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The NAVIGATOR - OCTOBER 2018 - More Downside for U.S. Stock Indices – 3rd Sequence of 2019’s Correction Underway – US$ Dollar Forecast Lower by -2.5% then Up by +7.5% - EM Currencies in Broad but Uneven Recover

In This Edition:        

When U.S. stock markets declined by -12% per cent from last January’s highs into the early-February lows, it accomplished a satisfactory price decline relative to the preceding 3^rd wave uptrend that began in July ’16. But it did not fulfill the necessary time-element to balance the 18-month uptrend. Time is an important factor in financial-forecasting, especially within the Elliott Wave Principle. R.N. Elliott formulated a guideline within the tenets of ‘Nature’s Law’ (1946) which stated the Law of Alternation. In this context he noted that 2^nd and 4^th waves within a developing five wave impulse pattern would ‘alternate’ in complexity – a simple correction lasting a relatively short time span in one of these designations would alternate with the other in a more complex form, lasting much longer. Commonly, 2^nd waves are simple patterns, 4^th waves complex. So when January/February’s decline unfolded into a sharp sell-off spanning only a month or so, this was determined to be too short in the time-element to justify the entire completion of the correction. The EW-Navigator reports that followed were consistent in forecasting a more complex, time-consuming pattern in the months ahead, specifically, an Elliott Wave expanding flat. That would allow a modest higher-high followed by another sharp decline that retests or modestly breaks back below the February lows. Fast-forward to early October, we can see this exact scenario being played out with recent declines, beginning the final declining sequence of this pattern. This month’s report renews those original downside price targets for the major indices, the S&P 500, Dow Jones (DJIA), Russell 2000 and Nasdaq 100 plus we’ll be updating the wave counts for the S&P 400 mid-cap, the broader Value Line index and the DJ-Transportation Average. We’ll also dip into some sector analysis adding the latest price forecasts for the XLK Technology and the NBI Biotechnology indices.  

The US$ dollar index began a counter-trend declining sequence from August’s high and this is being translated right through the major dollar currency pairs. This correction is unfolding in response to the gains from February’s low, an advance of almost +10% per cent. This month’s EW-Navigator report updates the downside targets for the US$ dollar amidst the contradictory fundamental news-flow which otherwise argues for a strengthening dollar on the back of the Federal Reserve’s continued interest rate ‘normalisation’ policy. The Euro/US$ mirrors the dollar index with upside forecast through October and November whilst the latest COT reports show dollar/euro positioning evenly balanced. Analysis updates the Elliott Wave patterns for some of our second-tier currencies, the Canadian Dollar US$/CAD, the Mexican Peso US$/MXN, the Chinese Renminbi US$/CNY, Brazil’s US$/BRL, South Africa’s US$/ZAR, Russia’s Rouble US$/RUR, Poland’s Zloty US$/PLZ, Turkey’s Lira US$/TRL and Argentina’s Peso US$/ARL.