Lather, Rinse, Repeat: An Elliott Wave View of Wall Street ~ The Risk Averse Alert

Thursday, September 11, 2008

Lather, Rinse, Repeat: An Elliott Wave View of Wall Street


If what has been done since the market's October '07 peak were seen parodying what is still to come ... then right now in the grand scheme of a real nasty bear market over the next few years ... major indexes like the S&P 100 are in the midst of forming their second wave — a corrective wave ... much like wave (2) below — of five waves total.


$OEX

Suddenly, my surprise about the market's relatively unconvincing decline from May 19th - July 15th is explained (a month and a half after the fact; better late than never, this I am certain). Any Elliott Wave geek knows a fifth wave typically is technically less convincing — less impressive — than a third wave.

So, do you see where wave (4) ended? Right about at OEX 660. That's where the best bounce of '08 could end, too.

Now, will this move higher happen right away?

Probably not.

Then when would said projected bounce be more likely to begin?

When technical divergences form as the market moves lower in its decline since its August 11th peak. Watch something like, say, the NYSE Advance-Decline differential. This measure should improve as indexes move to a new, post-8.11.08 low. Once this happens it probably will be time for the market's bounce to begin.

Might July's S&P 100 low be taken out first?

Yes, maybe. This already has happened with the NYSE Composite. Contrarily, NASDAQ still holds up ... just as it did at its July low. Where as the NYSE Composite's July low took out its low in March '08, this was not the case with NASDAQ. It held up then as it still does now. This says something. It hardly screams "look out below."

Maybe it should.

But it doesn't!

I should ignore this? I cannot. NASDAQ's present condition — demonstrating such underlying interest as is providing support in even this more speculative area of the market — simply fits the picture presented via the Elliott wave view of the S&P 100 you see above. Indeed, NASDAQ's intermediate-term support presented yesterday furthermore suggests the S&P 100 could trade sideways for another year before everything comes unglued.

You might imagine, then ... in lather, rinse, repeat — like from like — fashion ... things unfolding over the months ahead similarly as they did from the end of wave (1) to the end of wave ii.

Likewise, even a projected bounce soon coming might not be the last bounce before the lug nuts come off Monsieur Market's wagon. Share distribution from strong hands to weak certainly will take as long as Hank Paulson is Treasury Secretary, to say the very least in my opinion.

Presently, though, might a possible decline below July's low unfold rapidly, or might this happen through death by a thousand cuts lasting well into October?

Yes, maybe. Either way. Again, it might not happen at all. I cannot say with certainty.

However, if July's S&P 100 low were taken out, this would be good. Because then, we might expect RSI and MACD divergences, too ... and this would raise the likelihood the market subsequently bounces.

Hope this helps your trading...


Fast Money
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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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2 comments:

Craig said...

Hey Tom, I like the blog. I am interested in your Elliot Wave Analysis. I have a different wave count I and was wondering if you'd take a look at it and give me your thoughts.

http://www.stocktock.com/2008/08/23/elliot-wave-analysis-bulls-best-case-scenario/

Thanks.

- Craig at StockTock.com

TC said...

Thanks Craig.

I took a look at your wave count and left a comment.