When the VIX is declining, the excited bullish stock herd start to calm down, from the mini panic spike in late January 2018. Before the big spike, VIX players were in a trap with a small inverted Megahone pattern also showing. Inverted Megaphones are more open ended with the open end facing to our left on the charts and with the cone pointing east. A normal Megaphone would always have the wide mouth facing east (right side) and the cone would be pointing west. (Left side)
We still could see some dipping in the next few days, but no new record lows should happen. The VIX has wild and choppy wave patterns, but this is the real world when it comes to diagonal wave counting. Complaining about volatility will get us nowhere, and all I can say is, “Buckle Up”, as this roller coaster ride will start to get going again.
The COT report that comes out every Friday will give us a better idea who is still net long or short the VIX.
I did have a very bullish wave count all done, where we are in a “C” wave bullish phase that would take out this 2810 peak above my wave 2 in Minor degree, if that becomes the case, then the wave 2 would just move over to the new peak and then the real wave 3 in Minor degree should get going. We are bouncing of a strong double bottom, so eventually that bottom will get retraced when the downside breakout happens. Right now 2680 could offer very stiff resistance, combine that with a potential inverted Megaphone, and we have the makings of another potential bull trap. This would be a wave 2 top in Minute degree. By this Saturday we will have a new moon so any attempt in getting there may have serious problems. 🙄
This may drag on into next week, but US Tax Day is April, 17th which also could wreck havoc in the markets. If you haven’t noticed, many of the top tech companies are having problems all at the same time. Markets don’t stop on a dime, so when the trend does start to change, volatility starts to explode.
I have not seen so many crybabies about volatility in 2000 or even 2007 as I have seen in this 2018 year, so I expect all to get worse. Buying on the dips in a big bear market will become deadly, but investors have been brainwashed to do that. It’s the big dip like the SP500 at 750 which will become important and if and when it gets there, all those dip buyers will be sellers as they run for the hills.
There will be clues when the markets get oversold, but they will not show up until a few months ahead of any major bottom.
For any Cycle degree 4th wave correction to end, we have to look at the previous 4th wave of one lesser degree, which would be Primary degree. I see three price stages where this bear market can go and the first stage is for a complete retracement to the 1800 price level. Only until below SP500 1600, will the markets enter the top of a 4th wave correction. It usually takes into the lower part of the previous 4th wave of one lesser degree before a bottom arrives.
Either way another week or so should show which trend is for real. At this time I’m still after 5 waves down in Minor degree. Even when we get to any “A” wave in Intermediate degree, any counter rally could be very mundane and even short lived. We could run into a bear market that will be hard to see clear Primary degree counter rallies, which is exactly what happen in the GSC degree decline down into 1842. There may not be a panic until the majority of participants all see the same thing at the same time.
The DJIA is on a different wave count due to the secondary peak being much lower than a potential wave 2 in Minor degree. To call this secondary peak a running pattern is also pushing it, at least for the short term. Running, flats, triangles and running zigzags do happen, and they happen more frequently than most would expect. I don’t believe in calling something a “Truncation” (shortened pattern), when so many running patterns do occur. I’m working a Minute degree 5 waves down with a potential 4th wave peak still to play out. Any 5th wave decline could fall and stretch very deep and shock investors as the reality of a bear market starts to sink in.
Many investors have never experienced a major bear market so a deep 60-70% correction is unthinkable. First, they called for a 10% correction, then they were calling for a 40% correction with the latest call I read about was a 60% correction. (Fibonacci .618). Ok, when this happens then what? Is a 60% correction deep enough for a Cycle degree correction to complete? At this time I doubt it very much. History has given us many bear markets, with the GSC degree wave 2 decline only lasting about 8 years. The SC degree crash from 1929-1932 only took 3 years to play out. Cycle degree wave 2 took 5 years, and Primary degree wave 2 took another 5 years ending in 1974-75. I don’t see a Cycle degree correction (bear market) take longer than 3 years.
There are no fixed time lengths for any degree as we also have seen a 20 year Primary degree bear market in gold as well. I love the Fibonacci sequence for turning times with 2021 being a full 89 years for the next potential bottom. Even 1929 to 2018 is already 89 years long. The reason I focus on 2021 is because of a silent force when one solar cycle ends and another solar cycle starts. Solar cycle starts will terminate all your bearish thoughts as another 8 year bull market should develop once solar cycle #25 kicks in.
The DJIA peak of 26,600 may be the high of 2018, and when investors realized their gains are pathetic or in the red and losing money, they will hit the sell button before they click the “Buy” button.
The Gold crash of late 2016 has just about been completely retraced and gold is finding tough resistance at the $1360 price level. Many times I have mentioned the $1375 price level as the price to beat to confirm the 2016 crash as a correction. We’re still about $25 away from the $1375 breakout and I’m confident gold will still clear $1375 with flying colors. Wild moves in one direction and then a wild move in the other, seems to be the normal state of affairs.
I show a simplified “C” wave still in progress, but they are all diagonals, which is what we should expect for a “C” wave bullish phase. All this is still pointing gold to the $1500-$1600 price range. A short term correction may still be in progress so I expect some violent moves as gold gets closer to a breakout situation. Emotional investors jump in and out of gold for “safe-haven” reasons, so based on that it is impossible to know when investors suddenly get the urge to “buy”.
In the end it will be the US dollar bear market that will keep gold very active and until the US dollar is ready to charge back into a full bull market, the upward pressure on gold should remain. It’s when this daily chart goes vertical, we have to wake up, as vertical moves do produce big bearish phases.
The biggest threat will come from stocks, when they start on bigger counter rallies. Gold and gold stocks will always find competition from the general stock markets and the idea is to spot any reversal before it happens, not after. It is the mass media that are always late in recognizing a trend change as the fundamentals are lagging indicators, not leading indicators.