Saturday, February 10, 2018

STI Analysis -- the next peak and trough ? (IV)

A continuous from STI Analysis -- the next peak and trough ? (III).

Global markets were on a sharp fall since the start of this month with US markets having probably the worst wild ride on an intra-day basis since the 2008 GFC.  FTSE STI was not spared either with the selling and the drop.  With the close of 3,377.24 on 9th Feb 2018, STI practically gave back all the gain its has since the start of the year and ended into the red YTD.  Alarming ? Shocking ? Fearing ? Panicking ? Unfortunately, the answer is NO, as this is all according to Elliott Wave analysis as STI just completed the Intermediate degree wave (1) from last month peak of around 3,610.  What we are seeing now is the Intermediate degree wave (2), the corrective wave.  Zoom in to a lower degree, the Minor degree level, STI just completed the motive wave structure of 1,2,3,4,5 and now is in the corrective wave to complete a complete Minor degree cycle.  All these are illustrated in the figure below

It is still too early to tell when and where the correction or retracement will end as it is still unknown what type of pattern (a simple zigzag, a simple flat or a combination) that will be playing out for the corrective wave.  A simple zigzag or a simple flat pattern for the Intermediate degree will have the define check points of A, B and C.  Should a combination being played out, it will have check points of W, X and Y.  Regardless of which, we should see several zigzag pattern in the lower Minor degree level.  Another aspect to monitor or predict (with probability) of all these check points or ending point will be on the Fibonacci ratio.

If one observed STI performance for the past 2 to 3 days on an intra-day basis it sank below the Fibonacci retracement of 23.6% (black Fibonacci retracement scale for Intermediate degree) or the 61.8% (blue Fibonacci retracement scale for Minor degree) -- a value around the 3,357 level, and rebound and closing above it.  This is one indication that if the corrective structure is a simple zigzag that will be wave A.  If it is a simple flat corrective structure, this point will be the half-way mark for wave A.  If it is a combination corrective structure, this should be the half-way mark for wave W.  Regardless which is the case, all leading to a rebound coming on the way.  Next week we should be seeing the rebound.  The probability of where the rebound can lead to will be the green areas mark in the chart above, the 23.6% and the 38.2% Fibonacci retracement level for the Minor degree.  If the correction is a simple zigzag then that will form wave B before resuming its correction.  Ironically, these 2 possible levels will also be the check points for simple flat (wave B) and combination (wave X) destination later on.

The important is not where wave B or wave X of Minor degree will be but rather where wave C or wave Y of Minor degree will be and that is the end of the wave 2 of the Intermediate degree.  Since, there isn't any clearly define pattern yet to predict where it will end but a good guide can be seen from the Fibonacci retracement ratio.  The wheat colour areas in the chart above is all the possible destination of wave 2.  They are the 38.2%, 50% and 61.8% Fibonacci retracement level for the Intermediate wave 1.  

For wave 2, a 38.2% retracement to STI 3,200 is considered shallow and the probability of that happening is like 12% of the time (according to some study I have came across).  A retracement to between 50% (STI 3,074) and 61.8% (STI  2,950) happens 73% of the time and a retracement beyond the 61.8% (but not 100% as that will void the pattern already) happens 15% of the time.  Another point I wish to highlight is the 61.8% retracement (STI 2,950) for Intermediate degree and the 161.8% retracement for the Minor degree is at the same value.  That should have a very special meaning in the future or maybe for this correction the end point will be thre.  So if you feel the fear and panic now, then you probably can faint when STI reaches those values.  However, if you believe in Elliott Wave analysis then you are prepared to see those values and nothing to alarm, fear, shock or panic.

Many are concerned whether it is the end of the game for US markets given how the US markets behaved lately, the wild swing, the more than 1000 points drop, etc.  Maybe you should read the Elliott Wave analysis here on US markets (European markets and even Nikkei).  The game is not over for those markets.  End of the game meaning wave 5 in this case.

The good news will be we should be seeing some rebound next week for STI, a pause from the recent drop BUT the bad news is STI correction or Intermediate wave 2 is not done yet, still have further downside BUT the very good news will be after wave 2 will be the Intermediate wave 3 of the Primary wave 3 and that will be the steepest climb of the whole Elliott Wave cycle.

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