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Thursday, February 17, 2011

Elliott Wave Update ~ 17 February [Update 11:30PM]

[Update 11:30PM: I not only try and get the count correct, I try and think of the reasons on why waves trace the way they do. For instance earlier I talked about how Intermediate (C) and (A) are related to each other and how (C) will try and expand a Fibonacci multiple of (A). This is the overriding trend at the moment. (C) means to go to a meaningful extension of (A) and the first Fib noteworthy is .618 times (A). We are approaching that now on practically all the indexes as we speak.

Whats important to also observe here is the "look" of (C) versus (A) in a proposed 5-3-5 counter-trend  zigzag pattern. Is the (C) leg 5 full waves as it approaches the .618 marker?  If yes, and it has the "right look" then it can be a very valid pattern indeed.  Of course market internals and sentiment measures should align to the theory of an (A)(B)(C) also. In this case I say we do align very well in both time, price, wave form, sentiment measures, etc.

But what if the last Minute wave of Minor 5 of Intermediate (C) fell short?  What might it do? Well I propose that is where a fifth wave extension might come into play. That little extension is the market's effort to fulfill its destiny of reaching at least the .618 Fib marker.

So below is my presentation of a little fifth wave extension in an effort to make it to the .618 Fib marker on both the Wilshire 5000 and SPX.  Maybe it was meant to go there and means to.  Certainly if it does in the manner I lay out below, market sentiment measures will again likely be at extremes across the board.

Incidentally, expansion ratios of related waves are more powerful than retracement ratios. This makes sense as the entire underlying purpose of EW theory is the advancement of man.  There have been many powerful examples of these expansion ratios being met precisely. In fact I would guess the larger the related waves, the more accurate the expansion.  And (C) and (A) are two very large waves.

One last note of interest: Wave (A) was a very choppy affair and a difficult read. Wave (C) has alternated and has been a fairly smooth, unchoppy advance. The evidence of (A) being such a crappy wave suggests corrective. 

Extended wave fives always look abnormal - because they are.
[Update 6:17PM: Bond count.]
In Elliott Wave theory, there are forces at work at many degrees of trend.  For the rally since March 2009 we have had 2 separate rally waves, the first being from 666 to 1219, and the second from 1010 to our current prices at 1341. These waves, which I propose are an (A) and (C) wave, are related to each other. Therefore the (C) wave usually will extend a Fibonacci proportion of the (A) wave. We are coming up on .618 of (A) in the SPX, Wilshire 5000 and Global Dow.

We also propose that the (A)(B)(C) is a massive counter-rally wave in an even bigger bear market.  This counter rally wave was necessary as it relieved the extreme fear of social mood.  This occurs so we don't kill ourselves as a species.  This P[2] or X wave is "setting us up" for another round of fear and panic.  We can proceed with even greater stresses. We have been prepped whether we know it or not. We are preparing mentally every day whether we know it or not. Such is the mass effect of social mood.

Yet within this massive rally, we propose that an even larger trend (bear market social mood) is working to eventually win out over the still flaming optimism that exists in the world today.  This optimism exists despite the "box" the Central Banks have found themselves in. Despite the massive credit bubble the world is in. Despite everything, the effects of a 220 year+ Grand Super-cycle wave III has a 20+ year "top". That top is so big we fail to see it as we live in it day to day. But a Grand top it is.

We propose that we are on the back half of the topping process.   It matters not if in the end we count this as an "X" wave or P[2], what matters is the counter-trend rally is quite mature and has reignited the old fires of the credit and asset mania. And those fires will extinguish as they have before. 3 times is a charm.

But that mania is subdued on this back half. Witness the uprisings going on  in the world despite the massive relief in social mood. Witness housing which is continually drubbing lower. Such is the overriding effect of the larger trend.  2 massive forces at work. An extreme bear market which has yet to truly bite and the necessity of the counter-rally that was needed to relieve social stresses. The larger trend always eventually wins. Counting waves is the way we prepare ourselves for a turn. In this case the turn may be extreme.

The trap is more than set. The FED, who's hubris has even taken me by surprise, knows no bounds.  And the "Fed worship" being displayed, even by bears, is amazing. There is no "other" who can effect a save of the world.  Should Fed worship run its course, which is bound to happen much sooner than later, there is no other savior.  It may likely be a "Ponzi moment" in time. 

 I gotta go eat dinner, but I was playing around with patterns. Wedge comes to mind.
This is a work in progress. It doesn't look right.

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