Global equity markets rallied strongly throughout October despite and perhaps because of slowing global growth and timely central bank easing bias. Earlier this year, we had been looking for a large 4th wave correction following the completion of the recent 3 year rally in global equity indices. This rally terminated in a large drawn out ending diagonal which we warned of in real time. Since then, we saw a steep corrective 13% decline in the SPX and associated indices which stopped at prior 4th wave support. The question now is whether we are headed straight to new ATH’s in wave (5) OR is this rally a (B) wave of a larger and more complicated wave (4). So far, the rally is in 3 waves and I am trading the idea that this is a wave (B) of a complex correction. I am looking for equities to decline from here in wave (C). The first piece of evidence is that we have an outside-day bearish reversal on Friday and what we need now is an impulsive decline from Friday’s highs to follow through to the downside.
To the SPX and my near term count shows sufficient sub-waves in place to complete 5 waves up from the 1872 lows including an “extended” wave (v). The RSI and MACD confirm the nature of the extended 5th with non-confirmation highs. My expectation is for an impulsive decline to lead off the change in trend for wave (C).
SPX 60m
The bigger picture chart below highlights the potential wave c target “if” the structure of the decline is a 3-3-5 Flat correction. That is my base case until proven otherwise.
SPX Weekly
To the FX markets and the Euro has completed a clear 3 wave decline from its 1.17 highs. The 5-3-5 decline where (A) = (C) sets up a push higher back above 1.17 for the Euro which very few pundits are expecting. The ultra bearish case is that is highlighted by the blue count which presumes a (1), (2), 1, 2 nested decline. A strong close below last week’s Fed induced lows would suggest this more bearish option is in play. This is not my base case and a lower probability outcome. I will remain biased to the long side while last week’s lows hold.
EURUSD 240m
