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LT wave for May

Posted by Dan on May 2, 2016

Stock markets have finally entered something more than a 2 day pullback. Last week’s advice to step aside works out fine so far. Now the next challenge is to watch for signs of a bottom. Let’s have a look at the Nasdaq chart:

^COMP (Daily)  8_8_2014 - 4_29_2016

All my indicators keep pointing down, with bearish divergences still in place. So, I wouldn’t rush back in just yet. This pullback or correction may continue for several weeks or months, but there will also be strong up days. A correction target in the 4600-4700 area would be fairly normal given the 800 point rally from the February lows. A deeper drop would indicate that a retest of the February lows is likely. It is too early to tell which scenario will unfold.

As for a possible path forward the LT wave for May could offer some clues. Here it is:


The LT wave for April did a fairly good job. Expected choppy neutral trading in the first weeks panned out perfectly. The high of the month came on the 20th, exactly on the day with the highest LT wave value,  and was followed by the predicted weakness in the final week.

For May the LT wave suggests continued weakness in the first week, followed by a strong period from the 7th until around the 18th. The final 10 days of the month show significant weakness again. The lowest LT wave value comes on the 3rd and the highest value is on the 17th.

As always, please remember that this LT wave is experimental, so don’t expect it to work perfectly every month.

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