Weekend Update - #2

30 YR BONDS
The bond complex caught a bid late in the week after weakness early on.

Notice how the 30 YR put in a reversal candle (bull engulfment) on Thursday, the same day we had an explosive equity market. Friday followed through to the upside, finding resistance at the 50 sma.

The lower boundary of the channel was broken, which setup a successful test of the 117-18 pivot. The 50% retracement level was in the same area.

It appears that we have a 5 wave structure down off the 123-25 H. If indeed a 5, then we know, at minimum, we will see another 5. I have labeled this leg as a minor degree 1 or part of an X wave.

Bottom line - I expect to see lower price after a retracement process.

All prices basis combined contract.

CRUDE
Strange week in the crude pits. Big reversal Thursday, followed by bigger reversal Friday.

Friday's price action confirmed my suspicion of this corrective being over.

I will keep my interpretation that we finished a minute degree [i] wave at the 81.99 H, though it is an educated guess at this point.

Support is very near with the 20 sma at 76.59. I have also placed the retracement levels on the chart.

I am considering the possibility that minor B has yet to complete, though it is a low probability at this point.

One thing is apparent, the price action off the 81.99 H is corrective - not impulsive. This suggests that we should see new recovery highs in this market once the retracement process is complete.

The dotted vertical lines on the chart are placed at the pivot lows starting with the wave (A) bottom. Notice the fairly nice symmetry between these pivot lows, though not perfect by any means.

Should this symmetry extend out to the next pivot, it appears that we are somewhere around the halfway mark currently.

Prices basis continuous contract.

DOLLAR INDEX
Strong impulsive upside price action for the bucky this past week.

It appears that structure has traced 5 waves up off of the 75.08 L. The question now is - has the dollar bottomed?

Though it's much to early to make that determination, everything is in place for this to be the case.

Notice how RSI tried to break out of the 50% level once again. Will it be successful this time? My guess is that it will, but it may need to pull back again to get a running start.

We are right at the upper boundary of the channel with the 50 sma directly overhead. Both of these are potential resistance.

The 78.085 L is critical support for a bullish case. Should price trade through that level, then obviously, the trend has not changed.

The 77.74 H would be the next logical important pivot that needs to be taken out to the upside.

Throwing the fibs on the impulse wave, assuming it is complete, yields targets of 77.615 (100%) and 78.629 (161.8%).

Bottom line - We should see another 5 wave move up, once the retracement process is finished, if not already. Regardless of whether "the bottom" is in, we should see higher price near-term.

Prices basis combined contract.

GOLD
The gold market turned down this past week, briefly breaking the channel before re-taking it with a big reversal candle.

This price action was unexpected by me. We obviously had no triangle, and hence no thrust. I took a stop on my calls. I only lost $.35 on the them, but I did have a decent amount.

On the chart, I show minute [v] completing at the 1069 H, in a truncated (v)th. This would finish minor C, and thus intermediate (B), if correct.

EWI has this thrust out of the triangle labeled complete, however, they have (v) ending at the high of 1072.

I have my suspicions that [v] is in fact finished. If complete, it is a very unsatisfactory (v) wave in my opinion.

We should know very shortly. If complete, we will start seeing impulsive downside price action.

If the bigger picture view of an expanded flat is correct, the downside objective would ultimately be somewhere around the 700 level, as this is where the price extreme of (A) is.

Should the expected scenario play out over the next several months, it should provide a nice opportunity to get long(er), as an investment.

Key levels to watch for the upcoming week are the Thursday reversal candle low of 1026.90, as well as, the wave (i) price extreme of 1011.10.

I also believe any trade through the 1068.80 H would be a good hint, or clue, that there is unfinished work on the upside.

All prices basis December contract.

Weekend Update - Grains

CORN
No surprise in corn land this past week, as prices retraced its latest up leg.

My interpretation has this structure currently tracing intermediate (4) of primary [A].

I have to say that I'm a little bit nervous about how this (4) wave is progressing. We have basically retraced the 50% level, which is about the max I like to see for 4th waves.

The problem is that this appears to be a zigzag, and doesn't look at all complete. The price extreme of (1) is 347.60. This doesn't give us much room for error.

Another issue is the lack of alternation with (2). (2) was a deep zigzag, suggesting that (4) would be a shallow complex pattern. This is just a guideline, but I'm bothered by it.

Could it be that this is still part of primary [4], or even worse, the alternate is in play? I think not on both accounts, however, we have to keep an open mind.

It does have a H/S top look to it.

There could be a KoolsTools cycle low on Thursday.

Bottom line - I will maintain my bullish stance on this market unless price trades through the 347.60 price.

Prices basis December contract.

SOYBEANS
The bean market gave us our expected wave (2) retracement this past week.

Nothing has changed in my view of this market. Intermediate wave (2) of primary [C] of a double zigzag cycle b wave. My alternate view is that we may be tracing a triangle for primary [B].

I would really like to see price trade through the 1041.50 level to take the triangle off the table.

I am also hoping that we can maintain channel integrity on this retracement. Notice that we have the base channel in the same area for added support.

I continue to watch the divergent RSI action, as noted in last week's update.

Key levels for the upcoming week are the 1041.50 H and the lower boundary of the channel. The 880.25 L is a critical level that should not be breached to maintain the current interpretation.

Pay attention to Thursday, as it's slated for a KoolsTools cycle low.

All prices basis continuous contract.

WHEAT
The wheat market spent the week retracing its leg up off the October 5 low, which was expected.

I interpret structure to be in the beginning stages of minor C of intermediate (2) of primary [A]. It is possible that price is still tracing minor B, with C to follow.

So far everything seems normal about this retracement process. It appears as though we should have a nice deep correction, which is preferable in my opinion.

My experience is that 3 waves are generally more powerful coming out of a deeper retracement, though far from a hard and fast rule.

The retracement levels are on the chart. Also notice the 50 sma sitting around 482. Generally, when you fail a major moving average, as happened at the 200 sma, you find support at the next major moving average.

It would be nice to get a B wave bounce, then have C complete around this important average. Just a thought.

We are also at the RSI uptrend line from the lows, and conveniently at the 50% level.

Bottom line - It appears that we should have additional work left on this (2) wave. If I'm assessing structure correctly, then we should see hard upside price action once complete.

Prices basis December contract.

The grain markets have really been tuned in to the moons, as of late. We have another moon on Monday. I'm anxious to see what reaction, if any, takes place.

I have a moon calendar on the upper left hand side of the homepage for those of you that follow moons.

Crude

Nice bullish reversal day in the crude pits. Range was $3.43 on above average volume.

It does not appear that the move off the 77.03 L has finished. We may be tracing a triangle here, which suggests a 4th or B wave.

I show this as a sub-minuette iv wave. Degree's aside, it may in fact be a b wave.

I am not totally sold on this corrective being complete, though odds favor that it is. Structure certainly suggests that we should see some additional follow through from today's price action.

Once we complete the next wave higher, we should get a more meaningful retracement.

Should this corrective need additional time and/or price, which it may, we could see a bigger degree flat or triangle/combo.

A decent consolidation after the nice thrust we had would not be uncommon, nor bearish for that matter.

Then again, this market may be ready to take off again.

FWIW I did put on a contract in case this does turn out to be a triangle. I'm long at 79.95, with my stop at 79.81. I have an order at 80.50 should it get that high.

ES

The equity markets had a strong rebound day. ES Range was 26.75 handles, while volume contracted. Noticeably lagging was the Naz.

There are a few ways to look at structure, this is one view. There is no reason to bring up the other options I'm looking at until needed (which may be soon).

I have labeled the 1038 L (pit session) as minuette wave (iii), as this makes the most sense at this time. This leaves us tracing (iv) currently.

It appears to me that we have a zigzag type move off the 1038 L. I believe it counts best as a double zigzag, but you could argue for just a single. I DO NOT think it supports an impulse very well, though it's certainly possible.

Where will I know this view is incorrect? Any trade through the 1070.25 level, as this is the price extreme of (i).

Notice that price was stopped precisely at the channel line. This channel is just a guide until the wave (iv) price extreme is in place. At that point, we would connect (ii) and (iv).

One of the issues I have with this interpretation is the lack of alternation in (ii) and (iv) thus far. Remember, that's just a guideline and not a rule, however, I always like to see it.

Perhaps (ii) is in the wrong place. Maybe it finished at the 1088.50 H? This would take care of the alternation concern and leave us with a beautiful in-tact channel.

We will need additional price action to fully understand what's going on. At this point, we are trying to make educated guesses. Sometimes structure gives you enough hints and clues that allow you to have a fairly good idea, while other times your left wondering what exactly the hell is going on.

I'm somewhat satisfied with my view so far. I would like to see price action hold the channel, though not necessary, and trade to the downside tomorrow. It would be nice to take the big gap back, however, a truncated wave (v) would be fine.

ES

The equity markets experienced hard downside price action. Range on the ES was 25 handles, while volume was very heavy and expanding.

Volume has continued to expand during this sell off, suggesting that distribution has been taking place.

This is what structure looks like intraday. This is the same chart posted in eChat, except I have added the fib relationships.

It is unclear what that mess is in the middle with the question mark. I believe it is probably a triangle and looks much better when not scrunched up. This suggests a B or 4th wave.

The question is what degree - if a 4th. It is possible that it is sub-minuette degree, which means that we are finishing up wave v, and thus minuette (iii). I don't really care for the fib relationship, but it is what it is. We should know shortly.

It is very possible that the degree's should be moved up a notch.

The weekly chart shows the nice rejection price had with the upper channel line. In fact, there were several lines of interest in the same vicinity, though not all are shown.

Notice the action in RSI. It has broken its uptrend line from the March lows. There is also negative divergence in place.

MACD has a cross-over that occurred several weeks back. Notice that it has tried to retake the average, but has failed, resulting in a bearish hook. The histogram has been divergent for months.

The channel off the March lows has been violated. Should price close below this channel, this would be confirming evidence that, at minimum, an intermediate degree correction is at hand - and possibly the end of the bear rally.

Cash has broken and closed below the uptrend channel off the March lows. This is a big deal folks.

I believe this is telling us that this intermediate degree ABC (or WXY) has completed. This means that we are in the process of tracing a (1) down, if that also completed a primary degree [2] wave, thus ending the bear rally.

Should primary [2] need additional work, then we would be tracing an (X) wave instead.

In each case, it portends much lower price. I have placed prices of the pivots that may provide support on the chart.

In my update on October 18th, I stated that I felt a man-sized correction was very near and that it wouldn't surprise me if it was 100 handles or better. Any intermediate degree decline should easily achieve that.

The next major KoolsTools cycle low comes from the 9/23 and 10/21 dates. This should arrive in 16 more trading days. There is also a peak scheduled in 4 trading days.

Edit: I failed to mention what bullish alternatives could possibly be in play. The only viable option that I can see, is that the 1099 H finished a 1st wave of an ending diagonal.

I believe that this is low probability. Any trade through the 1012 (1015 pit session) level invalidates this option. In my opinion, the best bullish case is that we are tracing an (X) wave. Sorry bulltards - now assume the position!

Crude

Downside price action in the crude pits today. Range was $2.77 with volume on par with yesterday.

We have basically reached the 38.2% retracement level. As I have previous stated, this retrace will really give us a good indication of structure.

If this is a wave 4 of any degree, we probably won't get much past the 38.2% level. Should we have ended a structure at the 81.99 H, again of any degree, we should expect the retracement process to be much deeper than a 38.2%.

It appears to me that we may have traced a H/S topping pattern. If this is the case, it would measure down to around the 61.8% retrace level at 73.81.

Watch price as it retests the broken neckline. A failure here would allow good entry for a short.

RSI has reached a level on this 120 minute chart where we should expect at least some type of bounce.

The dollar continues to make new highs from the move off its 75.085 L. This is worth paying attention to folks.

Crude

Pretty lackluster day in the crude pits as the corrective continues. Range was $2.08 on expanding volume.

Price has basically retraced back to the 4th of lessor, while not yet getting down to the 38.2% fib level.

Structure continues to look and act like a 4th wave. This would suggest that we see higher price eventually.

There is a chance that this is a bigger triangle pattern. If you assume that the 77.64 L is a, the 81.99 H is b, we would have finished a complex c at the 77.81 L. I rate this as low probability though.

My guess at this point, is that the corrective we have been tracing for the last week is still a work in progress.

The dollar appears to have put in a 5 wave structure to the upside. Be mindful of that.

Edit: I failed to mention in last nights update that I took a stop on my GLD calls. I actually bailed a little early, but still had to take a $.35 loss :(

Crude

After an initial morning rally, the crude pits turned bearish and there was nice downside price action. Range was a healthy $3.61 on expanding volume.

I wanted to point a couple of things out on the daily front month.

We have broken the up trend line on RSI. If you scan back across the chart, you will notice that in the previous cases where this has occurred, nice healthy corrections followed.

Notice as well, the negative divergence put in on the RSI. Is this telling us that minor C is finished? While certainly possible, I don't believe that's the case.

It appears to me that we would be missing an additional leg higher.

The intraday continuous contract shows the two ways I'm currently viewing structure.

So far, this corrective has the look and feel of a 4th wave. I have two sets of retracement fibs on the chart. The set on the left is measured from the beginning of (i) or [i], while the set on the right is from the wave (ii) or [ii] low.

Notice that the push higher this morning was turned back at the base corrective channel.

As I stated in the weekend update, we really need to see how this retrace plays out to give us a better handle on structure. I will assume a [iv] wave until proven otherwise.

We do have a divergence with today's lows, suggesting that perhaps the move off the 81.58 H needs some retrace.

Did you notice the move in the dollar today? Kind of hard to ignore in my opinion. Watch the 76.85 level. We are also at the 50% level on RSI. Price has been turned back the prior six times RSI has reached this level. Does it finally get through?