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Thursday, August 1, 2013

Elliott Wave Update ~ 1 August 2013

One market we have relatively gotten "correct" is the bond market over the last year or so. The wave count:
And this article nicely sums up exactly what I have been saying now for the last few years.

The nice thing about EW theory is that it is a logical theory that measures an emotional state.  The wave rules and guidelines help us make sense of an emotional move in asset prices. And that is a special thing.

Taking the wave form since the 2009 low projects a nearly equal in both time and price "three" wave structure.  This is EW logic. A three wave structure implies corrective to the larger trend. This is EW logic. Since this three wave structure is up, the larger trend is down. This is EW logic. The Intermediate term wave (C) of [Y] of cycle b also has an elegant EW logic to it.  As you can see, it is tracing out wave 5 of (C).
Even the smaller time scale of merely wave 5 of (C) in detail shows a simple EW logic.  Specifically we can identify that today's up move likely represented the middle of wave (iii) of [v] of 5 of (C) of [Y] of cycle wave b.

The puzzle picture is forming on a very large scale and small. And yet it is precisely at this point where EW theory is mocked the loudest and most. Yes it is the nature of such things and cannot be helped. When EW clarity becomes clearest - which is almost always near the end of a long wave structure - adherence to EW principles wanes the most.  Like Noah who built an ark after a long dry summer and was mocked the loudest near the end of its construction.

That's what it feels like now to be a bear in a bullshit bull market.. We have built an escape ark (long term EW map) yet the ground is still dry for the bears. The rains haven't yet begun to fall, however the storm clouds are definitely gathering.
And zooming ever closer, we can see Minute [v] of 5 of (C):
Techncially the market's internal measures are still on the weak side as mentioned last night as we would expect for a wave [v] of 5.  The NYSE for instance only had 62% up issues ratio on a day in which the SPX rose a solid 1.26%.  Thats not a great match and indicates a squishy underside to today's rally.

Back to interest rates. One of my favorite wave count charts. A multi-year inverted head and shoulders reversal pattern may be complete. A rapid rise in the shortest-term interest rates may be in short order. Naturally everyone will be stunned when and if this happens.  I won't be. I expect it due to the wave count.

When this 6 month chart hits .40 to .45 to .5, you'll hear talk of the Federal Reserve perhaps raising the short term interest rate.  They won't want to of course - more likely they'll lie about wanting to - but their hands will be forced nonetheless.  The Fed is so trapped its not even funny. Being the biggest buyer guarantees NOTHING. It only guarantees your losses will be great if the market turns against your position. And the Fed's position is "ALL IN" on bonds. They are the ultimate "whale".
Good luck.
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