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Tuesday, September 29, 2009

The Irony of Wave Pyschology

The irony I find is that people who are part time wave followers will give up following waves just when they yield the greatest patterns. And precisely when do these patterns yield the greatest interpretations? When they are almost complete of course!

Counter trends can be tough to count. But as they mature the options whittle themselves down. P2 is no different. It is counter trend to the primary trend which is down. Look at my weekly SPX chart and what do you see? You see impulse waves down from 2007 and a 3 wave structure back up. Yes its sharp (it was predicted to be) but who can deny that it makes a beautiful "ABC" look on the weekly? And yes when we break it down on a subwave 60 minute chart we come up with slightly different subwave count but regardless when the weekly is painting an "ABC" look, we take it for what it is - counter trend to the big bear market - and the greatest counter trend we'll have from here on out.

I hear a lot of "When Dan stops calling P2 tops is when we'll turn!" LOL! That's not the way it works! I suggested that 1039 may be a P2 top because it was a valid wave pattern. It didn't "look" great because the C wave was too short versus the A wave, but at the time technicals supported a down move of some significance. It didn't pan out.

When last Friday's 1080 top came in in what can be argued was an ending diagonal pattern, then you have to consider the possibility. What is the possibility now? That 1041 was Minute [iv] wave low. But yet many are now tired of waves just when the pattern is maturing the greatest.

Could we bust above 1080? Sure! Could we find a sweet spot between 1069 and 1080 as I suggested is a possibility on tonight's update? Sure! Could it all indeed be over at 1080? Sure! But regardless the more waves we trace (up or down), the higher the probability interpretation.

Its also completely ironic that everyone is singing the tunes of the market above 1000 SPX. You hear it constantly now. And people completely convince themselves "they knew it all along" and blabber about such and such a target based on some such and such technical or some such and such trendline. Its Ok though. Its understandable and in the end good for you! I hope you played it just the way you predicted many moons ago.

(Please - this is no cut to regular posters or readers or fellow bloggers who DID imagine what markets can and do do all the time. And even to those that cannot imagine what it did that is fine too! I myself am still very much humbled by the market and in awe of it all)

On the 1st of March I posted quite seriously on the Yahoo SKF board about DOW 10000 by end of August (didn't quite make it yet) and all I got was derision. But that was very understandable. Now some cannot fathom 666 or lower again. That's a good sign we are near the top. Again, we must be patient. This is a historic rally and I am in awe of it all. The great irony is the more it goes up, the more I am convinced the overall count is correct!

Sniping at EW theory is on the upswing by part-time followers. Its understandable. Mostly bears read the bear blogs. What waves have done is shown you the probable alternates and allowed each and every one to make up your own mind. And most of you have and that is a great credit. That's all we can hope for is that you understand enough about the theory and be able to make your own judgments.

And there are a lot of great wave readers that comment on this blog. They too are showing the way(s).

But looking back the count hasn't changed. This is still P2. This is still Minor C up. We are either in Minute [v] up to a final peak or we peaked at 1080. Either way, those are great to know. And if the market makes a new high above 1080, its just a matter of subwave squiggle interpretation. After all Minute [v]'s don't last forever!

So when will I stop trying to properly interpret a P2 top? When I get it right! For anyone to even make that statement doesn't understand waves at all. For the more the waves trace, the higher the probability interpretation.

Even if there is another major structure up to 1250 (after an Intermediate sized pullback), I'll be interpreting based on all the evidence I can gather. So I won't stop. So in that respect (looking for P2 peak) you could say this bear won't be broken. But only because the primary trend not only points down but points down to a drop to unfathomable levels.

The waves give you really good entry/exit/stop points. Many here are daytraders and I can respect that. But a few daytraders tend to have that "10 minute window thinking" and cannot fathom other methods or see beyond the next support /resistance level sometimes. Sometimes that's where the greatest criticism comes from. Well that's too bad. Tell that to my bulky (as in unwieldy) 401K which is limited to 12 trades a year in nothing but 15 choices of bullish mutual funds LOL!

But regardless this is not a 10 minute trading blog although I do like to do squiggle counts. Its an Elliott Wave blog. And the larger count is P2 top. I am having fun counting and so should you.

Robert Prechter gets bashed a lot. And he is not in the mainstream as much as you'd think. In fact he has been thought of as "discredited" by most in the media and non-media. I take that as contrarian.

I take the contrarian position that Prechter will be most correct now that a lot of people have shunned his views. And yes he has regained that following a bit, but he is still not taken seriously in the mainstream too much. And even after he had smartly charted the entire 1576 - 666 drop, he still hasn't gotten proper credit except among a few bear blogs.

So we have a LONG way to disprove the P2/P3 theory. But near the top of P2 when it is still tracing out excellent patterns to a top is not the time to abandon the P2 camp if you been in it for the majority! Its the exact time to jump on board. But please, due diligence and make your own minds up...and that I know you do.

Just be aware of the psychology.

And for the NASDAQ chart I shown, do I know it will happen or even have it as my primary count? Well it doesn't matter what I "think", it matters what the wave pattern potentials show. And as long as the potential possibly projects to the levels I have it (not certain about time) in a valid structure, I have the responsibility to have it as an alternate count. The fact the there was an exact 1.614 expansion ratio is a little scary....

Regardless we would be "mentally prepared" for the alternate pattern to play out and at a psychological level we could sift through the bullshit and keep from losing money (or make money playing the pattern to the upside with smart stops)

More importantly cannot you see that if the NASDAQ traced exactly a 5 wave substructure to 2215 that it would actually be the most valid top pattern to date? Just when the pattern traced a perfect 5 wave structure of significant size and duration, a part time waver would be "done" with wave theory for good. That's just the psychology of waves. But more importantly, thats the psychology of the market in general.

By the way, the NASDAQ count to 2215 is not my primary count. But I do have to respect the Fibonacci and EW pattern potential. It is a valid alternate of course. And if the NASDAQ does make a new top, I suppose it may be close enough to 2200 anyways.

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