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Friday, April 15, 2011

Elliott Wave Update ~15 April 2011 [Update Sat 10:18AM]

[Update Sat 10:18AM: Oil. Is an ED pattern forming? ]
[Update 8:11PM:
I have been a member of Sentiment Trader for well over a year now and enjoy the myriad of information they spew out.  A top-notch sentiment site for an Elliott wave technician  is almost a prerequisite. If you only look at wave and price patterns and ignore the underlying sentiment theory, you are not doing your best to the true principles of EW theory in my opinion.

Anyways, I always paid attention to their short term timing charts (STEM MR.) and their longer term timing sentiment chart (STEM). Well I guess thats not quite true...often I willingly ignored their timing charts during critical wave periods of P[2]...and most often their timing charts "panned out" and thus my count wound up short-changed as a result.

So, I always look for a synergistic alignment of both their STEM MR. and STEM charts toward my wave counts both short-term and longer. Rarely if ever have they "lined up". I figured their "charts" would lose and my wave counts would "succeed" but in truth I learned a hard lesson that they mostly do not. I still am trying to find the correct "balance" between their myriad of varied technical sentiment indicators and pure wave counting, but ultimately its an art form more than a science.

In view of the giant 5-3-5 zigzag that stares us in the face on various index charts, we now may have a very good alignment of STEM and STEM MR charts for the current wave count.

At an extreme level despite the fact the market is not near its highs. [NOTE: upper red lines on charts represents extreme levels of bullish sentiment which implies, in theory, that market prices will go down as a result because the "trade" is too one-sided bullish.]
STEM MR (shorter term) CHART:
Also at an extreme despite the fact that we have had only a 50% or so rebound from the high. No diveregence though. Despite that, both the charts support the idea of a vigorous wave (iii) down soon. At the least, the charts show that a decline is "supportive" via sentiment timing models.

Regardless of how things turn out, this is an example of how your humble blogger tries to vigorously meld sentiment models with wave patterns to form an overall primary and alternate count. 
VIX (and my personal apathy):
The VIX is approaching new lows despite the market not making new highs. I take it as complacency. Even I am drained of energy and have suffered "Black Swan Fatigue" syndrome.   Thus my energy levels are low as I force myself to type this and make updates everyday. Even I doubt myself profoundly and have a great deal of apathy at the least toward the markets in general. I just don't care at the moment. I find myself immune from personal attacks against my blog or me. I just don't care. I am a permabear and I don't care anymore....I take it as a small sign of perma-bear exhaustion. Which means the market is probably more than ripe for a major surprise to the downside.

But if the market doesn't go down and doesn't favor my primary count? Well again, I just don't care! Criticism? I don't care! Remarkable about how personal social mood can itself manifest in things.

Vix shows the apathy that I feel:]
[Update 5:26PM: China wave count.]
For well over a year or actually the entire P[2] rally since the March 2009 low, I always envisioned a P[2] that would produce a cyclical top in gold; a major retrace upwards in commodities; a major retrace upwards in equity prices, bonds prices that show signs of a super-cyclical, generational top and a major cyclical low in the dollar. All this has come to pass so far in that prices and price action have done exactly that. This was Prechter's vision and it made sense to me.

I never imagined things would be pushed so far. But they have. Yet the fact that they have pushed further than we thought does not make the notion of P[2] incorrect. Indeed P[2] was ideally supposed to be a giant, sharp, 5-3-5 zigzag.  At this moment in time, what does the bull rally since 2009 look like I ask you?

I also suspected P[2] would produce major non-confirmations across markets both domestic and foreign, across asset classes, and across time both long and short . But I had no idea that the varied results would produce such a rich diversity of non-confirmations both in time (comparisons with the 2000 and 2007 highs) and across market places and sectors. But at this moment they have (more on this this weekend).

P[2]'s singular mission was to alleviate excess bearishness that was produced by the 2008-2009 market collapse . It has more than done its job. A myriad of indicators and sentiment surveys have produced record extremes or multi-decade extremes in bullishness recently. This is despite the fact that the entire world's market structure is in fact operating like one giant Ponzi scheme. There is no one, including the most diehard bull, that will argue against that point. And that is amazing.

The one factor in sentiment that I have always proposed is that a "Ponzi awareness" may occur amongst the general populace in which prices continue to go down despite maximum bearishness. I postulate this is a rule of Ponzi schemes. This is obviously one factor that has not come to fruition just yet. But we have had many prominent market players and even Congressmen allude to the reality that we are printing money out of thin air. Many have even outright called it a Ponzi scheme. And printing money out of thin air is indeed a form of a Ponzi scheme.

In reality the great credit bubble seems to be a rounded top affair. It took many decades to build the bubble it does not "pop on a dime". Rather the credit bubble loses steam and shifts from one group and country to another.  First we had the general populace, worldwide in fact,  take on more credit than they could.  This topping process has not yet quite rolled over for every county although there are signs the last are now topping out (Australia housing for instance) The general populace has mostly peaked and is turning downward.

The final shift has been to a small group of bankers known as the Central Banks.  Prechter has always said that Central Banks are always the "last to a trade" and it seems no different this time. They are buying debt when no one else really wants to.

When the Central Bank(s) loses its appetite for taking on debt, the bubble will begin its downward acceleration in popping.  There are signs that the Central Banks are losing their appetites. Elliott Wave theory is a theory of social mood and the bankers are certainly subject to its laws. Every man, woman and child is subject to Nature's Laws. This never changes.

Social mood itself, which is exerting its influence on Government spending, will ensure the Central Banks lose their appetite for further credit expansion. We can see this playing out currently in Europe (Iceland's NO vote on bailout), in Congress and other places if we care to read the signs. This shift in sentiment against spending is also not an "even turn". Individually, one by one, either by choice (bearish social mood exerts its influence on you) or by force (you have no access to credit for instance because you lost your job), people are "popping" their own individual credit bubbles.

The bottom line is the great credit bubble will rollover and contract. History has proven this time and time again. And history has proven that bubbles contract to at least back to where they started.  And we did not start at DOW 6500....

Today went much as expected and is consistent with a small degree wave (ii). If you look closely, we have 5 small waves down from today's intraday high. So wave (iii) down may have started.
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