World Indices Roundup - Jan/Feb 2018 Major Top?

Ok it's time to look closely again at what's going on with the world's most important indices. I suggest looking back to revise my original posts in this thread that forecast the first sharp downturn as a lot of the longer term info given there is still relevant to this discussion.

DAXX and FTSE have both strongly confirmed their reversal patterns and behaving pretty much exactly by the Elliott wave playbook. SPY and XAO/XJO have gone into extended wave 5's that lasted a little longer than the DAXX and FTSE ones but it is my conviction that these are due to complete (seeing evidence of this now) and SPY and XAO/XJO will join DAXX and FTSE in the bearish retracement phase to the preceding 5 wave impulse set.

There is a particular set of conditions that I see develop preceding a market slump and these conditions have been increasing for a few months now - credit markets tightening, lower volume while trading in to new highs, rotation to defensive sectors, long term 5 wave pattern completions on many indices and stocks and abnormal displacements in correlated markets.

According to normal pattern rules, DAXX is destined to remain bearish for some time yet until the normal time zone for a wave C to complete. The thick dashed purple vertical lines are the time zone for next expected major low (end of wave C) based on a simple correction (ABC pattern that breaks down in to a 5-3-5 sequence) to the preceding major move (5 wave impulse set). It's the same pattern I have been talking about since the original post and has now evolved as far as retracement wave C.

DAXX


FTSE is also in a clear retracement phase after completing a 5 wave impulse set but is a little behind the DAXX being still most likely in a wave A of an expected ABC correction.

FTSE


SPY briefly closed a tiny fraction above the major arc resistance and right at the 1x1 line (also resistance) but is already failing to hold that position. Stronger bearish activity is beginning to develop and could well increase over the coming weeks although this is yet to be confirmed. We also have an ideal minor degree wave 1/wave 5 relationship if the recent high holds - they are exactly equal in time and price. A lot of market commentators were expecting SPY to push through 3,000. Whether this happens or not it appears SPY is both technically and statistically extremely close to terminating a major bull run.

SPY


With regards to XAO/XJO the big hint of a problem comes from the current price displacement with Copper which has tanked over the past 6 weeks. XJO has only just begun to turn down and close the gap. There has also been an extremely obvious flight to defensive market sectors in the past few weeks, this is why the sudden boom in Telcos lately!! Even the much maligned Telstra got a boost. See sector rotation chart.

XJO vs Copper


Sector Rotation

We have also hit a major resistance arc on XAO and seen a sudden drop from there. These are charts I have posted many times before. Still astounds me to see how effective scaled market geometry method is in anticipating market turns and mapping out the clues needed

XAO


XJO


In summary usually world indices develop in Elliott patterns that remain in similar phases of development. At present we have a slight displacement with DAXX and FTSE ahead of SPY and XAO/XJO in terms of the pattern phase. However considering they all have fairly recently completed wave 5's, then we can certainly gauge that the general tone of world markets is likely to remain bearish while the retracements to the 5 wave impulse patterns all play out.

No Advice

 

I know it is hindsight - but I distinctly recall thinking to myself 5-6 days back on an XJO candlestick chart that the long shadow with the intraday high of 6374 was going to be the top.

If the 5 wave set sets in, did you have the lower targets (your opinion of course) for XJO and SPY?

 

@Cityman, great question but bit too soon to project these with any accuracy for SPY and XJO although it looks highly likely XJO will return to a minimum of the 5,724 low area at this stage. That would still represent a fairly shallow ABC retracement in Elliott terms. A deep one might reach 5,343 area.

Another less likely scenario, if the downside leg changes character from being a retracement to a new impulsive 5 wave downtrend then 4,700 - 4,800 zone is a possibility. Too soon to tell right now.

Said it before and will say again - the end of this long term pattern when the retracements do finally complete will represent one of the very sharpest accumulation opportunities remaining this century. Why?... because these ABC retracements on world indices translate to being a larger context wave 2 (which in turn breaks down in to a 5-3-5/ABC pattern). This means once retracement wave C of 2 ends, the next bull leg we are due for is a large context wave 3 and this is the big grandaddy 'growth wave' as wave 3's are known in Elliott terms to be most often the longest and strongest periods of market growth.

DAXX pattern is more developed and likely support for next major low looks to be 11,000 - 11,150 then 10,400 - 10,550 area.

No Advice

 

Would be nice. Due to a few different reasons we’re rediculously cash up.

Sequence risk is a threat in the earlier stages of retirement but if such an event occurs then for those prepared, Woohoo!

Can you tell Mr Elliot to hurry it along please?

 

Actually just on that... who was this Elliot guy anyway? I see him waving a lot but never had the pleasure of saying hi!

Perhaps a short bio would be useful?

 

I keep telling people, the next downturn I'll be the last opportunity to amass wealth. In my opinion it will be the great divide, will seperate the middle class working Australian, especially with the rising costs of living. I personally have prepared as best as I can, payed down debts and borrowed as much as comfortably possible. @Alex Straker, thank you kind sir for the charting demo, unfortunately I'm such a novice that it went over my head. Based on a little of my own reading and research I'm expecting the XAO to potentially dip to 4500-4700. Time will tell.
If there is such a correction will you be buying direct @Alex Straker ? Sticking to asx50's?

 

Most of the modern based investment gurus based their books on the Elliot wave and the Bell curve -both worked when they were put on paper and still work today..
Elliott wave principle - Wikipedia

 

Fantastic stuff @Alex Straker , love reading your updates.

Great time to be sat on the sidelines.

 

I’m ready for the mother of all waves, bring it on:

 

Thanks for the answer @Alex Straker . Definitely licking my chops at such an opportunity!

Is this larger context wave 2 consistent for multiple indices, or just the majors? Not that it would be much different as there is so much correlation these days.

 

Interestingly a while back I read a piece by a NY based funds guy (cant remember exactly) who suggested that whilst many are concerned by all time high the S&P500 has hit, and the last 10 or so years of growth he believed that the large cap indexes could in fact growth exponentially from here and onwards and upwards.

Why? The composition of the companies have changed. Many will have read that something like just about all of the US market returns in a 100% time frame have come from something like 4% of the stocks. These large caps are no longer just big companies - they are becoming behemoths like nothing we have ever seen before and they havnt scratched the surface in many of the countries with the largest populations on this earth. They are true global companies, as opposed to multi-national companies.

These companies are dominating industries whereby the 2nd is just so far behind. Take search and the value difference between a google and yahoo for example.

Only a few weeks back, in our local papers there was an article on Bill Gates, who suggested that even back in the day these tech companies where never, and are never valued correctly. Their overheads can be capped, but unlike older industries subsequent sales come with no or no real variable cost. Ie software, costs a bit to write, but every sale is basically done at 100% margin from there. We kind of dont see it, as they continually reinvest in themselves to grow and grow they will.

All of AAPL (already there), GOOG, MSFT & AMZN will be US$Trillion companies in the not too distant future. Unbelievable.

Im not convinced that property will give similar returns for the next 50 as the last 50, but you really need exposure to growth assets moving forward in this global market. So many people I talk to dont even consider the 'risky stock market' as an option, but I think people will have a different view in 100 years.

 

Love your work mate, the last paragraph is my sentiment exactly, sure property will rise, sure it's still a great investment, however I believe the NET return is often overlooked and is never a hot topic at bbq discussions.
Again we could be the crazy ones but I share the sentiment of your post. With social media and technology being more advance and more integral into every part of our lives it's hard to think otherwise.

I always believe you need both shares and property, however if you ask me which will perform better in the next couple of decades..... Companies all the way.
If the way leverage was attainable exactly the same way for property and shares, this would be a different discussion again!
However the way politicians keep moving the goal posts it's any bodies guess really.

In regards to the great tech giants, what's the best/lowest cost way to gain exposure? VTS?

 

100 years is a long time in the sharemarket.

 

Absolutely mate!
Investing is for a long time, not a good time also! Agree though 30-40 years is where you want to be enjoying the fruits of your labour, well for me anyhow.

 

probably ndq - after the inevitable correction that is.

To me, property has an intrinsic issue for it to grow exponentially - for 90% of the population it has to be a realistic function of wage growth. At some point this has to be the handbrake which slows the growth to a grind.

Sure for average prices, 500K to 1m is doable, 1m to 2m is perhaps doable, but 2m to 4m? 4m to 8m? Wages will never keep up as the numbers are now too high, for too many markets.

On the other hand - life is getting easier and easier for (some) companies - robots are working 24/7 and thus far haven't organised themselves unions (yet? lol). The global market is getting smaller and smaller and global growth is more and more achievable.

So far, tech has worked with us (humans) - moving forward the big shift is going to be tech that can be smarter than us and have less reliance on humans which is going to be the real game changer (AI). Scary thought at this early point, but like everything else we will all adapt. Well, the smart ones will anyway.

 

Thanks for sharing this Alex. I have a view that the global equity markets are overvalued and this certainly supports that (though... I think technically I'm supposed to be using data to form a view... not finding data TO support my view )

I've sold out of majority of my holdings and think I'll look into taking profits on the remainder in the immediate term. Hope to have a liquidity boost end of year with projects due for completion so looks like this may play out well. Can you be optimistic about a bearish market? lol

 

Thanks for the input @Morgs, I like your thinking.

Regarding your last sentence I remain optimistic that statistically there will be a bear market once or twice every 10 years

Bull runs get so boring, it will be very exciting if the SPY and XJO do deliver a good size bear leg here (DAXX and FTSE are already doing so).

One of the differences in post GFC markets that a lot of people in my industry are noticing is that market growth is tending to be concentrated among a narrower set of market sectors and companies than 10 years ago. So in other words capturing a good slice of the 'growth' requires a lot more selective holdings. At present there is too much mediocrity in individual stock performance and a much lower percentage of 'out performers'. This leads to lower (compared with history) performance from the index but massive out performance by stock pickers with good thinking skills to read the markets well both fundamentally and technically, and recognize where the opportunities are.

 

Very interesting and similar to what I posted a bit further up. @Alex Straker Is this in relation to the ASX specifically, or global markets?

These huge tech companies are just pulling the whole markets up, no doubt. However, if you can concentrate your holdings and get in early enough - life changing stuff!

 

I’m more inclined to say depressing. I get no pleasure buying during a bull market. I want future income and I want to get it cheap.

Trouble with being a contrarian is that we’re a misery guts in good times.

 

Bull runs get so boring, it will be very exciting if the SPY and XJO do deliver a good size bear leg here (DAXX and FTSE are already doing so).

I hate to ask but what is a SPY and XJO??