MAJOR resistance test for the marketsAttempting to identify the end of Intermediate B has been waves of fun and plenty of misses. While there is no prescribed metrics on what the wave’s overall movement and duration should be, historical metrics have been quite reliable (most of the time). That has not been the case during this chase for Intermediate wave B. I have not given up and caved to the belief that the major uptrend has begun yet. We should still move down in an Intermediate wave C which will also close out Primary wave B (corrective downward wave).
Here is my Elliott wave outline of Primary wave B so far. Primary wave A ended with the peak in the first hour of trading on December 1, 2022 (light blue colored-encircled letter A). Primary wave B is comprised of 3 subwaves (Intermediate waves). Intermediate wave A (magenta letter A in parenthesis) ended with a low on December 22, 2022 and has yet to be broken. I currently have placed Intermediate wave B’s endpoint at the high from January 13, although this could still change in the next few trading days. My Elliott Wave, Wave 3 finder, identifies wave 3 and other reversal extremes such as the end of waves 2, 4, and B. This indicator is toward the bottom of my charts. The signals are a magenta background bar when entering a reversal that will see the equity move up soon and a lighter blue background color when the equity has topped and will revert to the downside. The Minor waves reside inside each Intermediate wave and are colored with yellow letters or numbers Minute waves are inside of each Minor wave and they are colored with light green alpha numerals. My wave 3 indicator mainly spots wave 3 of 3 which was the case midday on December 16 and early morning on January 9. This is why I am confident that Intermediate A was placed correctly, and we are still in Intermediate wave B for the moment.
We are finally approaching a major level of resistance which has held strong since January 2022. We have not had a daily bar that has closed above the thick red-dotted line. This will be tested within the next 3 days.
An alternative location if we break through the resistance and keep moving higher is that we are indeed in Primary wave C and should continue upward toward 4400-4600. If this path plays out, Primary wave B would have ended on December 22. Here is a chart of this alternative course and where we may be today:
I do not like this due to the pace of Cycle wave B. Cycle wave B began at the current market low from October. The original expectation was that it would ultimately trend upward until Summer 2023. If this alternative were true, the market top would probably occur within another month, maybe two at the most. While this is not impossible, and potentially practical, the historical relationships between the macro and minor waves do not support this outcome.
IF WE JUST ENDED INTERMEDIATE WAVE B:
The following projection will only be a rough estimate of where Intermediate C down inside of Primary B would take us IF Intermediate wave B indeed ended at the market high on Friday January 13, 2023.
Based on historical waves ending in 2BBC, potential wave durations based on data quartiles are 6, 11, 28, or 41 trading days. Movement extension in relation to Intermediate wave A’s movement are 127.13%, 130.095% and 133.06%. These percentages and levels have not changed since my analysis two weeks ago and are the light blue lines.
The only new difference based on waves ending in BBC are the potential wave durations as well. Most model agreement is with a duration of 10 & 28 days. There is a large tie for second most at 5-8, 11, 12, 14, 15, 19, 24, 31, & 41 days.
For waves ending in BC, most model agreement is at a length of 14 trading days. Second most is at 14 days, third most at 42 days. Fourth most ties at 7, 8, & 10 trading days. Fifth is 5, 19, 28, & 56 days.
Historically wave C can be equal to the length of waves A + B. Intermediate wave A was 15 days long and wave B for the moment is at 14 days. Based on all this data, 28 days may be around the maximum length for Intermediate wave C. This date February 24th. Another potential length is 11 days, which while less than both Intermediate waves A or B, it aligns with the next Fed meeting and rate hike. The only near-term catalysts for market decline occurring immediately would be earnings in which the season just began. The Fed will not meet for a few more weeks and that is too deep into the projected decline to be a cause of the decline. The Fed would most likely signal the bottom if they hold to the market’s current expectation of a 25 or 50 basis point hike.
Bottom line is we should decline at least one more time to retest the December lows before moving upward. The resistance test early this week will show us if that decline will occur.
I will conduct a market re-look after this week plays out.
