06/09/2019 – back to our old favorite. you know I’ve been watching this one for a while. I was hawking a low in the ratio in mid-2018 but missed it from a time perspective … then, in retrospect, easily saw the measured move and the .786 retrace. I’m human, I missed it. should have been more diligent – especially w/ the time cycles coming in from the 2007 low. the TIME had worked as support before so why not now …? Oh well.
now, we can pretty nicely see 5 waves up and we are in the 5th wave up .. could be a 1 or an A. only TIME will tell. I feel reasonably certain that after a pullback on the ratio (less volatility, higher stocks) there will be another 5 wave move higher if this analysis is correct.
I’ve also included an overlay of the NYSE Index and the XLP/NYA ratio to show the thesis that – by using patterns to ratio analysis we can find potential inflection points. in this case – staples (XLP) represent a risk off mindset (volatility/selling) when they outperform the overall market (the ratio goes up). when the overall market (NYSE Index) outperforms (the ratio goes down) then risk is on and the market volatility should go down and prices go up. Seems to work …
so, 5 waves up from the bottom, 3 wave pullback and 5 waves up … that’s what were looking for, right now. TIME will tell.
the NYSE Index has a TON of stocks in it and is a very good gauge of the overall health of the market. As you can see there is still a much bigger target (almost perfect – an AB-CD and 1.618 extension on top of each other ON A MONTHLY) out there in/around 14217. But note the blue measured moves … they have been very consistent in causing resistance … so, we might be in for another bigger dump if you look at the daily.
strength should get this puppy moving up to the target mentioned above around the 14,200’s so watch this index closely in the coming days and weeks.
have a great LABOR DAY weekend and enjoy your life …
if the XLP/NYA ratio finds support and appears to end an A-B-C correction THEN we ‘should’ see Volatility Spike and correspondingly a nice correction in equities. If this level fails, then we might see some consolidation or a little pullback but nothing that could spook the masses.
it might be noted that … right now we are levels of bullishness as measured by market vane that we haven’t seen since ..yes, you got it the 2007 top.
a plunging liquidating sell-off should, ultimately be bought .. as I still don’t think this run is over but I do believe we are long overdue for a nice pullback. W/ the options expiration and most mutual funds legally bound NOT to sell and be invested at all times I don’t think we’ll see anything till next week, if at all.
Note the chart below ..
- XLP/NYA – candles
- XIV (inverse VIX) blue line
- NOTE: a most inflections of the XIV (up or down) the ratio either led or gave a heads up that volatility would increase or decrease.
- Our thesis is the ratio ‘should’ find support on the .382 from the all time low in 2007 and correspondingly cause an uptick in volatility and a market sell off.
- A CLOSE (WEEKLY) BENEATH THE .382 WILL TARGET A LOWER MEASURED MOVE TARGET. IF THIS HAPPENS EXPECT SOME CONSOLIDATION OR MINOR FITS AND STARTS BUT NOTHING TO KNOCK YOUR SOCKS OFF. WOULD WAIT TO SEE WHAT HAPPENS A LITTLE LOWER IN THE RATIO.
09/17/2016 – as you can see below, this SELL the ratio (BUY THE NYA Index) worked very nicely. Again, for those of you new to my blog the concept is this:
- Me or You individually don’t do a darn thing to move the market. It’s the INSTITUTIONS that make the market. When they get ‘risk adverse’ they move into ‘stuff’ we need to live .. aka Staples (XLP)
- Using ratio analysis – in this case XLP (ETF) / NYSE Index (the largest index out there) we can see what ‘they’ (the collective they) are thinking …
- IF the ratio is going UP then XLP (Staples) are stronger than the overall market … read: the institutions are moving into ‘conservative names’ and are “risk adverse.’
- IF the ratio is going DOWN then XLP (Staples) are weaker than the overall market…read: the institutions are moving out of ‘conservative names’ and are ‘risk on.’
- Using PATTERNS we can ‘see’ potential inflection points for the ratio and make investments accordingly.
In the charts below we can see:
- POLARITY – during the 2007-2009 drop, you can see that the ratio EXPLODED higher and promptly ran into major resistance. This level held for years but was finally broken thru in/around 2015-2016.
- The polarity principle is former R becomes Support (and vice versa) so the red arrows turn into green arrows (representing Support)
- Based on the current length and (my opinion) an overextended market the probability of this ratio stopping at the blue highlighted region is more (again my opinion) than the ratio slicing thru this area.
- IF it does THEN the lower level (highlighted orange) is the next logical stop.
- ‘Basic’ Trend line channel … note we are approaching the lower portion of it
- Multiple retracement levels – the .382 from the all time low of 2008 is key
- An RSI finding monthly support which began every move UP in the ratio.
- note the second chart below and what this did to the NYSE Index.
- We have measured moves (solid and dashed blue arrows) showing the ‘largest’ corrective move in the ratio since inception
- Note: the dashed blue line is using the “close” and not the wicks that tried to get thru this key level on the ratio
One last chart … note, IF the ratio is BULLISH then we have (again all probability) been carving out an Elliott Wave A-B-C correction labeled below.
- w/ this type of correction the ‘C’ wave is sometimes 1.618*’A’ which you can see nicely hits where 1=5 of the C wave. So, shown below in the light blue shaded area are potential zones for the reversal.
So, monitor this ratio for a weekly signal reversal candle (bullish) and this should market a correction .. .I’m not calling for a crash or a bear market or any of that … it’s about ‘time’ for a nice thump. How deep it goes…? No idea but I’ll certainly be watching this ratio to give me a heads up on where to buy.
Here’s the DAILY ratio w/ NYSE Index overlaid on top of the ratio … note the ‘SELL RATIO’ and ‘BUY EQUITIES’ …this ratio works.
Here’ the MONTHLY NYSE Index:
I did a .786 AB-CD projection from the all time low in 1974 and that hit the 1.27 extension (monthly) – where we are right now. Also, take note of the blue arrows … doing a count where 1=5 we get to 12,500 ish. So, again, would expect some sort of resistance to be forming – albeit soon.
one last … folks 2 weeks till quarter end. I hate to add opinion here but do you really think THEY (the big guys/gals) are really going to sell this market as we approach an AWESOME quarter end? Ummmmm, not I. So, the real shenanigans should start the first week of October, if at all …
hope you have had and are having a good weekend.
here’s the power of this ratio:
- ratio BOTTOMS, at the BUY pattern of the ratio – SELL equities
- when the ratio TOPS then BUY equities
- we have a wonderful SELL the ratio pattern which means Equities should be bottoming for a BUY swing trade of the US equity structure.
DANGER WILL ROBINSON … if/when the patterns fail (and they do) the market breathes in the direction of the failure. Note, we have some VERY strong thrust into the pattern level and this “usually” means the pattern will fail BUT you never know do you? So now for the best part of the pattern recognition world the “if-then”.
IF the pattern works, equities should bottom for a nice BUY (swing trade – not long term for now … )
IF the pattern fails, equities will continuing selling off and we should look for the NEXT pattern to play … make sense?
Here’s the “perfect” sell pattern:
28 degrees, snowing, freezing rain and tons of kids running around … I’m not getting old, I’m just getting smarter. I wasn’t interested in going outside in this chaos today in NOVA. However, it was a great time to cruise the charts …it was a fun journey, to say the least.
our first chart is a chart of the NYSE Index …2000+ stocks, unable to be manipulated by the futures market and a mix of international players … it’s a GREAT look at the market. why is this such a great chart? Well, there is an index that tracks the total volume traded on the index and it’s down right scary. I did some research to make sure what I was seeing was correct … there “ain’t no buyers folks”
so then I said “what is the general public doing?” what are the indexes that can convey/show the mood of the masses? pretty cool trip into these charts … the bottom line is they ARE ALL SHOWING SELL PATTERNS. Shoes, Restaurants, Brokers, Gambling, Hotels, Consumer Electronics…etc etc etc. So, as a pattern recognition trader that means 1 of 2 things … 1) the PATTERNS work or 2) they don’t. If the WORK we have TOPPED if they DO NOT WORK we haven’t … easy, hugh?