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Thursday, August 5, 2010

Elliott Wave Update ~ 5 August [Update 9:33PM]

[Update 9:33 PM:  Next Wednesday/Thursday will be the .618/.382 ratio for time which is ideal split between the wave 1 low of 1010 and whatever wave 2 high this sucker gets to (or has been).

Also as far as time factors, the initial drop off of the 1930 rally was swift and then produced a small doubletop recovery double bounce. Sort of like today's market. I have shown this before.

Robert Prechter has some brilliant EW Theorist articles from April and May this year on time and Fibonacci cycles.  They are the best issues I have read probably ever.  His in-depth work on cycles and Fibonacci ratios is sheer genius.  He extrapolated the 1929-1932 decline and applied it to the current market cycles and predicted (and explained) the P[2] high in April this year.  Its amazing work and getting a subscription just for these 2 articles is worth the money in my opinion.

Fascinated by the cycle work and ratio he applied, I recently extrapolated the same information and cycle work he provided to see how it lines up with the recovery doubletop of early June 1930 and if that also applies to the current cycle and wave pattern.

Without getting too detailed, basically I figure that the time it took for the April 16th 1930 high to the June 2nd 1930 recovery high (call it wave 2 peak) should align with today's market from the April 26th high to the August recovery double top high we are experiencing now.  Using the same methods he did, the April 16 - June 2 waves in 1930 took 47 calendar days. Applying the current cycle time ratio of today's market computes to some 123-128 calendar days for Minor 1 and Minor 2 in the 2010 market.  This was a "maximum" generous take on things and you can see that so far there have been approx 102 calendar days from the April 26th high. So at most sometime in August will be the Minor 2 top. Perhaps I am being too generous (and margin of error) and a less generous time span would be about 105 - 120 calendar days which means we are on the cusp of that. Nevermind that an exact match is not to be expected anyways. My larger point is that we are in the ballpark.

So again, the main point is that time ratio of the .618/.382 between wave 1 price low and wave 2 price high and the cycle ratio that Robert Prechter is applying to the current market aligns perfectly with a Minor 2 top sometime soon (if not already).

You really have to subscribe to EW Theorist to be able to see what I am getting at.  And you can become a Club EWI member first (its free) by clicking on the links on the left side of my blog.  They offer a TON of free stuff. If you decide to then buy a subscription service, I get a small commission.

But my overall point is that things are not taking too long at all. They are taking just the right amount of time and the two ways of looking at things aligns very well. And yes, it may take more time in this low-volume atmosphere. I am prepared.

Overall I have been looking at an 8 month or so Intermediate wave (1). I derive this from the fact that 8 is a Fib number and (1) of P[3] may likely take longer than (1) of P[1] which lasted a Fibonacci 5 months. My reasoning is everything is grander in P[3] and so far that has been the case I think.

One last thing, the current bearish "trade" on Robert Prechter and Hochberg and EWI in general is getting a bit one-sided. Bearish sentiment on EWI is at about a 7% Daily Sentiment Index judging by the constant bashing I am seeing.  I really think people should be thinking about taking the other side of that trade so-to-speak.   I know I am.

DJIA price and volume trend chart still diverging.

[Update 5:53PM: Obviously the day started out great for bears as there was a very nice 5 wave impulse structure down from a pre-market peak on the e-minis.  If the high gets taken out, then we assume the 5 waves down is a [C] wave in a 3-3-5 flat corrective pattern.  So far though the bounce, although long-winded, is overlapping and looks mostly corrective (this is reflected in the cash index too).

Premarket high was not matched by the cash index during the day.  This is perhaps a sign of excess bullishness.  It often happens at these turns I have noticed that an overnight high (or low) is not matched during the cash index trading hours thus giving off a divergence signal.

The transition from impulse up to impulse down may be occurring.  Well, we'll see what tomorrow brings. I always seem to be pushing for that last one more wave that may not come.]

The primary count from a slightly differing perspective as a double ZZ up. There is an interesting cluster of Fibonacci relationships from 1140-1143:
So either the employment report "sparks" this final push up or... it won't. We await.  Certainly things are getting "close"  to a Minor 2 high but it would look even better with a final wave higher.  Sentiment has room to get more bullish if we went higher and stayed near there for a few more days/week.

Squiggle count from a perspective that another push up will occur tomorrow: Nothing is guaranteed particularly since I pulled this count out of my arse.
Very low volume holiday-type trading in the early dog days of August. Pushing the tape up and up is ever more bold but will lead to total disaster in my opinion.
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