In this post I showed how the Great Bear wants it all back. http://danericselliottwaves.blogspot.com/2009/03/great-bear-wants-it-all-back.html
There is a certain "minimum" for a Primary wave 2. There are no "hard rules" on this, but there are strong guidelines. A wave 2 is normally a deep retrace. Considering the market dropped from 1576 to 666 for Primary wave 1, a retrace to 1044 is not out of the question for P2 although in the midst of a depression its seems insane.
What is the minimum for P2? Well a valid ABC correction for starters. I have shown that the market has traced that with 875 being the peak of a C wave. Also usually at least more than a .236 Fibonacci retrace, which at 881 the market will meet that so its very close in that regard for the "minimum" but a 50% retrace is normal. Also a "time" retrace. The market took 18 months to drop so a retrace of 6 months can be expected. Also this rally was to be the greatest bear rally since the start of the drop in 2007. That indeed has been the case. So in EW theory, Primary wave 3 can happen tomorrow. So all in all, some "minimums" have occurred but they are unsatisfying from an EW standpoint
But also in EW theory, bearishness on a Primary wave 2 should be shaken out to the point where the entire bear market is in doubt. Perhaps that would require a retrace to 1000 SPX, or about 10000 DOW and then people would indeed doubt the bear market.
But what if things have become too sophisticated? What if we have outsmarted ourselves in market analysis? What if Primary wave 3 was to start next week? What would be the "spark" for the greatest bear wave we have seen in our modern lives? Walmart earning 10% less profit ain't gonna do that...
What if EW theory predicts a catastrophe? Swine flu? Mega deaths? Real and measurable economic impact resulting from a worldwide spread of a nasty virus?
I usually assumed that the main media issue of a Primary wave 3 down to sub 600 SPX and then sub 500 SPX would be Government debt getting out of hand to the point that the whole system is on the verge of collapse. Indeed we are on the fast track to that happening. I still think that will be a theme of P3 but this recent swine flu thing makes me wonder if EW theory actually predicts an event that is unpredictable in general.
These are just musings of course. But shutting down travel and stopping economic activity in the event of a real pandemic has an impact on world economics. I kind of poo-pooed the situation at first (thinking of the past bird flu scares turned out to be nothing) but I have reconsidered.
A world unable to pay its debts coupled with a "curve ball" situation could trigger the devastating Primary wave 3 down. It only makes sense. Will the swine flu be a contributing trigger? My charts tell me no, at least not at this time. Its not yet in the charts. The market is ripe for a pullback and saying that the swine flu caused it all is convenient but maybe just an excuse.
However, a real pandemic that cause real deaths and national emergencies and a blunting of economic activity is something other to consider. But for now, I am not focused on swine flu and its impact on the markets. As an Elliottician, I generally look for social mood indicators. But a real pandemic definately may have an immediate impact on social mood.
The question is: Could it result in an abrupt, early triggering of a P3 mood?
Things to consider as many have.
Tuesday, April 28, 2009
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Thank you for your amazing blog,
ReplyDeleteAn item I hope you might consider in future posts:
Although it is not an EW pattern, Prechter and Frost recognized the “Expanding Leading Diagonal” as a recurring pattern. EWP pg. 40.
http://screencast.com/t/6UeEEHRUEn
Do you see this happening? (no need to answer directly – I read all you posts)
Best regards, -pat
These are great thoughts. EWI talks a bit about the swine flu and the market: http://www.elliottwave.com/freeupdates/archives/2009/04/24/Swine-Flu-and-Elliott-Wave-Analysis.aspx. My understanding has always been that pandemics occur during times of pessimism, people basically make themselves sick out of fear and worry. Then it's not a random event. I think that a bad pandemic could make P3 very extended but wouldn't a perfectly observant and non-biased person be able to see that that coming ahead of time before the waves actually unfold?
ReplyDeleteIt has also been my understanding that waves unfold in patterns and cannot be morphed along the way, e.g. a correction of an upswing cannot suddenly turn into the beginning of a new bear market halfway through. But of course this is not to say that we shouldn't have alternate counts along the way as price action unfolds.
But what if the sun blew up tomorrow and we had no technology to see it coming? What if a company were put out of business tomorrow by an unforeseen event? Both would bring their respective markets to 0 and could conceivably happen right in the middle of another pattern that had not played out yet. But is anything really random and doesn't the sun really control how we feel anyways?
But a market could always be more highly traded giving clearer patterns I would think. Perhaps rules can be broken, having that amount decrease as the size of the market increases.
What do you think?
Danl,
ReplyDeleteYou are absolutely seeing it now, awesome blog tonight. Seems you and Anom have gone back and read my musings past((875 being the peak of a C wave)not yet in the charts, it is and has been)wouldn't a perfectly observant and non-biased person be able to see that that coming ahead of time before the waves actually unfold? Yes))) or you should as I've covered this months back. You both are seeing it; I can read it. Still maintaining positions from...well you know, and fading everything. The trigger is the line in the sand. Anyway I said it should get interesting and it is, your break is down either direction will be down and the future date I gave still stands. I'm moving that date back four days but also giving it a window of 13 days. Great stuff buddy, keep it up.
Sorry about the double posting. That line in the sand isn't what many may think in references to.
ReplyDeleteI'll suppose wave 2 will end sometime in the fall when the government and all the analyst tell everybody we are in a good shape. And then either something cataclysmic happens or this recession turns into a depression, I would guess the latter. Fundamentally speaking the excesses of 25 years are not going to be fixed in a year. Common sense tells me this will take a long time to work itself out and thus we will have low PE valuations (historically 6 at severe recession/depression) and if the SP profits say are projected to fall 30% to $35-40 for the coming year, then we could see SP500 at 210-240. Sounds impossible at the moment, but if we get those valuations and a depression, we will see it.
ReplyDeleteUnless of course we finished a big Flat at 666 & are in the economic bottoming out time zone window of the 76.6 year cycle low (2009-1932) as put forward by some people (Manfred Zimmel).
ReplyDeleteI hope that I am not reading dan's analysis wrong here. He predicts a retrace and sell off by the market entering the first day of next Monday that we shall see SPX to low 820 level. Then again he mentions the amazing strength on the DOW that DOW can see more upwards. Forgive me if I am getting confused here that he seems to be contradicting in his reports or if I am not reading it right. Would someone enlighten me here please, thanks.
ReplyDeletestocker4949 yup. Thats about the gist of it. A breakout first higher, and then a retrace backwards.
ReplyDeleteSo breakout would be end-of-month dressing and retrace would be beginning of month selloff.
thanks a lot, Dan. Do you still keep the retrace at the 790 level or 820 instead. Yesterday's action is intimidating the bear, bluffing to go higher by holding real steady. I personally think the consumer confidence is no surprise at all and have priced in after over 30% run up this month. How high do you see the swing up by Friday? Do you still hold 875 is the peak then fall off? Thanks.
ReplyDelete>So in EW theory, Primary wave 3 can happen tomorrow
ReplyDeleteDan, what r u smoking? We're in Wave 4, not in Primary 2. Primary 2 would take at least a year to develop.
I don't see anything much lower then 820's at the moment if indeed it retraces that far.
ReplyDeleteP2 is a stubborn mule.
Not looking good for SRS. No selloff today..close at the high of day! They are really going for the bears the rest of the week. Bull is just too strong right now. I just see a ascending triangle with 875 on the S&P has base. Once broken, S&P going higher.
ReplyDelete