OUTLOOK & FORECASTS 2013 |
Panel Presentation | Society of Technical Analysts - 8th January 2013 Outlook & Forecasts for 2013 | Stock Indices-Commodities-EquitiesAuthor: Peter Goodburn | Copyright WaveTrack International © Introduction:The S&P 500 is used as the international benchmark/proxy for global stock indices. The great bull market beginning from the 1932 low ends 68 years later in 2000 - other global indices peaked later in 2007 (75yrs) – some, especially those of Asia, remain incomplete. In order to understand the logic of the 2013 trends and price-forecasts, it is necessary to find a common denominator that not only conforms to the overall pattern progression for each index as defined by the Elliott Wave Principle (EWP), but synchronises the up and down swings accordingly. This study identifies shared commonalities taking a few examples from a larger resource then plotting the most probable path market price action will follow during the next year and beyond. Highlights:
Table of contents
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A Super-Cycle Bear Market | A-B-C, ‘Shock-Pop-Drop’The S&P’s long-term uptrend that began from the Great Depression low of year 1932 unfolded into an archetypal five wave expanding-impulse pattern as defined by the Elliott Wave Principle, 1-2-3-4-5. Its ‘orthodox’ completion was recorded at a price level of 1552.87 in March 2000 – see fig #1. This sixty-eight year uptrend must be subsequently balanced by a comparable counter-trend decline and composed of three main price-swings labelled A-B-C. The existing lows of late 2008, early 2009 have neither satisfied the completion of the bear market in either price-amplitude or time and so the outlook into the end of the current decade suggests global stock indices will undergo another sharp price decline before finalisation. |
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The bear market for the S&P and many other outperforming indices are expected to take the form of an Elliott Wave expanding flat pattern composed of three main price-swings, A-B-C labelled in super-cycle degree. In laymen terms, we have used the term ‘shock-pop-drop’ to capture the essence and ‘mood’ of these price developments – see fig #2. Wave A completed into the March ’09 low at 666.79 that itself unfolded into a smaller expanding flat pattern of cycle degree. This specific identification has mostly eluded mainstream EW analysis but plays an important part in understanding the progress of the following price recovery. |
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To validate the bear market expanding flat pattern, super-cycle wave B’s advance unfolding higher from 666.79 must ultimately break the existing ‘orthodox’ record high of 1552.87 (1576.09, Oct.’07) before completion. In doing so, it must also unfold into a three wave zig zag pattern (or seven as a double, eleven as a triple but in this case a single is identified) – see fig #3. There are defined Fibonacci Price Ratio (FPR) that assist in identifying such patterns and their projected completion. The two most common measurements are where cycle wave A is extended higher by a fib. 61.8% ratio or alternatively, where waves A & C measure equally, by a fib. 100% correlation ratio. As wave B was an almost exact fib. 38.2% retracement of wave A’s advance, both measurements for upside targets of wave C are similar towards 2140.00+/-. But the concept of a zig zag advance unfolding as super-cycle wave B rests upon validating the initial upswing as cycle wave A unfolding into a smaller five wave expanding-impulse pattern. If this can be qualified, then it would affirm upward continuity for wave C once wave B’s counter-trend decline has completed. |
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Taking a closer look at the March ’09 advance from 666.79, there is evidence that suggests a five wave expanding-impulse pattern did unfold into the Feb.’11 (orthodox) high of 1344.07 (actual in May at 1370.58) – see fig #4. The following decline as wave B ended a counter-trend pattern at 1074.77 in Oct.’11, a fact that has been verified as the 1344.07 high has since been exceeded. This confirms wave C is now in progress to record highs. It is now important to find a convergence towards the upside target of 2140.00+/- for cycle wave C using another fib-price-ratio measurement of larger degree. A standard measurement for the completion of ‘B’ waves within expanding flat patterns is to extend wave ‘A’ by any one of three main Fibonacci ratios, 14.58%, 23.6%, 38.2% or 61.8%. In this case, extending super-cycle wave A by a fib. 38.2% ratio projects wave B to 2139.37, an almost exact match. As a five wave expanding-impulse pattern in progress, cycle wave C’s advance appears to be building a base of higher lows prior to upside acceleration that is expected to last throughout most of 2013 and into early 2014. |
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With regard to cycle analysis, our composite that combines and weights four differing periodicities for the S&P provides another affirmation of continued upside potential for the next 12-15 month period. The black price history is shown overlaid with the red cycle line and although an attempt has been made to weight the amplitude of the cycle to emulate the depth of peaks and troughs, this is not as reliable as measurements of price development using the Elliott Wave model together with Fibonacci Price Ratio guidelines – see fig #05. Nevertheless, is does offer a consistent view of how the timing of major reversals occurs with a small deviation of just a few months. The next peak is due in February 2014 although this could stretch into April where some other short-term convergences form. |
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The Common Denominator of the ‘Inflation-Pop’Each global index is unfolding into its own specific rhythm and it is these amplitude changes that causes unique Elliott Wave patterns to form. In attempting to determine the overall price trend, it is necessary to search for a common denominator that links all together in a synchronised fashion whilst each conforms to its specific pattern development. Obviously, should an interpretation conflict or clash with another, then the analysis would be deemed in error. |
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The common denominator that links most global stock indices together is the upward development of a zig zag pattern that began unfolding from the post-financial crash lows of Oct.’08/March ’09. We have already taken a look at this for the S&P as super-cycle wave B to record highs, towards price levels of 2140.00+/-. The Hang Seng index also provides a unique corroboration of the same pattern and event – see fig #6. The Hang Seng’s advance from its Oct.’08 low of 10676.29 is unfolding into the same zig zag pattern but unlike the S&P, this sequence is not part of a larger expanding flat corrective pattern but is the fifth wave within an ending-expanding diagonal pattern. The diagonal is classified as an impulse pattern that is characteristically comprised of five waves (price-swings). Waves (1)-(3)-(5) typically conform by unfolding into smaller zig zag patterns and this is consistent with the fifth sequence as intermediate wave (5) that began unfolding higher from 10676.29. It does appear that the zig zag, labelled a-b-c in minor degree has already completed waves a & b with wave c now in the preliminary stages of accelerating higher. The expanding diagonal synchronises with the S&P in that each is unfolding into archetypal zig zag patterns that subdivide into a 5-3-5 sequence. That means minor wave a from 10676.29 to its Nov.’09 high of 23099.57 must unfold into a five wave expanding-impulse pattern in order to validate upside continuity for wave c. This was the case for this advance, and upside continuity has since been confirmed following a three wave decline for wave b that ended into the Oct.’11 low of 16170.35. Using fib-price-ratio guidelines specific to the expanding-diagonal, and the zig zag unfolding as intermediate wave (5), an upside convergence forms into a record high between 40684.78 to 42265.09. And so in this way, comparing the S&P to the Hang Seng proves invaluable in testing and affirming this ongoing bullish ‘inflation-pop’ hypothesis of price development. |
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Corroborating the ‘Inflation-Pop’In projecting ongoing upward price development throughout most of 2013, and a little into 2014, it is essential that the initial price recovery from the post-financial crash lows of Oct.’08/March ’09 unfolds into a five wave pattern. Another good example of this characteristic is found in the positively correlated XME Metals & Mining (ETF) Index – see fig #7. The Nov.’08 low at 17.15 began a larger price advance that began by unfolding into a five wave expanding-impulse pattern ending into the April ’11 high at 77.44. The location of its completion can be verified using fib-price-ratio guidelines where intermediate (degree) waves (1)-(4) are extended by a fib. 61.8% ratio that pinpoints the exact high. The identification of a five wave impulse pattern confirms upside continuity of at least equal amplitude once a satisfactory counter-trend correction has ended. This again corroborates the ongoing upside potential of a larger unfolding zig zag pattern that began from the 17.15 low that participates in the ‘inflation-pop’ advance to record highs. |
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A somewhat correlated market to the XME M&M Index is Lead prices as traded on the LME. This offers a unique insight to the same expanding flat pattern developing for the S&P index with cycle wave A ending at the Dec.’08 low of 845 – this is the ‘Shock’ phase with the following advance as the ‘Pop’ or ‘inflation-pop’ that is again unfolding into a zig zag pattern – see fig #8. A convergence of fib-price-ratios form into record highs at 5585 where cycle wave A is extended by a fib. 23.6% ratio and where primary wave A’s advance within cycle wave B (845-2695) is extended by a fib. 61.8% ratio. The finalising ‘Drop’ phase as cycle wave C would then begin from a high scheduled into early 2014. |
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Probably one of the largest multiple gainers that is expected to participate in the ‘inflation-pop’ scenario is another commodity related asset – Vale S.A. of Brazil. This particular equity is traded on the NYSE and is also conforming to the zig zag advance unfolding from its Nov.’08 low of 8.80 – see fig #9. The zig zag is labelled in primary degree and is itself cycle wave B within a larger expanding flat pattern. Primary wave A of the zig zag ended at 37.25 in Jan.’11 and B more recently at the Sep.’12 low of 15.77. A convergence of fib-price-ratios can be found at 64.60-66.75 translating into gains of 4 x multiples from that low. Extending cycle wave A (43.93-8.80) higher by a fib. 23.6% ratio projects to 64.60 whilst primary waves A and C of the ‘inflation-pop’ advance measure equally at 66.75. |
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Not all asset classes will make it into record highs though. Citigroup Inc. is a good example of the banking sector. Although it is expected to participate in the ‘inflation-pop’ advance from its March ’09 low of 9.70 and conform to the common denominator zig zag pattern, its relative underperformance during the financial-crisis sell-off of 2007-08 means it is destined to end far below record highs of 579.13 – see fig #10. The zig zag recovery from 9.70 is projected to complete towards 119.80-121.43 where another price convergence can be found where cycle waves A & C of the zig zag measure equally, by a fib. 100% correlation ratio whilst completing at the fib. 61.8% resistance of the preceding decline from the all-time high. END | FIN | ENDE |