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Tuesday, October 8, 2013

Elliott Wave Update ~ 8 October 2013

Our basic counts haven't changed. The premise is that cycle wave b of supercycle wave (a) has topped and we are in the beginning stages of cycle wave c down.

This wave count is based solidly in EW theory. The pattern since 2009 counts best as a "three" pattern nearly equally divided in both price and time. This would indicate that the pattern is corrective in nature and suggests strongly the larger degree trend (supercycle) is down.

"B" waves of any degree are also known as "bullshit" waves. They are false waves based on shaky foundations. All corrective waves to the larger trend are deemed as such by EW rule. The fact that a corrective cycle wave of such immense cycle proportions is a clue that the subsequent down wave of cycle c of supecycle wave (a) should, in theory, be horrendously and historically the worst in 250 years.

The fact that it may have "kicked off" with already a horrendous underlying mood is a bigger warning that indeed, the shit is perhaps ready to hit the fan. Robert Prechter of EWI recently discussed this in a monthly EW Theorist newsletter and called it the "uh-oh" moment when investors recognize the precarious positions they have found themselves in.

His description aligns with my theory of when a Ponzi scheme gets recognized for what it is.  In other words there is no "upside surprise" in a Ponzi scheme scenario. Once the scheme is recognized as such, sentiment drops to 100% negative and it collapses rather quickly. There simply is no "contrarian" bullish play to such an event. This is also an analogy of a modern day "bank run".  For truly all modern banks are insolvent due to the nature of fractional reserve lending.  It is only the lack of a "ponzi moment" by the depositors that keeps them afloat day in and day out.

Will society have an "oh-oh" moment (as Prechter suggests) with a twist of Ponzi scheme mentality mixed in for good measure?  I suggest probably it will sometime in cycle wave c. That is the kind of sentiment that can bring rapid price declines that "break" all technicals and expectations.

Some also refer to this as a "financial heart attack" which disrupts the overly complex financial systems in most likely "simple" ways (for instance sudden interest rate shocks) that prove mortal.

The wave pattern below suggest a very neatly traced "three" (corrective) pattern has occurred over a perfect Fibonacci 55 months. At the very least, we should respect the time, price and Fib relationships. EW theory suggests cycle wave c is upon us. And cycle wave c is not supposed to be friendly at all and is supposed to be stronger and longer than the 2007-2009 collapse.

I didn't make this pattern, the market did.
Squiggle count suggests we are in wave (iii) down.

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