Someone asked for clarification on where I think we are in the wave structure, so naturally I broke out my kiddie drawing program:

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Seriously, it’s hard to get precise about labeling waves at anything but larger orders of magnitude. It’s more about the feel of the market (whether it is the probing ones and twos or a rushing three or a struggling four or an exhaustive five).

Anyway, the above drawing starts at the 2007 highs (B wave top) and ends where I think we are going in 2010. Primary 1 ended in March, primary 2 may have just ended in January, and we are now in a smaller degree first wave in primary 3. Since we’re barely 3 weeks in and are only down 6-7%, it’s likely that we are still working on minor wave 1, and within that wave probably in the 1-2 area. Minor 1 of primary 1 bottomed in March 2008 with the markets down 20% and Bear Stearns going under. This doesn’t feel anything like that yet. This is more like the early probes of February-March, July-August or October-November 2007. We’re so early in, the news guys don’t even feel the need to come up with explanatory narrative yet.

Because this is primary 3 already, don’t expect the market to be as generous with shorting opportunities as in the drawn-out, rounded top of 2007. I expect minor 1 alone to do some serious damage, certainly get down under 9000 on the Dow.