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Monday, April 18, 2011

Elliott Wave Update ~18 April 2011 [Update 7:25PM]

[Update 7:25PM:
Prechter has always written about the great asset mania that has occurred at the top of this proposed Grand Supercycle wave.  Everything seemingly gets bid up in a bubble of historic proportions. Yet asset mania has once again fueled the markets to produce the proposed Great Right Shoulder of the Grand Super-cycle Head and Shoulders of the 2000 left shoulder, the 2007 head, and the 2011? right shoulder.

This asset mania, and the gambling culture that goes hand in hand with it, manifests itself in popular culture. Last year I theorized we have "seen the top" or nearly the top in asset mania when I observed 2 popular reality shows that reflected this:

The first was called "Meteorite Men" in which basically you can find space rocks worth thousands of dollars. Thats right. Even though Earth itself is one huge space rock, you can get rich finding rocks that drop from the sky.

The second show is called "American Pickers" The only way to describe this show is they go around finding rusted junk, and selling it as newfound "treasure". I thought surely we have seen the top in asset mania. Rusted junk being marketed as "treasure".

Well, this weekend the wife was watching yet another show and this is called "Storage Wars".  Whats this about? Well, its about people bidding on the right to claim abandoned storage sheds' contents, often just trash, that litter the country without knowing actually whats in it. It melds the gambling culture that an asset mania has produced along with the absolute belief that an abandoned storage shed must contain some treasure of value.

Have we reached the top finally? 

I await further cultural clues that we have truly gone insane.  And yes, a storage shed or 2 has "produced" epic riches (story of the car buried), but really, an abandoned storage shed must be the last refuge of the manifested mania yes?


I eagerly await more clues that the "top" may be in.

[Update 6:35PM: Another look at NYAD. My count is "maximized" pretty much. In other words new highs in the NYAD might be problematic.

On the other hand, we have no positive divergence on this chart versus the one shown earlier at the 6:05PM update.

As far as divergence? How about this: NYAD has crushed its previous 2007 peak in cumulative mode, yet market prices overall (using NY Composite or Wilshire 5000) are well below the 2007 peaks.

Weekly. Fifth wave overthrow and false breakout of the channel? Look closely you can even see the Minute waves at the end of this count.
[Update 6:05PM:
As much as the market is "setup" for an even stronger wave iii of (iii) down via potential wave count, we do have an equally potential bullish technical setup that actually has the market going back upwards toward 1324 (at least) prior to any more bearish selling occurring.

Basically we have a small positive divergence on  market breadth.  This has occurred many times during P[2] up as shown in the second chart.

If the positive divergence pans out, then we are looking at at least 1324SPX in my estimation which means today's selloff will have been completely recovered and then some. Then we go from there. Hence my ALT count of an expanded flat wave (ii).

If the positive divergence fails miserably and more bearish selling occurs, then we have strong indications of a major trend change of at least possibly intermediate degree.

The bullish technical setup can be seen to have born out for P[2] its entire existance. If its still P[2] up, it should bear out again. If it fails to go above the  recent bounce price point of 1322 SPX prior to getting a lower low on more bearish selling than today's low of 1295, we have a good sign of a trend change.  

Primary count is a (i)-(ii), i-ii situation is "setup".  Therefore the strongest selling has yet to occur in the middle of a third (iii) wave down.

There is a blasted gap down you can drive a truck through so if somehow the market managed to close that gap through an overnight gap up, we may have an expanded wave (ii) flat. This is marked by the alternates. I think we'll know via futures by morning what the market intends to do.

I was listening to a radio news station on the way home from work today and the business report mentioned the S&P downgrade of government debt of course. In the end the commentator stated to the effect "Well everyone knew the debt is in bad shape and S&P was warning for a couple years that a rating change could happen. Having it actually said, still, sent the markets in opening bell turmoil."

"Everyone knew" he said...

Yes everyone does know. And Americans may suck at math, but we understand budgets.   We understand that if you make $30,000 you cannot charge $40,000 in debt and hope to "win".

The scary thing about a Ponzi scheme is that maximum bearish sentiment does not stop its collapse. For instance when the investors found out about Madoff,  do you think anyone was willing to see if there was "upside surprise" on a contrary sentiment play? Of course not!   Bearishness toward his fund went 100% negative and it collapsed swiftly all the same.

Now obviously the financial markets have some value and perhaps more value than bears like to admit.  However, that is if we trust the counter-party's involved. That is if we trust the Federal Reserve will not declare bankruptcy.  If we are convinced we are not being hood-winked and bamboozled by Wall Street.  If we can take delivery on something of tangible value (real gold) other than numbers stored in a computer or some vault we are not allowed to access. That is if we can access our "assets" and utilize them as we see fit. That is if the government does not again change the rules to suit them and their connected cronies. Or steal your savings. Or raid you 401K. Or take away your gold. Or hope the banks stay solvent. Or the FDIC can truly save everyone's money.

Financial markets are a tricky deal of trust and that trust can be eroded over time to the point that it does not work at all anymore. And trust's breaking point can come swifter than you thought possible. And it sure looks like its headed that way slowly, over time, breaking the trust.  Indeed, P[3] predicts the trust will break.

We are nowhere near a bear market bottom in social mood. Therefore the market will follow suit.
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