Dow, FBMKLCI and Covid-19

Dow (21,636)

Dow dropped 915 points or about 4% on Friday. It has completed its wave (i) of B. Further pullback is expected until wave (ii) of B is completed.

FBMKLCI (1,343)

Very likely KLCI has completed its sub-wave viii rebound. The next drop will be the sub-wave ix of the wave (iii) of C. 

Covid-19

I started to monitor the situation of Covid-19 on 4 February for some major countries. Until 28 March I have collected about 2 months of data on the cumulative cases for each individual country. To monitor the rate of change of the number of cases each day, I computed the 10-day average of the daily cumulative cases and the rate of change in percentage of the 10-day average.

For China, I should have started the monitoring in January to have a more complete picture. On 4 February the cumulative number of cases has already reached 24,292. By end of February the cumulative figure and the 10-day average figure has merged indicating the Covid-19 was under controlled. By 28 March the rate of change has dropped to 0.11%. Life can be back to normal very soon.

For South Korea, the period covered illustrated a complete episode of Covid-19. By 28 March the 10-day average line and the cumulative line begin to merge and the rate of change has dropped to 1.31%. By end of April, with their current tight control, the rate should be able to drop to 0.1% and their commercial and social activities should return to normal.

For Italy, the gap between the 10-day average line and the cumulative line is still wide with the rate of change at 9.3%. With better control by the Italian government hopefully by end of April the two lines can begin to merge with the rate of change dropping to 1.3% like that of South Korea at this moment.

For France, the rate of change is 14.9% on 28 March, lagging behind Italy's 9.3%. More effort is needed by the French government.

For the US, the rate of change is at 25.7%, very bad, it will take many months for the figure to drop below 1%.

For Malaysia, the situation is much better than the US with the rate of change at 10.3%. WE may need another 2 months of tight control to bring the rate to 1%.

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Dow (21,200) - Optimism Improved.

Dow went to an intra-day high of 22,019 (+20.5%) before closing Wednesday session at at 21,200 level. The current rebound of 20.5% is too big to be a wave (iv) as compared to the9.8% wave (ii) rebound. If Dow can continue to move higher to form the mini wave 5  on Thursday, it is possible that the last low of 18,230 is the end of the wave A of the super wave VIII with a 3-3-5 ABC super wave VIII formation.

Another very optimistic possibility is that seemed to be impossible at this moment option that I have mentioned previously, the mega wave (2) option. That means the last low of 18,230 marked the end of the mega wave (2) and Dow has started its mega wave (3) formation. I myself find it hard to go for this option but technically it is one possibility.

Let's swing to the other end of extreme pessimism.

Last Monday Joachim Fels of PIMCO (a global investment management firm with US$1.91 trillion worth of assets under its management), issued a note to clients :

At this moment, basing on the current form of Dow, I am unable to develop an option with this possibility. A temporary good news.

Dow (20,669) - How big the correction is going to be?

Dow jumped 2,112 points (+11.37%) on Tuesday and confirmed that wave (iii) has ended. With that if wave A of the super wave VIII has only three waves, then wave A has ended and the current rebound has to be the wave B of VIII. At this moment Dow is forming the wave (i) of B that can be quite high. It can form a double top.

Under this scenario, Dow is going for a 3-3-5, ABC corrective super wave VIII, not so damaging.

But if wave A is going for five waves formation, then the super wave VIII will take the form of a zig-zag 5-3-5, ABC corrective wave. This is more damaging and the wave B rebound will have a much smaller magnitude.

If this is going to be the case, the current rebound is the wave (iv) of A, which is about to finish. Next down will be the wave (v) of A.

As I have mentioned before, there is this unlikely (due to the current out of control Covid-19 situation) but technically possible scenario of a mega wave (2) formation. Nobody at this moment, under the current world economic condition will think that the correction has ended and the Dow is on its mega wave (3) bull run.

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Dow (18,591) - Has the wave A ended ?

As I have mentioned in my previous article, very likely Dow is forming its super wave VIII in view of the Covid-19 and the volatile crude oil price.

On Monday, Dow touched an intra-day low of 18,230 followed by a 2% or 361 points rebound to close at 18,591 level. Dow future at this moment has gained 800 points reaching 19,300 level. The question now is whether Dow has completed the wave A of its super wave VIII?

Looking at the 4-Days 15-minute interval chart the 18,230 level has the possibility of being the end of sub-wave v of wave (iii). And if wave A has only 3 waves, it is possible that the 18,230 level marked the end of wave A. The rebound before the market closed could be the mini wave 1-2 of B.

But if wave A is going for 5 waves then the coming rebound is more likely to be the wave (iv) of A 0f about 10% gain. Dow will have another wave (v) down to complete its wave A.

I have also mentioned in my previous article an unlikely but technically possible scenario that the current correction is a degree lower mega wave (2) correction of about 36% pullback.

At Monday's low of 18,230 the pullback is about 38%

In view of the current situation of Covid-19 in Europe and America, it is hard to believe that mega wave (3) has started.

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Big bad Bear

FBMKLCI (1,303)

KLCI rebounded strongly on Friday, it added 83.56 points or 6.85%. With that, KLCI has ended its sub-wave vii at 1,219 level.

The rebounds for sub-wave ii, iv and vi averaged about 5% with each individual duration varied from 2 months to 3 months. But Friday's sub-wave viii rebound took only one day to get its full magnitude of 6.9%. Is KLCI going to plunge again next week to form its sub-wave ix?

If KLCI were to move lower next week to level lower than its last low of 1219, it may drop another 15% to 1108 level for its wave ix to complete its wave (iii).

But if KLCI is able to continue with its Friday's momentum to move higher for another day, and once it reaches 1340 level for a 10% rebound from 1219 level, then the current rebound will be more likely to be a wave (iv) rebound with sub-wave ix missing.

Under this scenario, wave C is likely to have 9 waves from (i) to (ix). Why? Because Covid-19 is still far from over for the whole world except China.

Dow (19,173)

Looking at the Dow 30-minute interval 6-week chart, Dow is at the sub-wave v of its wave (iii) of its wave A. If wave A has only three waves, the next rebound is likely to be wave B.

But if wave A has five waves, next rebound will be the wave (iv) rebound, to be followed by wave (v)'s drop.

The current pullback for Dow is likely to be a super wave VIII correction of 50% to 14,800 level.

From its February intra-day record high of 29,568 to last Friday intra-day low of 18,917, Dow has dropped 36%, this magnitude is about the same as that of the  mega wave (2)'s 1987 October 19 'Black Monday' crash of 36.15% as well as that of the mega wave (4)'s 35.6% crash (due to 2000's 'Dotcom bubble' when Nasdaq plunged from 4,698 to 1160 (-75%) and the 9/11 Islamic terrorist attacks on World Trade Center and the Pentagon in September 2001).

Technically the current drop of 36% is of the magnitude of mega wave (2), implying a near term mega wave (3) run as shown below. But since the Covid-19 pandemic is far from over, this option can be ruled out.

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FBMKLCI (1,256) - Wave 7 completed ?

KLCI dropped another 24 points on Tuesday after the Monday's plunge of 64 points. Has it completed its mini wave 7 of its wave (iii)?

If Tuesday's intraday low of 1212 is the end of the mini wave 7, the next rebound is likely to be the mini wave 8 of (iii).

If mini wave 9's magnitude is about the same as that of mini wave 3 and 5, it is likely to end at around 1150 level.

If wave (iii) has only 9 mini wave, it will end at 1150 level before having the next wave (iv) rebound. But wave (iii) can have more than 9 mini waves too. Be careful.

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The Bear is here to stay

Dow (23,185)

Dow plunged on Thursday by 10% or 2,353 points from Wednesday closing level of 23,553 to 21,200 level. That is the fifth biggest all-time Dow loss following behind the October 1987 'Black Monday' crush and the 1929-1931 'Great Depression'. this 10% loss is ever bigger than that recorded during the 2008 'Subprime Financial Crisis' that ranked No. 10.

'The Black Monday' on 19 October 1987, Dow dropped 22.61% that is very much bigger than the 10% drop on Thursday.

From its peak of 2,722 to the 'Black Monday' low of 1,738, the drop was 36.15% and the whole correction took only 2 months and with this single day 22.61% shake-out, Dow ended its correction with a V-reversal.

From the long-term chart we can see that even though the 'Black Monday' drop of 22.61% is ranked No. 1 as the biggest all-time loss for Dow, but the whole correction is of a lower degree correction and the duration is very short, 2 months only.

The highest degree correction is still the 1929 'Great Depression' supreme wave (II) 89% correction. The current correction is one degree lower super wave VIII correction of 50%. This figure of 50% is based on the average magnitude of 52% for super wave II, 42% for super wave IV and 54% for super wave VI.

At this moment Dow is forming the wave A of its super wave VIII. Looking at the 30-minute interval chart, the 1,985 points (+9.36%) rebound on Friday is only the wave iv of A. Wave v is expected to take place next week. Still a long way to go to complete the super wave VIII as the story of Covid-19 may be half-way through for China but the story has just started for Europe, the US and the Middle East.

FBMKLCI (1,344)

For KLCI, since 2014, it has been forming its mega wave (6) correction.

The sharp 75 points (-5.28%) plunge on Friday is the mini wave 7 of its wave (iii) of C of (6). If  I used the magnitude of correction for the mega wave (2) and (4) of 45%, the mega wave (6) is likely to end at 1,050 level.

But If Dow is going for a 50% pullback, it would be more likely for KLCI to have a super wave IV correction instead of a mega wave (6) pullback.  Super wave IV is likely to retrace at least to the mega wave (4) level of 829 for a 56% correction.

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USD/MYR (4.2375)

Malaysian Ringgit is expected to weaken further to around Rm4.3 to US$1.0 level to complete the sub-wave iii of its wave (ii) of C.

If USD/MYR can start moving lower after completing its wave (ii) of C at around 4.30, it will form a 'head and shoulder' reversal pattern. Wave C will have 5 waves with its wave (v) and C ultimately ends around Rm2.50 to 1USD and it will take another 5 to 7 years to complete its wave C.

Crude Oil, Dow - How low can they go

Crude Oil (WTI) (US$32.50)

WTI after touching an intraday low of 27.34, it rebounded to an intraday high of 34.87.

Looking at the 15-Minute interval candlestick chart, WTI has only 3 waves in this uptrend movement, which is bearish. It is very likely only a rebound to be followed by another 5 waves down.

Looking at the Monthly candlestick chart, the candlestick for March has the possibility of reaching an intra-month low of 22.50 before ending the month of March at 30.00 level.

In the 2008/2009 lows, there were 3 monthly candlesticks with long shadows staying below the monthly closing trendline. In the 2016 lows there were 2 monthly candlesticks with similar long shadows.

For the current low, I would expect a minimum of 2 monthly (March and April) candlestick with long shadows touching an intra-month low of around 22.50 before closing the month at 30.00 and above.

Dow (23,851)

My reading for Dow remained the same as my previous posting. A more optimistic scenario is a 25% mega wave (2) correction.

The worst that can happen is a 50% super wave VIII correction.

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Crude oil prices plunged on Friday

Crude Oil (WTI) (US$41.61)

Crude oil prices plunged on Friday after OPEC's allies rejected additional production cuts of 1.5 million barrels a day from April 1 until the end of 2020. The rejection can mean that members could now produce what they liked starting April 1.

Earlier in the session WTI was traded to a low of US$41.11 a barrel.

If the current drop is the wave iii of E, WTI is likely to go to US$30.00 and below.

If wave E is not the end of mega wave (2), the next major rebound is likely to be a i-ii-iii wave X to be followed by another side way A-B-C, forming a major ABCDE-X-ABC mega wave (2).

However, if wave E is the end of mega wave (2), then the next up trend could be the mega wave (3), which I think is unlikely.

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Dow - Watchout for the next plunge

Dow (26,121)

Dow plunged 969 points (-3.58%) on Thursday and at this moment Dow Future has dropped another 400 points.

From the chart, if Dow opened its Friday session with more than 250 points lower to go below its previous low of 25917 level, then the current down trend is likely to be the wave 3.

With this I can rule out the most optimistic wave 10-11-12-13 super wave VII scenario that I mentioned previously.

Once Dow punches through its lower trend line, the best that we can have is a mega wave (2) correction of 25%.

As I have mentioned in my previous article, if the Covid-19 outbreak finally developed into a pandemic, then Dow is likely to have a 50% super wave VIII pullback.

Be very very careful. But if you still have lots of bullets by the time Dow reaches 14600 level, you can make tons of money by the time the super wave IX ends.

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