Recent GE model playing out.

In this post I suspected that GE had just finished tracing out a 4th wave.  The goal was to strike a cautious note while also suggesting that a 5th wave would be a short stroke and thus a sign of coming weakness.  Here is the chart from that post:

Below is the recent chart and it is no accident that I chose to do an update on it today.  It has now finished 5 small waves up from the bottom and also reached center channel.  This will likely either rapidly break down the lower rail of the 4th wave and then the long term support line which it tested at the bottom of wave 4 (i.e. the red model) OR it will test the bottom of the 4th wave triangle and then rebound through the top rail of the horizontal triangle to a higher high as shown in the blue path.

I do not know which it will take!  Both are valid wave counts. But for reasons mentioned before I think GE will short stroke the 5th wave (i.e. not make it to a higher high than the 3rd wave that occurred around the start of the year).  Of course opinions are one thing and chart data is another.  If GE pulls back into an obvious 2nd wave to kiss the lower internal rail of that triangle but cannot break it down then I will have to concede that we still have a bit more life left in the bull and TVIX could hit the $2 mark.  I personally would welcome that because should this GE indicator trigger to the upside I will completely avoid TVIX until I see 5 full waves play out.  After all, as GE goes, so go the markets.  It really doesn't matter at the end of the day if the markets go up or down.  All that matters is being on the right side of the trade when it counts and not being on the wrong side of the trade when it counts.  EW is not perfect because of several different possible interpretations of the count but it can provide enough glimpses into the most likely outcomes that you are not taken aback when that which is unexpected by most in the herd actually occurs.  All it does at the end of the day is increase your odds in the casino.

If you need a frame of reference in order to understand the big picture, have a look at the following chart. la As you can see, I do not expect black 5 to be very long because waves 1 and 5 should be about the same length when the 3rd wave was the extended wave (as it certainly was in this a-b-c bounce since 2009).  This kind of thing falls directly under the category of the market needing to be tricky during the turns.  Many EW modelers out there will think that the 4th wave will lead to much higher highs.  But I know GE is a BK candidate because of the Altman Z score, it's extreme debt to cash ratio and its recent attempts to sell off pieces of itself during a stock boom.  Generally companies in good shape BUY more pieces into strength, not sell into economic strength.  The recent breakdowns at NFLX, IBM, KO and others also tell of a troubled market.  I wonder when some big unexpected credit event will happen?  Likely sooner rather than later IMO.

Finally, here are the first 5 waves up off of the wave 4 low.  This satisfies the EW requirements following a 4th wave.  Again, that does not assure that this is the peak, it just means that it could have met the minimum requirements per the rules.  Maybe there is a small additional rally tomorrow as shown but then we should see a pullback which tests the validity of the potential larger impulse wave that is forming.  If the pullback only comes to the 38.2 and cannot break it down, cover your shorts folks because it means that 3 of 5 is about to unfold and that will kick TVIX in the nethers.

Finally, a high detail count of just red 5 to see what is really likely to happen tomorrow.  An early morning light sell off that cannot break the 61.8 fib down would suggest that another bounce into the later morning/early afternoon is coming but that an intraday reversal is likely in the $25.55-$25.70 range.