Care for My Mind Numbing S&P 100 Elliott Wave Count? ~ The Risk Averse Alert

Saturday, June 07, 2008

Care for My Mind Numbing S&P 100 Elliott Wave Count?

I know some of you are interested in my interpretation of the S&P 100 using the Elliott Wave Principle. So, here's my near-term view showing why I believe the stock market is just days from collapsing.

The Elliott Wave perspective I am sharing here is up close, time-wise, because what matters most right now is the opportunity at hand. We seem to be facing one of those reasonably rare occasions when the stock market affords an extraordinary opportunity to turn a tiny stake ($500) into a tidy sum trading stock index options.

(If you are planning to take advantage of this opportunity, you might like knowing precisely how I am trading. Get on my Trade Notification List and you will receive real-time alerts via e-mail disclosing OEX options positions I am opening/closing.)

So, without further ado I give you, first, a chart of the S&P 100 over the past three years. This gives you a better sense of what I think has unfolded since the stock market topped in October '07.


(Note: according to the Elliott Wave count you see here, July '07 is the point from which the S&P 100 began its present, multi-month correction.)

Wave A (ending July '07) completes five waves up from October 2002. This wave A is but a sub-wave of a larger wave (B) of an (A)-(B)-(C) "irregular flat" that began when the S&P 100 topped in the year 2000. Wave (A) (not shown here) of this larger, (A)-(B)-(C) "irregular flat" is itself an "irregular flat" and ended in October 2002.

The (A)-(B)-(C) "irregular flat" I believe presently unfolding since the stock market's top in 2000 is seen forming the 4th wave of 5 waves from the 1974 bottom. The 3rd wave of these 5 waves from 1974 unfolded from 1982-2000.

Since wave (A) ... which unfolded from 2000-2002 ... is considered a "flat" — a 3-3-5 corrective form — wave (B) ... by way of the "Rule of Alternation" ... is expected to be a zig-zag — a 5-3-5 corrective form.

Again, wave A of (B) unfolded in five waves from the October 2002 bottom to the July 2007 top. This is but the first part of an A-B-C zig-zag [to the upside] that I believe is presently unfolding.

Wave B of (B) — the middle wave of this presently unfolding [rising] zig-zag — is near completion. The Elliott Wave count shown above reveals wave B of (B) began at the July '07 top and is subdividing into a complex a-b-c-x-a-b-c form.

The first a-b-c of wave B unfolded as a zig-zag. Wave x of B also unfolded as a zig-zag (according to the Elliott Wave Principle, a "connecting wave" — labeled wave x — can be "any three").

The second a-b-c of wave B is unfolding as a flat. Wave "a" is a zig-zag ... wave "b" is an irregular flat ... wave "c" — expected to sub-divide into five waves [down] — began on May 19, 2008.

Again, wave B is but the middle wave of an A-B-C [rising] zig-zag forming a larger wave (B) of an (A)-(B)-(C) "irregular flat" beginning in 2000. (Did you ever imagine how mind-numbingly boring I could be?)

Once wave B bottoms somewhere below the March 17, 2008 low (I am projecting a reading in the vicinity of 520 on the S&P 100), wave C will commence. Wave C of the A-B-C [rising] zig-zag is what leads me to project a "stock market melt-up." It should be beautiful ... as most third waves are.

Always bear in mind there is nothing hard and fast — set in stone — about any of this. It may be subject to modification at some future time. However, one thing driving my Elliott Wave interpretation of what presently is unfolding in the S&P 100 is being driven by my interpretation of what is unfolding in the NASDAQ Composite (believe it or not!), particularly since 1998.

Now, let's look at things a little more closely. I believe we are but days away from seeing a "third wave of a third wave" unfold...


Here you see a closer view of where the S&P 100 stands at the moment. I believe Friday's (6.6.08) collapse completed (or nearly so) an a-b-c zig-zag (not labeled above) forming wave b of 2 of c.

Again, wave c is the final wave of the a-b-c-x-a-b-c forming wave B of (B). It is expected to unfold in five waves [down]. Wave 1 of c completed on Friday, May 23, 2008.

The third wave of these five waves (of wave c) are what I referred to above as the "third wave of a third wave." This particular wave's unfolding is the basis for the stock market collapse I have been forecasting for some weeks now.

At the present moment, though, I suspect wave 2 of c has not yet completed. The reason why I believe this is fairly well stated in the post I made on Wednesday titled, "Jack Be Nimble, Jack Be Quick, Why I Give Jack About NASDAQ." Thus, I do not believe Friday's (6.6.08) thumping was an early move in the formation of wave 3 of c [of B of (B)].

During the upcoming completion of wave c of 2 of c I expect the NASDAQ Composite to set a new, post-3.17.08 high. As you can see above, I do not expect the same to occur in the S&P 100 (ditto the NYSE Composite). My explanation, given in Wednesday's post, is grounded on relations among the various indexes we saw develop when the stock market topped in October '07. It appears these same relationships are similarly being manifest at present.

The tentative objective I have for wave c of 2 [of c of B of (B)] in the S&P 100 is 647. This would represent a .618 retracement of wave 1 of c. I expect this to unfold quite rapidly. I believe we should play this move, too.

Now, one other thing I'd like to mention here about wave 2 of c... You see above I have it labeled as subdividing into an a-b-c form. Wave a (up) itself subdivided into an "irregular flat" and wave b (down) subdivided into a "zig-zag." Wave c (up) should subdivide into five waves and carry the S&P 100 upward to the vicinity of 647. However, there is nothing "set in stone" saying this will mark the completion of wave 2 of c.

What I am getting at here is this: maybe we should expect wave 2 of c to unfold in a complex manner. Maybe after the initial a-b-c completes a connecting "x" wave (down) will unfold ... followed by another a-b-c.

Consider for a moment how the stock market has been holding up despite all indications — both superficially on the surface ... the stuff of Kudlow's rant about "pessimism" (which in my mind is entirely justified) ... as well as the many technical things "beneath the covers" indicating underlying weakness — and one has basis for maintaining caution toward how one positions one's self once wave c of 2 of c is completed.

Time value is the killer of an options position. If we are positioned for the outbreak of wave 3 of c (anticipating the S&P 100's collapse) and it turns out wave 2 of c has not yet completed — specifically, rather than taking a simple a-b-c form, wave 2 of c instead evolves to take some other complex form — then we will want to be on our toes. We do not want to be all giddy anticipating the stock market will immediately collapse.

Now, all that being said, I think there is reason to believe wave 2 of c will, in fact, complete taking a simple a-b-c form. As such, then, I am at the moment anticipating wave c of 2 of c carrying the S&P 100 up to 647 ... then the bottom subsequently falling out from under the stock market.

One last thing...

When I wrote "Jack Be Nimble, Jack Be Quick, Why I Give Jack About NASDAQ," I brought up the subject matter of a post I had made on May 15, 2008 titled, "Another Not-So-Kudlow-esque Chart Fest." Just two weeks prior I presented something I should have kept high on my mind, rather than in the back of it.

Now, it occurs to me some of you reading this might, contrarily, have held that analysis of May 15, 2008 as a point of concern over the past couple weeks, after the stock market had peaked and had begun turning over. You might have seen its seeming manifestation as possibly suggesting the stock market would not collapse right away, much as I had been suggesting possible when I wrote, "Elliott Wave Guy Takes Aim in Stock Market Turkey Shoot" last Friday (5.30.08).

So, please, please, please — I am begging you, please — whenever you feel something I have written previously ought to be revisited, by all means drop a comment and raise the issue you suspect might have some bearing on the present moment.

Let me know if you have any questions about the Elliott Wave count I have presented here. I am sure there are others wondering the same things as you are, so don't be shy.

If you haven't read Friday's post (Stock Market Commemorates Normandy Invasion With Bloodbath), please do ... particularly those of you who are on my Trade Notification List.

I really would like to hear from you...

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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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adan said...

on this morning's twitter blog (friday am) you wrote "here's comes a tremor" -

when you can, can you elaborate?


TC said...

I think the OEX is headed back down to Thursday's (6.12.08) low. And the trip down might be a fast one.