Tag Archives: Elliott Wave

Dow update

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This pattern played out nicely this afternoon (highlighting is the possible wave 4 as I saw it then). We’ll see if there’s any follow through tomorrow. Would be nice to see a clean final wave down on diverging RSI to set us up for a rally.

Source: prophet.net

I think a lot of bears are waiting for a push to the 10,500 – 10,600 area. To be precise, I’d keep an eye on 10,480 – 10,575, since the market sliced right through it on the way down. The market doesn’t owe us a good retracement though — in April 1930 the first two weeks of decline were left in the dust. It was just get short or get left out. Same goes for late May, 2008 as minor wave 2 of primary 1 rolled over. The nature of third waves is not to give you an opportunity to get on board.

Dow update: one more low ahead?

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We’ve gone sideways for long enough now to reset things for a new low, should the markets choose (futures made a new low overnight, by the way). The channel has been violated, but these things are not sacrosanct. Waning upside momentum around the 10,250 level suggests we could be setting up for another decline.

Source: Prophet.net

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Here’s a close-up of today’s move, showing a contracting triangle that indicated stocks were going to break upwards, since the move out of a triangle is usually in the direction of the existing trend. Such triangles often precede the last move in a sequence, so I’m looking for exhaustion here.

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Of course, if stocks accelerate upwards from right here, all bets are off.

Congratulations Daneric

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There has been a lot of Elliott Wave bashing this year in spite of Prechter’s late February 2009 call for a rally from SPX 700 to the 1000-1100 area, and his call for maximum levered shorting about a week ago (he called for a 100% short position at about SPX 1020 in August), as well putting a sell on the long bond just before it collapsed under QE last spring, and recommending longs on USD late this summer and fall.

A lot of bears are fans or subscribers, and a lot of them lost money in 2009. Naturally, when they made money in the crash it was on their own brilliance, and what is a newsletter for if not to excuse your losses? But really, if you went 100% long SPX at 700, went 100% short in August and 200% short last week, you’d be up about 36% in under 12 months (after at least doubling your money from going “short with maximum leverage” in July 2007 and covering last February 24.

I do occasionally have nits to pick with EWI, but the bashing they get these days is just nonsensical. Who else, besides Prechter and Mish (and I harbor a suspicion that Mish learned about the credit cycle in part from reading Prechter) called for deflation while the bubble was raging?

At any rate, EWI is not the only game in town. Daneric has actually been more accurate in his medium/short-term calls than Hochberg over the last several months, and he posts every day for free. He suspected even as late as November that the top was not in, and that stocks would drift over 1100 on a sinking VIX before possibly topping out in January. Bravo! He counted the ending diagonal this month, said it looked finished a week ago, and on the evidence of this week’s decline is now finally calling Primary wave 2 over.

Kevin Depew interviews Robert Prechter

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This is from a month ago, but it is a wide-ranging discussion from a long-term point of view. Depew is a very sharp guy who saw deflation coming himself, so this is one of the best Prechter interviews I’ve seen.


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“Yes, a depression is a period that’s difficult for many many people, but it’s not the apocalypse, it’s not the end of the world. It’s just a tough period that’s gonna last, you know, five to seven years and then we’ll come out the other side.”

For a speculator, “there’s no better time than a bear market — they’re fast, they’re violent, they’re great.”

Scaredy bears

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Well, we’ve hit the first common Fibonacci retracement level (38.1%). We’ve now rallied 350 S&P points after a 904 point fall (1570 to 666). This is the best shorting opportunity since 12 months ago, IMO.

Source: Interactive Brokers

Nasdaq is nicely lagging, and the dollar is looking good. China could have topped already. The chatter on the boards is of scared bears and confident momentum chasers.

Next week could be nasty, maybe a drop to 950 before a rally to test 1000 again soon thereafter. Or maybe we slowly roll over and don’t break 950 til almost Labor Day (first week of Sept — when summer vacation ends in the US).

If this really is wave 3 down, it should be another 5 wave move, like wave 1. During the first wave, and even the second, most won’t believe the top is really in. Wave 1 could start from right here, since the momentum guys would be buying in on the decline and there would be few shorts to drive a squeeze to new highs. It would be seen as a “healthy correction.”

Robert Prechter interview

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From this morning on Bloomberg. Prechter now has a perfect record since calling for a major crash at the 2007 top and then calling the interim bottom earlier this year. He was made for this environment. His 2002 book, Conquer the Crash, is a practically a blueprint for what is happening.

Takeaways:

Betty Liu actually extended some respect to a bear. Maybe she’s been hanging out with Matt Miller.

Prechter expects a corrective sell-off within this corrective rally, prior to new highs, followed by 2008 redux starting later this year or in 2010.

Final bottom: 2011

Deflation to “definitely” continue beyond another year and a half or so.

The crash is a good thing if you hold cash and buy at the bottom.

Credit was shoved down American’s throats for decades by government-created programs: FHA, Fannie, Freddie, etc.

PS – Bloomberg now has a youtube channel, and is pretty speedy about posting interviews. Now I have no need for a TV at all, which is good, since I’ll be without one all summer.

Here is an interview from February 25th, where Prechter called for covering shorts in anticipation of the biggest rally since the start of the bear market. He has time to go a bit more in-depth here:

And here he is at the very top of the market in 2007, 20 years to the day after the ’87 crash: