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Monday, February 6, 2012

Elliott Wave Update ~ 6 February 2012 [Update 5:43}

It is of my opinion that the Fed's recent proclamation that "Rates to stay low through 2014" - which got wide airplay to the general public - was a "top tick" moment for low interest rates.

This hubristic statement occurred only after many years of the trend being so strongly in place for rates (down), that one has to wonder if the Fed has indeed lost their collective minds.  The fact that nearly no one has called Ben and his cronies out on this is also a strong indicator of how deeply entrenched "Fed worship" has gripped the nation.

The Fed is now "comfortable" in predicting that they will keep rates low for over 2+ years from now. That is quite frankly remarkable they can predict this. Rates have remained low for a full Fibonacci 34 months so now they think they can tack on 24+.

This 6 month chart suggests rates are finally stirring. Yes it will take a break above .40 basis for the Fed to begin mulling higher rates - but the market will dictate to them all the same. It always does.

Are higher rates good? No. Even at a nominal 4% interest, the government will pay $600B in interest a year  on debt. That is unsustainable so something will give to balance that out . Either higher taxes, less government spending or  "haircuts" on debt will occur. Or outright systemic collapse.  Take your
pick. Each is deeply deflationary to GDP output. A GDP contraction of that magnitude will not be good for any recovery huh?

Last week I suggested the target zone was 1334 - 1351 SPX for Minor wave 2.  You could probably be cynical and expand this upper limit to 1361 SPX based on Prechter's announced STOP LOSS of 1360 basis the cash SPX.

Obviously  Minor 2 cannot retrace 100% which is 1370.58 SPX.  So by now its a moot point.

In October, a Zwieg Breadth Thrust event occurred. This blog suggested that was a sign of internal market strength and that any retrace would be deep in price.  In only a few weeks time the SPX retraced over 70% in a zigzag formation to 1292 SPX which was deep already for a wave 2.

It was then suggested there was not enough of a time factor for Minor 2 (or Intermediate 2 if you prefer the higher degree wave labels).  Since one zigzag had already traced out - typical of a wave 2 - it was suggested by this blog that a second zigzag would fulfill the time factor.

But it was also pointed out by this blog that a second zigzag in Elliott Wave theory usually occurs not to fulfill a time factor but to fulfill a price factor - i.e. - the first zigzag was not high enough in price.

That has indeed been the case. The market has retraced another full 50+ SPX points above 1292.  So indeed a higher price has occurred in the second zigzag.  And of course all time factors have been resolved.

Now we await the market's decision on when and how high prices must go to fulfill the wave pattern. Anything above 1370.58 nullifies wave 2 plain and simple.

And even if the Minor 2 count was nullified, would that somehow relieve the market of all its downside potential thereafter?

I doubt it.

Some more squiggle possibilities with the thought that 1370 will not in fact be reached which is still the primary count.

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