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Wednesday, August 26, 2015

Elliott Wave Update ~ 26 August 2015

Primary count is that the market has topped in cycle wave b. This count implies the wave structure since the 2009 low is a 3 wave structure which means its a corrective wave.  

Instead of showing you what may or may not be the next day's short term squiggles (primary count is that we are in a wave [iv] with eventual lower lows to come), lets dive into long-term probabilities. After all, if we are suggesting cycle b is confirmed over, then no matter how hard the bounce, the "top" would probably not be revisited for a generation or more (Think Japan and its top in 1989). Thats a profound thought which deserves our attention.

Elliott Wave Theory is a logical theory of probabilities based on wave structure. Lets explore these probabilities based on EW guidelines and rules.

We'll start with the Wilshire channel chart. The tight green channel line since that 2011 low has been smashed through. This tells us that the wave structure as labeled from 2011 is over. Simply put, the correction of the last week is too large to be part of the 4 year count from 2011. And as you can see, it counts nicely as complete including an ending diagonal triangle bearish wedge.
Weekly give you the larger perspective:
Below shows a complete count using the DJIA: Not only has the DJIA average smashed through its channel lines from the 2011 low, it has smashed through its channel line since the 2009 low proper.  However the chart is in non-log scale.  Channels can look different in log scale as you'll see a few charts down.
So what if the cycle b "top" is not the top?  Then we must have an alternate count for that probability.  

If the market makes a new all-time high, then we'll have to count the move from 2009 low as a 5 wave move impulse and cycle wave V, not cycle b. I have been showing since 2009 low that the structure as it stands is currently a 3 wave structure. Until this week, we have had one major correction since 2009.  However, if a new market high occurs, the long term count would change to a 5 wave structure since the 2009 low.

Here is how that might look on the DOW in log scale:

EW Theory is a theory of probabilities based on wave structure and how those structures relate to each other. The call is that the cycle b "top" is in. But nothing is certain. If new market highs are in store, then we'll have to account for that.  

There is a lot of evidence that the cycle b top has been set. For one thing you need to check out Bob Prechter's Elliott Wave International (EWI) and his latest EW Theorist newsletter just put out on August 19th prior to the 4 day decline. He brilliantly charted long-term Fibonacci time and price levels over a multi-decade wave structure that is so unique (and so far accurate) its worth the price to sign up.

All you have to do is click on my EWI links to the left and sign up as a FREE EWI member. I would then get a small commission if you sign up for any EWI product or service thereafter. I recommend the monthly EW Theorist (Written by Robert Prechter himself) and Financial Forecast (monthly) along with Short Term update (3 times a week). They also offer excellent newsletters geared toward intraday trading based on EW structures and other products including all overseas markets.   Check it out!

My final thought is this: Even if there was to be another move to all-time highs, the same subsequent result would likely occur: Total market collapse. All we'll be doing is pushing back the inevitable deflationary depression.
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