Sunday, June 26, 2016

Elliott Wave Brexit: Confirming The Count

Greater Tool's market: Everyone thinks that they alone will get out at the top. Brexit trapped stoned gamblers in Wave 3. History's largest gap 'n trap...

The premise of Elliott Wave Theory is that Social Mood drives risk markets i.e. Greed and fear. This is 100% a Greater Fool's market and the last fool was found last Thursday going into the Brexit vote...

The largest downside gaps in the S&P 500 are as follows:
9/11, Wave 3 down post-Lehman, August 24th, 2015 Flash Crash, and Friday. The difference between those other gaps and Friday's is that those ended sell-offs whereas Friday's gap kicked off wave 3 down...

History's largest gap 'n trap visualized:

Global markets were selling off long before Friday's vote. So why would a vote to remain in the EU have changed that? It wouldn't have, although that vote was a clear manifestation of Social Mood having turned down in the UK and across the globe. Similarly, why did markets plunge in August? Because of the Yuan devaluation, right? Except the Yuan is far lower today than it was in August. And why did the markets sell off in January? No "reason" was ever given, they just fell off a cliff on January 2nd. In other words, global markets were going to resume their sell off on Friday regardless, however the referendum generated more short-covering before and more "shock" after the event. Events can accelerate market moves but they don't determine the trend. As we see above, the stock market was already declining prior to 9/11, and bottomed within days afterwards. Same with the Iraq war 2003. Straight up on day one. And as far as "fundamentals" driving the stock market, this is the biggest "non-recessionary" decline in Corporate profits EVER. This is 100% a Greater Fool's market and the last fool was found last Thursday.

Price / volume

On balance volume

Money flow

Breadth momentum

Price Momentum



Greater Tool's market visualized

Factset June 24, 2016
"Earnings Growth: For Q2 2016, the estimated earnings decline is -5.2%. Q2, will mark the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009. On March 31, the estimated earnings decline for Q2 2016 was -2.8%. Nine sectors have lower growth rates today (compared to March 31) due to downward revisions to earnings estimates, led by the Information Technology sector. "

Corporate profits: