The stock markets of the world had, by the standards of the past few months, a quiet week to the close on the 16th October 2015. The Dow closed well and reversed an earlier selloff on Wall Street to close at 17200 plus.
Last week I detailed the options with the Bull and Bear variations still in place as I write on the 17th October.
1. The bears will look upon the advance since the 29th September as a wave C of an ABC corrective wave within a bear market. As I have written, this wave C should continue to move up before the downward pressure starts again. The selling orders will be sitting without doubt in my mind, at the 78% retracement of the range defined by the annual high to the Black Monday low. That’s at a level of 17690. Within this postulated wave C there is a clear 5 wave pattern being charted and the pullback midweek will be labelled by those of a bearish view as a wave 4 of this C wave. Friday’s positive close broke through the 62% retracement that was holding the Dow most of the week and I am hoping that next week will bring a fast advance to the 17690 level and my decision point. I am long the index based on this view since the 2nd October.
2. The Bullish case regards the selloff from the annual high to the Black Monday low as a complete wave 4 of the bull market that started in 2009. This means that the move up since the low on the 21st August is the start of a wave 5 in this bull market with many months to run. A wave 5 rarely has the momentum of a wave 3 and thus the rise in volatility that we have experienced over the past few weeks. This wave 5 will be constructed from 5 waves as normal and I would expect wave 2 of 5 to start after the trend has pulled lots of people into the market. Wave 2 of 5 (which will be a strong fall) will start above the 17690 level I spoke of above. When that’s over wave 3 of 5 will start and that, I am hoping, will be a very strong upward move. This move will be called the “Santa Rally” by journalists with no skin in the game. The bulls, of which I am one, will need strong nerves in the weeks ahead to stay in the game. I would suggest several reads of “Practicing the Power of Now” by Eckhart Tolle. The text will instruct in how to stay present and focus on what’s happening now in relation to your trading rules. It’s a vital skill and more important that all of the analysis in the world compiled.
Once again the views above are my own ego based subjective assessments of the market based on Elliott. The facts are the trends as defined by the VectorVest program. The underlying trend is UP and that trend has been confirmed by price action. That’s means the most conservative signal on VectorVest has fired and is positive. The short term trend has been volatile and remains Down as I write with VectorVest suggesting NOT to buy any shares at this time.
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I am 70% invested and will wait until the Primary wave turns to UP and we are back to a UP/UP trend position. The star of the pack is Avon with the laggard being Savilles. The latter has pulled back to support and I am watching the share carefully. The fundamentals remain good as defined by Value, RV and RS on the program and we can easily be making a “Lost Motion” setup. The Lost Motion setup is what I have taught in the Round the Clock Trader series and if you haven’t seen this we can organize a link to view the presentation with pleasure. Savilles needs to hold above the stop loss at 840. I suspect that this is exactly the place where I should be buying this share and that my entry was optimistic and probably a little sloppy.
BPI.L has found support and on Friday rose from that support. I am happy with my entry on this share and simply used a pullback to previous resistance as the entry. I think there is a big move ahead here based on the large “Cup” formation on the weekly chart over the past 2 years. The chart is shown here over the last five years.
Barratt found support during the week at 62% of the last range and with the annual seasonality just about the start I feel strongly that a break up will occur soon. The results from the builders have been good and there would seem to be little chance of interest rates moving in the next year. Help to buy is going to around until 2020 and I would expect the trend in these stocks to continue. They are all rated exceptionally well on the VectorVest program.
Good trading to you all.
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David Paul
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