Thursday, October 13, 2016

Elliott wave analysis of XIV - Headed for 5.85 means the S&P 500 is headed for 1,149

XIV - Weekly

S&P 500 - Weekly

S&P 500 - Daily 

XIV - Headed for 5.85 means the S&P 500 is headed for 1,149  

The XIV is headed for 5.85, but what is the XIV? (What is the XIV and how does it work. Click here to find out). 
XIV or as the full name is: VelocityShares Daily Inverse VIX Short-Term ETN trades like a stock tracking the VIX index just inversly. That means every time the VIX declines (less volatility = higher S&P 500) the XIV goes up and visa versa. Unless you are a options dealer trading volatility you can't trade the VIX, but by turning the VIX into a stock XIV, that suddenly allows everybody to trade the VIX-index. But it also allow us to look at the XIV from an Elliott Wave point of view and that is my mission here. 
The XIV clearly completed a five wave rally in late June 2015 and has since been in a major correction. We saw a five decline from the 50.10 high to 15.36 in early August 2016 and the XIV has since traded higher in a correction. This correction completed with the test of 40.59 in early September 2016 and a new impulsive decline is currently unfolding. If the ongoing wave C is equal in length to wave A, then a decline to 5.85 should be expected. A equality relationship between wave A and C is the most common relationship, making that target the first expectation. 
What does that tell us about the S&P 500, which the VIX tracks from a volatility point of view and thereby the XIV. A decline in the XIV to 5.85 is equal to the September 2011 low and if the S&P 500 will mirror that decline it calls for a decline to 1,149 or a decline of 45.85% from the current level at 2,123. 
Talking about the current level of the S&P 500, we can see a clear break below the support-line from 1,808 indicating that the correction in wave B is complete and a new impulsive decline in wave C now should be expected. The preferred Elliott Wave Count currently calls for wave [3] lower towards at least 2,047, which a break below 2,108 will confirm. So be careful as the financial news soon could have "the S&P 500 in a flash crash" written all over the place.

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  1. Can wave 2 be a triangle as shown in S&P 500 daily?

  2. This comment has been removed by the author.

  3. Hi Amit Kumar,

    No wave 2 can't be a triangle. I can see that it could look like a triangle, but I don't think it's a triangle and don't count it as a triangle.

    I have seen others count it as a triangle, which I do think will bring them into to trouble at some point.

    The only way, I think that you could count this consolidation as a triangle is if a flat correction is unfolding as wave [2]. If a flat correction is unfolding, then we saw wave A of [2] rally from 2,018 to 2,180 and wave B of [2] completed yesterday at 2,114 and now wave C of [2] is unfolding and will peak near 2,185 before wave [3] takes over for a strong decline below 2,108 towards 1,990 and below.

  4. With dow futures making new ATH, your count stands invalidated. What next? Is it the start of a new bull market?