Panic selling happened into the 3 day Good Friday weekend – which historically doesn’t happen often – usually there’s a rally into the 3 day weekend.
In the news, there was Trump dropping the mother of all (non-nuclear) bombs – and continued volatility in the markets.
Recall back in Feb 2016 – just before the 3 day President’s weekend, the market rallied from the lows of 1800s.
The pattern that appears to have formed as a result – is potentially an ending diagonal (diagram on the right) – where we make successively lower lows and higher lows – but just barely – each time with a bounce.
Just look at the chart below, and you’ll see bounces at:
2338 – then bounced April 6
2337 – then bounced April 7
2333 – then bounced April 11
2332 – then bounced April 13
then it finally broke into the close and touched 2323 ES.
If this is an ending diagonal, then it would be the ending diagonal of a B-wave down within an A-B mountain consolidation — a b-wave low. Sounds complicated, but the diagram / chart matching should make it clear.
The 5th wave of an ending diagonal can often provide an “overthrow” that extends beyond the trend lines formed by connecting 1 and 3 to the 5.
And it makes perfect sense for an overthrow to happen into a close so it still matches with the pattern formation.
Let’s see how the actual market pattern matches up with the theoretical diagram below:
The S&P‘s rallied in the morning from what appeared to be right at the 2335 support region – typically a solid buying spot as it has been multiple times in the last 10 days or so.
But the market turned back down and broke through that 2335 support region. While there was a bounce late in the afternoon towards 2335/2336 – that region served as resistance into the close as there was a panic selloff going into the long 3 day weekend.
pink a = April 5 high at 2373 ES
(a) = April 7 @ 2338
(b) = April 10 @ 2362
pink b = April 13 @ 2323
Recall that the beginning of this pattern was on March 27: 3/27 Trump Concerns Reverse – and that bottom was 2318 ES. So on the diagram to the right – that 2318 ES is at the beginning of the black line in the lower left.
Do you see how the diagram matches up with the actual price action above?
If the diagram is to follow through -and we are close to completing the pink b wave down, then we should see an a-b-c rally towards 2350 ES – followed by a pullback probably to 2340 ES – and then follow through to the upside.
However, if we spend too much time in the 2320’s and break that initial low at 2318 ES, then clearly something else is playing out.
Also, it’s possible that this is not an ending diagonal but is instead a leading diagonal – I think probabilities are not in favor of this as a leading diagonal. If so, we should still get a bounce – but once that bounce fails to hold, and we start moving quickly lower – that would be a sign that something more bearish is playing out.
You can learn the basics of Elliott Wave analysis here – just note that what I show here is not covered in the book, but always good to get the basic understanding.
The prior analysis suggested that (c) was complete – but looks like it was not complete. Instead, it was only a large wave 1 down and wave 2 rally to 2351.75 in the diagram below.
What followed next was a wave 3, followed by wave 4 morning rally and wave 5 panic into the close.
Historically, the VIX hasn’t had this many consecutive green candles all year – with the exception of the November election. I think it depends on whether there’s any major news happening over the weekend.
Just keep in mind with the November election – when there was news that the FBI would be dropping their case against Hillary Clinton, VIX gapped down from close to 20 to below 18. I don’t expect that to happen this time since volatility is not near 20 – but we are entering the zone in VIX where we haven’t been for the past 6 months.
With the Russell, it’s a shame that the high of 1382 TF happened overnight, so no chance for us to exit at the highs. From there we had close to a 40 point decline in TF in the patter of 2 days. However, I do see an a-b-1-2-3-4-5 completing a potential b-wave of an A-B mountain consolidation pattern – same as in the S&P.
Moreover, that 1330-1340 region has been support for some 6 months in the Russell – so in order for that region to break, I’d have to see a clear setup for that, which I don’t yet.
Silver looks like it may be facing initial resistance at 18.6 – if so, then a c-wave down towards 18.3 could be in the cards.
Gold has been outperforming silver- it looks like we may get a little more of a pop Sunday night – followed by a pullback to maybe 1273-1278 region.
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