly long term.  All this is very negative for equities.  So we have underlying forces providing impetus for a Primary W IV bear trend. 

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