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Monday, October 4, 2010

Elliott Wave Update ~ 4 October [Update 8PM]

[Update 8PM: Another asinine share buyback. Chevron. To the tune of $1B a quarter to "create value for our shareholders". And what individual investors would this benefit the most? Surely not our measly few shares in a our measly 401K's mutual funds. It only benefits the upper management who get their bonuses in huge swaths of stock options.

Using corporate leverage to cash out whatever they can before people finally get fed up. Ironically though most (including retail and mom and pops) would think stock buybacks are a "good thing". The individual little guys who work at Chevron are likely "proud" and glad of the move and are high-fiving each other. Yet those same peons who rely on Chevron for long term employment are being robbed of any safety nets. The next downturn Chevron will fire a random 10% and say "Sorry, we need to save cash in this tough environment" or some such BS. And the execs will have gotten theirs.

Such as it is as we have been fed by the CNBC types over the years.

Now maybe you can say, but Chevron is a bad example as they really are a rich company, and maybe it is, but you get the idea. Stock buybacks are back-door cash-outs. Does the corporation exist for the shareholders only?  Do they not have a commitment to the long term well-being of the little guys they employ that helped make the corporation great in the first place by carefully allocating all resources at all times? If your answer is the shareholder is all that matters is exactly why this bear market will march onward.  There needs to be a rebalance. Nature will ensure it and it does this through long-term social mood swings.

This is a huge waste of resources and no one objects. Does Chevron have such pristine balance sheets that they can afford this? Will this hurt them 10-15 years down the road should there be another severe downturn? Do you think the current execs care?  I doubt it. They are getting theirs at the expense of everyone else. That is the massive greed that has accompanied the Grand Supercycle wave III and its effects are still very much in practice.

By the end of the bear market, social mood will be less inclined to watch the upper crust continue to siphon off cash from the corporations that produce jobs for us little guys.

I'm not an anti-capitalist. If only we would allow true capitalism to work, clowns that ruin companies would be getting thrown in jail and made begging for jobs (insider trading, shady deals, cooked books, etc, etc,) instead of rewarded with billion dollar parachutes and a promotion at the next government-connected gig. Bad CEO's would never hold another corporate position again. Yet they always seem to pop up in another job, in another company, to start the looting cycle all over again.


I am a realist though. What mankind will never do for himself (put a check to the greed and looting and lawlessness) Nature's Laws will step in to regulate via a social mood construct which guides us with an invisible hand toward questioning what is going on all around us.  And we will eventually take action.  It has already begun. The sheer scale of madness we are experiencing though is quite a beast to tame and turn around.  But like a huge Titanic plowing the North Atlantic, give it enough time and room, it will turn.   I repeat, the process has begun

The bear market is a long way from over.

[Update 6:36PM: Speaking of NFLX, traced a pretty decent 5 waves down. Backtest to the red line and a challenge of the gap down coming? That would be a nice short entry I suppose if it gives us that opportunity.]

[Update 6:22PM: Its been a while since I showed the Consumer Metrics site. They show the 2010 "contraction event" now much more painful than the 2008 event.  One must ask themselves "If the 2008 event led to a historic decline in the stock market, could the same happen again in late 2010/2011?"
Now this cannot predict what will happen exactly with the stock markets. But what it does show is that economic activity (buying things) as tracked by Consumer Metrics is contracting persistently. Now remember this contraction is a year-over-year comparison so we are comparing to the "recovery" of 2009.  Yet there is still no sign of a "bottom" for the 2010 contraction.

This is just one method that supports the notion that social mood is turning downward (defensive) and contracting rather than expanding.  And it does not refute the theory of a P[3] wave down. Certainly we already have ample evidence that 2010 is already worse than the 2008 event.

This chart, all by itself, almost seemingly assures a "double dip" recession, at best. 

At worst it gets the ball rolling downhill on a continuing Ponzi nightmare ride we have found ourselves in. Is it "good for stocks"? Is the market priced for a full blown negative GDP 3rd quarter or even worse 4th quarter?

In conclusion, this chart does more to support the notion of P[3] down than it does refute it.  Indeed its a wonder the SPX is still trading at 1135 and NFLX is still above $155.]
Using the basic tenets of EW one has to conclude that the final wave structure to the price peak of 1157 was based on a three-wave move at the very end from the 1122.79 pivot.  This three wave move is only a valid "top" if it is part of a 3-3-3-3-3 ending diagonal triangle, either expanding or contracting.

I have such a topping point counted in my SPX chart below. So at least we do have a plausible ending count
The flipside is a down move such as a Minor wave 3 should start impulsing down in 5 waves. So far that has not been the case on the total move from 1157. So far we only have three. It could just be a 1-2 and something larger is forming. We will know because that "something larger" will have to break 1130 support and the 1122 pivot.

But so far support has held.

I have noticed that whenever the market tries to break upwards on a disappointing breakout triangle move, the best bet for bulls to save the day is to:  1) Regroup while holding key support and/or pivots 2) Attempt to trace out an even bigger triangle (or a complex double three)  3) Once the bigger triangle forms, attempt another breakout.

Now these attempts are usually only good for extending the duration of the market in both time and price a bit. - Ultimately the market is usually weakened enough that even a new triangle formation would only result in limited upside.  Bottom line is the market will eventually turn down but it'll do it on its terms.

Is that the case here?  Well we'll have to see. Technically it looks like its ready to rollover a bit more - but again it actually has to do it.  Also we need a 5 wave structure down.
The dollar has rallied in only three waves - so far. It needs to be a 5.  The Euro has retreated in 3 waves - so far.

So ultimately we need that final push to form 5 waves on the SPX and likely dollar and Euro to confirm a trend change in each of these key markets.  I say its coming tomorrow but I have no crystal ball.  1131 support will break when its ready.
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