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Tuesday, April 28, 2009

What Would Cause a Primary Wave 3 Down?

In this post I showed how the Great Bear wants it all back.

There is a certain "minimum" for a Primary wave 2. There are no "hard rules" on this, but there are strong guidelines. A wave 2 is normally a deep retrace. Considering the market dropped from 1576 to 666 for Primary wave 1, a retrace to 1044 is not out of the question for P2 although in the midst of a depression its seems insane.

What is the minimum for P2? Well a valid ABC correction for starters. I have shown that the market has traced that with 875 being the peak of a C wave. Also usually at least more than a .236 Fibonacci retrace, which at 881 the market will meet that so its very close in that regard for the "minimum" but a 50% retrace is normal. Also a "time" retrace. The market took 18 months to drop so a retrace of 6 months can be expected. Also this rally was to be the greatest bear rally since the start of the drop in 2007. That indeed has been the case. So in EW theory, Primary wave 3 can happen tomorrow. So all in all, some "minimums" have occurred but they are unsatisfying from an EW standpoint

But also in EW theory, bearishness on a Primary wave 2 should be shaken out to the point where the entire bear market is in doubt. Perhaps that would require a retrace to 1000 SPX, or about 10000 DOW and then people would indeed doubt the bear market.

But what if things have become too sophisticated? What if we have outsmarted ourselves in market analysis? What if Primary wave 3 was to start next week? What would be the "spark" for the greatest bear wave we have seen in our modern lives? Walmart earning 10% less profit ain't gonna do that...

What if EW theory predicts a catastrophe? Swine flu? Mega deaths? Real and measurable economic impact resulting from a worldwide spread of a nasty virus?

I usually assumed that the main media issue of a Primary wave 3 down to sub 600 SPX and then sub 500 SPX would be Government debt getting out of hand to the point that the whole system is on the verge of collapse. Indeed we are on the fast track to that happening. I still think that will be a theme of P3 but this recent swine flu thing makes me wonder if EW theory actually predicts an event that is unpredictable in general.

These are just musings of course. But shutting down travel and stopping economic activity in the event of a real pandemic has an impact on world economics. I kind of poo-pooed the situation at first (thinking of the past bird flu scares turned out to be nothing) but I have reconsidered.

A world unable to pay its debts coupled with a "curve ball" situation could trigger the devastating Primary wave 3 down. It only makes sense. Will the swine flu be a contributing trigger? My charts tell me no, at least not at this time. Its not yet in the charts. The market is ripe for a pullback and saying that the swine flu caused it all is convenient but maybe just an excuse.

However, a real pandemic that cause real deaths and national emergencies and a blunting of economic activity is something other to consider. But for now, I am not focused on swine flu and its impact on the markets. As an Elliottician, I generally look for social mood indicators. But a real pandemic definately may have an immediate impact on social mood.

The question is: Could it result in an abrupt, early triggering of a P3 mood?

Things to consider as many have.


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