It's getting time to consider an alternate Elliott wave view toward the market's trading since October 2007 top...
The above view extends the Elliott wave count I have been evaluating since March '09 bottom as the final wave of a 3-3-5 "irregular flat" forming since November '08 has been thought unfolding. Labeling and channeling of five waves up from March '09 reflect a valid, "best case" that might be made for the irregular flat's final wave.
From a "right look" perspective, though — considering proportionality of waves (a), (b), and (c) since November '08 — supposing that five waves up from March '09 continue to unfold (forming wave (c) of the "irregular flat") could be a stretch at this point. Had these five waves instead ended in April, then the proportionality of the irregular flat's component waves would not be in doubt. However, given the push into [nominal] new high ground over the past several weeks an alternate view is worth considering here...
Given the market's profound, underlying technical weakness — an overriding, negative consideration whose gravity cannot be passed off — a "c" wave up from late-June 2010 low traveling only 61.8% the distance covered by wave a up from March - October 2009 seems a reasonable expectation. This targets ballpark OEX 585, just 25 points (4%) higher from here.
Weakness presently revealed via weekly RSI divergences — now versus early-November 2010 and April 2010 before that — support my view that, major indexes are at risk of declining toward 200-day moving averages (very near the 50-week moving average above) and in the process continue formation of a fourth wave of five waves up from late-June 2010.
The market's resiliency in the midst of all manner of underlying technical weakness, (particularly since late-August) is about all we have to cite in rationalizing such "dynamism" as is typical of Elliott third waves (a "c" wave up from late-June being the third wave of an Elliott corrective wave from March '09). Nevertheless, that resiliency, indeed, persists amidst such incredible technical weakness is the sort of circumstance leading one to conclude "something is not right" — the very characterization associated with Elliott "b" waves (according to the Elliott Wave Principle).
Thus, five waves down from October 2007 likely form wave (A), and three waves up from March '09 are forming wave (B). For the moment wave c of (B) (from late-June 2010 bottom) targets OEX 585. A better sense about the time frame in which this objective might be met awaits completion of wave 4 of c.
Again, the market's readily apparent, underlying technical weakness simply cannot be ignored. Big picture, this means the supportive fiber necessary to bolster the market against severe tempests is compromised. Yes, the stock market is behaving resiliently. Yet there is no material confidence backing this. Where art thou voracious bid on an expanding list of leaders? Today's circle jerk among darlings caught in a game of musical chairs is poor imitation. Today's "confidence," then, is better seen a reflection of utter complacency which finds the greater preponderance of interests fearlessly holding long positions. (There has been nothing like increased selling restraint to help goose the market since March '09 bottom!)
Yet there are no shortage of historic storms looming on the horizon. Marking these at the appointed moment awaits wave (C) and a pending trip down to levels last seen in the 1987-1994 period. On this count nothing is changed.
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.
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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