Past Proving Prologue ~ The Risk Averse Alert

Friday, March 26, 2010

Past Proving Prologue

The following chart probably should have been included with yesterday's discussion of technical rationale raising suspicion the market might levitate over the next six months or so...


So to avoid any confusion ... the Elliott wave count above applies the same A-B-C labels as ever before to the 3-3-5 "irregular flat" forming since November 2008 bottom (thus suggesting wave (B) is nearing its completion) ... whereas yesterday presented a framework for supposing that, only wave A of (B) is being formed by this 3-3-5 "irregular flat" ... and that wave B of (B) [down] forming a "zig zag" (a 5-3-5 corrective wave) might lie immediately ahead (which, itself, would be followed by wave C of (B)).

Now, you might recall recent comments highlighting an outlook published here in December 2008, wherein the Elliott Wave Principle's "rule of alternation" was thought guiding analysis away from supposing the then-anticipated, post-November 2008 counter-trend rally would be similar to the market's counter-trend behavior from January-May 2008. Turns out, however, price action from November '08 to present instead has taken an extraordinarily similar path.

Yet it appears that, although the path taken in each instance was remarkably similar, wave forms unfolding along the way were consistently different. This apparently is the full extent to which the Elliott Wave Principle's "rule of alternation" has applied, then, to the comparison of January-May 2008 counter-trend action versus the same unfolding since November 2008.

Indeed, it is in light of this manner in which "alternation" has been demonstrated that, furthered is the case supposing waves B of (B) [down] and C of (B) [up] might yet unfold before wave (C) of an A-B-C corrective wave down from October 2007 top delivers collapse. This is to suggest, then, that, the ground covered by waves 1 and 2 of wave C of (A) (unfolding from July-September 2008) similarly will be covered by waves B and C of (B).

As such, then, maybe my levitation thesis is weak. There might be a good bit more downside pressure over the next six months than was suggested yesterday. Still, in waiting for completion of five waves up from March '09 bottom ... then, in the market's initial move down from its yet-established top ... levitation might seem the order of the day.

The one thing I wanted to point out via the comparison of March-May 2008 versus March '09 - present is the similarity in relative [advancing] price action seen in relation to preceding [declining] price action. You see this every step of the way higher. And now, again, the S&P 500 is approaching the same relative price level as was reached when the index topped in May '08. Interesting.

Yet regarding the Elliott Wave Principle's guideline related to price channeling it appears there is a good bit more upside remaining before top finally is in ... at least as this consideration is presented on a logarithmically-scaled chart (such as above).

Not so, however, on an arithmetically-scaled chart...


Here you see top to the channel containing five waves from March '09 bottom is getting rather close. Just a little more upside should do it.

Now, the top line to the above channel might need to be raised slightly in order to touch the top of wave 3 reached in early-August, 2009. Right now it touches the top of wave 1, thus revealing wave 5's minimal objective.

(Per the Elliott Wave Principle's channeling guideline, it is recommended that larger moves, percentage-wise, be considered on both arithmetically- and logarithmically-scaled charts.)


One thing I wanted to point out regarding the advance from early-February bottom is something curious about those few days when volume was relatively elevated. Price action on these days are seen presenting the face of distribution. All things considered, appearances are that, but a few strong hands increasingly are driving trading.

Fast Money
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