Sell the Pops to 2021 ~ The Risk Averse Alert

Wednesday, May 23, 2012

Sell the Pops to 2021

The only thing relevant about today's big turnaround is that indexes are net nowhere, day two, after spending a solid two weeks slowly, yet relentlessly sinking. Truth is brief pauses in a precipitous march lower could prove the most that can be mustered as the banking system's implosion gains momentum in Europe. Indeed, relatively substantial is the speed at which the market could collapse over weeks immediately ahead — a reasonable risk in fact, technically well-substantiated in evidence, long-established, revealing vanquished animal spirits in a market now dominated by weak hands. None of this seemingly is on anyone's radar, which, of course, is as it should be.

The market's threatened demise finds yet another Elliott wave possibility agreeing things could get nasty like it's nobody's business, yet with dire consequence few, if any, will be left to deny...

DJIA weekly

You more or less could apply the same wave count to the S&P 500 as is applied above to the Dow Jones Industrials Average. In both cases Y2k marks top to a 5-wave advance from 1932 — an advance whose correction is thought ongoing, and likely to sink major indexes minimally to levels last seen in the 1987-1994 period (with a retreat to 1970's levels not out of the question by any means).

On one hand the above wave count applied to $INDU simply adds to possibilities recently presented using $SPX. Yet this specific view exceptionally qualifies a forecast wherein the next ten years might prove extraordinarily difficult from start to finish, in fact beginning right now. If you have thought frustrating these months on end it has taken for technical weakness to develop in the lead-up to the market's long-anticipated reversal and next big leg down, just wait until the months and years yet to come spent grinding lower while increasing technical strength persistently develops until, finally, an historic bottom at last is reached.

Focusing on developments during formation of wave a from 2000-2003, one sees how the Dow's twists and turns from January 2000 to April 2001 bear a likeness to its fluctuations from Y2k to the present. This prospective view, then, puts the Dow in position right now to form an a-b-c wave down whose both initial and concluding declines each could sink the average to new lows, post-Y2k (along with other major indexes).

So, if this newly unfolding, 3-wave decline shares the prior period's relative dimension, then March '09 bottom not only could be in jeopardy very soon, but be exceeded only to form a lower bottom that, likely will prove just as transitory.

Now, the above wave count assumes wave (IV) beginning in January 2000 is forming a so-called "double three," thus making it a complex Elliott corrective wave. A 3-3-5 "irregular flat" formed the first "three" from January 2000 to March 2009 (labeled a, b and c). By way of the Elliott Wave Principle's alternation guideline, one now would assume the second "three" likely will take the form of a 5-3-5 "zig zag" [down]. As the connecting x wave off March '09 bottom appears to have completed on May 1, 2012, the second "three" evidently is underway.

The Elliott Wave Principle's alternation guideline quite thoroughly has been on display during formation of wave (IV) thus far, and adequately justifies both the above wave count, as well as likely prospect that, a 5-3-5 "zig zag" down is slated to unfold over coming months and years. Indeed, by way of the Elliott Wave Principle's alternation guideline we are well-advised to expect wave a of the now-developing "zig zag" lower to unfold rather rapidly, as this would alternate from the first wave a whose slow development occurred from 2000-2003. Likewise, looking down the road some years, wave c of the now-developing "zig zag" lower could prove a rather prolonged affair, alternating from the first wave c whose rapid unfolding occurred from October 2007 through March 2009.

Alternation, too, might be applied in a similar fashion forecasting the depth that, upcoming waves a and c lower might reach, both in absolute and relative terms. Thus, wave a upcoming might dwarf wave c to follow (this, again, alternating from what occurred during formation of the first "three" in the 2000-2009 interim). Wave a might produce a shockingly deep setback, whereas wave c could prove far more subdued.

So, considering what the above Elliott wave count prospectively places in store, the trap door now open could produce a rapid descent that, once halted, will find the March '09 "generational low" a fleeting memory, and be followed by what more or less could prove a bottoming process lasting years, with many ups and downs to show for it. In other words, the many months spent making every minute count have been for good reason. Once this becomes impossible, then the battle to the bottom is on and "buy the dips" is sure to become "sell the pops" with more regularity and for a longer duration than today's consensus dares imagine even now at this very late hour in the life of the crumbling euro-zombie.

Fast Money
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