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Tuesday, August 9, 2011

Elliott Wave Update ~ 9 August 2011 [Update 10:30PM]

[Update 10:30PM: Finally the dollar and Gold counts.

Notice today that Bonds, stocks and gold have been gyrating to various extremes.  The dollar was relatively muted today. The dollar's day will come.

Gold has surged.  We propose its in a blowoff top (which I have suggested recently in the past). We can only let it play out as it must.

The dollar is still setup for a move lower. I can envision a Minor 2 up in equities and a bottom in the dollar. Thats one such scenario.

1. The dollar will bottom in Minor 2 peak in equities.
2. Gold will peak prior to Minor 3 down in equities.
3. Bonds will peak and sell in Minor 3 down in equities.

"All the same market" traits should occur in Minor 3 down at key stages. It has not occurred in Minor 1 down which is probably appropriate.

Minor 1 and Minor 2 are when "divergences" and non-confirmations would probably occur across major asset classes. Thats where we are in P[3] down. So a dollar low on Minor 2 high in the SPX would be appropriate.  A Gold high at Minor 1 down in equities would be appropriate. A Bond high in Minor 1 down would also make sense.

There are extremes happening in major asset classes, we just have to be in tune to the precise timing. The dollar's day has not yet likely come.

[Update 9:10PM:
Any long-time reader of my blog knows how long-term bearish I have been. In a nutshell I propose the credit-induced rise of cycle wave V from 1980-2000 will be completely retraced (and perhaps then some). This means DOW 1000.

Why I am long-term bearish? Simple. I believe in the tenets of EW theory of social mood.  Which means I am judging mood needs to correct at an extremely large scale and is no where near a bottom . Does anyone doubt that this is happening? Riots in London, Israel, etc reinforce this.

As far as P[2], yes it lasted much longer, and went much higher than anyone thought.

Recently the wave count supported a Minor 4 triangle. That triangle proved to be a bust.  To be fair, I had envisioned that if the triangle had worked out, the subsequent wave 5 may have even truncated slightly at a double-top in the 1370 range in August. It was not to be.  The H&S pattern played out and was fulfilled. We had a major market panic.

The gist of things is that the "top" is in.  Why? Well anyone that reads and Mish as I do on a daily basis is always kept abreast of not only market gyrations, but events related to horrible social mood which supports the theory that overall world-wide mood is deteriorating rapidly.

Market internals were historic recently. Yes we bounced today, but EW theory predicts those bounces. The bounces are required!

The bottom line is that credit stresses and indeed the devil himself have been "unleashed". Social mood had rebounded long and high enough to allow the bear to come back out. EW theory predicts (via a big 3 wave move from the 2009 lows) there is no putting the genie back in the bottle this time. The game is now being played to the end is the call. And it will not be pretty.

So if you haven't already, read the above links daily to get a sense of whats happening behind the scenes, in the credit markets (which is a major reason I read them) and a sense of overall social mood via stories they link (Another major reason I surf those sites).

If you have been paying attention, the mood is turning sour and the credit stresses are approaching scary. This time around in P[3] we are not talking Wall Street banks, but entire sovereign G20 nations.  P[3] was predicted to be an upgrade of worse than P[1]. Can anyone say that is not so?

This is proposed P[3] and it will rip your face off. New highs above 1370? Good luck. We had that sliver  of a "window" and it seemed to have closed. New highs above 1370 would be an absolute span of cognitive dissonance never before achieved in the history of mankind because the genie has been unleashed and stuffing him back in the bottle will be almost downright impossible.After all, EW theory proposes the markets must go where they must (following social mood), and the Grand Supercycle count calls for a move back to DOW 1000. Not in 10 years mind you. The FED is ready to fail.

[Update 7:55PM: Here is the 2008 crash wave and how it behaved. The 2011 market downturn is behaving similarly which identifies it as a likely wave [iii] (or 3 if you prefer) candidate.

Note the panic low and intra day reversal of an intra day reversal. The market went on to peak at blue "4"  and churned lower.

I propose we are equivalent to that "4" today shown on the chart below which means it will find its peak and reverse. A panic such as we had does not erase itself overnight. The bounce should bring in sellers at a certain point. Its usually below the "blue box area" "point of recognition" if this is wave four.

Thats basic EW theory.
[Update 6:30PM: Target range is 1199 - 1215 SPX for a wave [iv] price peak. Virgin space should remain untouched  I think sellers will come in at 1200.
Primary count is that Minute [iii] has bottomed today. Looks like we have started our wave [iv] bounce.

Recall in 2008 after the market crashed and huge intra day reversal it carried on for a few more days and peaked at 1044 SPX.  Steam ran out and the market took it all back down once again.  The wave count calls for basically the same here.  Squeeze until it runs out of steam and work its way lower in Minute [v] of Minor 1.

Identifying a target range for Minute [iv] is key.
Best squiggle count
H&S targets all very well met pretty much and then some.
I'm thinking we've seen "overthrow" in bonds. Total short squeeze capitulation and a bit of a reversal.

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