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Wednesday, June 11, 2014

Elliott Wave Update ~ 11 June 2014

No update last night because Stockcharts lost their data feed all day.

There are a few logical questions to ask ourselves, for after all, at the end of the day, EW theory is a logical theory when it comes to basic wave counting.  The best counts incorporate the largest number of guidelines (channeling, "look", Fibonacci relationships, etc) and of course the few hard rules (wave 4 never moves into wave 1 territory) should never be broken to "make" a count work.

At the same time we have to make an educated guess as the waves are unfolding if we are part of an impulse pattern (bullish) or corrective pattern (bearish) and at what degree of trend.

It happens that our best count for the long term happens to be a corrective upward pattern - albeit very large - of a cycle-sized b wave that is "correcting" the previous cycle-sized a wave that had preceeded it. This long term count is reflected nicely in the Wilshire monthly chart below.

So what makes cycle wave b an upward corrective pattern (which is of course the "middle" wave of a three wave Supercycle corrective pattern)? Because it counts as a "three" wave pattern. The large corrective primary [X] wave in the middle makes it so. In other words using guidelines and rules it fits better into this count than anything else. I didn't have to "shoehorn" it into a count that I would prefer. I can merely see the count works better as a corrective pattern rather than impulse.

A closer look at cycle wave b also shows some quirks that make me want to label it the way I have it shown below. First anomaly is the fact that the next largest correction besides wave [X] is wave (B) of the first zigzag [W].  Simply put it does not look right to call wave [W] a 5 wave pattern. It counts and looks better as a three wave pattern.

However wave [Y] is a much trickier proposition. Based on the guidelines of cycle wave b being a "double zigzag" corrective wave, we hence have our count below:
Since the SPX will for all practical matters, be in the same count as the Wilshire5000, here is the SPX weekly. Note the "extended wave 5" count of the last wave (C) of [Y] of b.  This is again, per the textbook EW principles (Frost and Prechter).

I  had first suggested this count back in April because of the significance of a third Zweig Breadth Thrust event that had occurred. And the length of time and price of the rally has confirmed that the 3rd ZBT event was indeed lasting and meaningful.
So the question on the smaller scale is where are we at in the extended wave 5?  Well the best answer again using EW guidelines is we are trying to determine if wave (iii) of [v] of 5 has peaked. It may have but we need a few more days evidence. Its internal structure of wave (iii) counts as finished in a nice way. It "looks" right and it is longer than wave (i) so it is not violating that strong guideline.

I would propose that since wave (ii) was somewhat complex and "sideways" that wave (iv) should be simpler (like a 5-3-5 zigzag) and be less complex. .

Another guideline of wave (iv) is that it usually corrects down into the price range of the previous subwave iv of (iii). That range is 1916 - 1926. That would where we could expect a price low of wave (iv) to occur. And then wave (v) should, at minimum, should carry prices to a new all time high.

And that may be anywhere from 1975 - 2000 SPX if the wave is to "look" right. Probably carry to 2014 to make for a nice long term price top.
Again all of this wave counting starts from the largest - Supercycle projection, cycle count, etc, down to where we are now - counting out the last waves of a possible extended wave 5. It all "fits" and its the best we can do.

One last note about the SPX weekly above; the last Zweig Breadth Thrust event occurred as wave 5 was just starting to unfold. This was the internal "push" that signaled it was going to extend.

An extended wave 5 implies that the market has stretched itself too far. And again EW theory guidelines state that extended wave 5's, after their completion, reverse the opposite way rather quickly.

So I didn't squeeze my counts into my biased beliefs. I would happily change the count of any of the above if it would fit better into EW theory rules and guidelines. But it doesn't at this time so we go with what we have.

A last note is this: Cycle wave b has morphed into a quite large "expanded flat" pattern for Supercycle wave (a). This implies that the final cycle wave c will carry prices far below the 666 SPX low.  Again, this is not me pulling something out of a hat, this is how expanded flats count according to EW theory.

So in the end although I am a very biased and bearish person underneath, it is only because the waves keep painting that bearish picture. Cycle wave c is likely to be the credit bubble pop that has been building for 40 years. And it won't be pretty.

Well because bonds may be impulsing down. Imagine the balance sheet losses of the Federal Reserve is prices keep falling. And now there is a woman in charge,  And yes, I read "Men are from Mars, Women are from Venus".  This suggest that women are, well, different.  And therefore we can expect a different outcome when put to the test of a stumbling market. (and that was actually meant as a complement - I think she'll be conservative about printing money unlike Ben yet in the end social mood will vilify her if the market collapses)

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