McClellan Oscillator Confirms Elliott Wave Count ~ The Risk Averse Alert

Wednesday, August 29, 2012

McClellan Oscillator Confirms Elliott Wave Count

The McClellan Oscillator certainly is confirming both the shorter-term view depicted Monday, as well as the longer view whose slightly altered perspective was the result of the S&P 500 new high, post-March '09 bottom, set last Tuesday...

NYSE McClellan

The Oscillator's currently weak position no doubt substantiates the likelihood that, a top is at hand. Its similar state in the February-March period serves as a guidepost bolstering probability that an a-b-c Elliott corrective wave up from early June is nearing its completion.

Now, slightly more interesting from this perspective is substantiation the McClellan Oscillator gives to the possibility that the second "three" of an a-b-c-x-a-b-c complex Elliott corrective wave unfolding since March '09 bottom (i.e. the second a-b-c) is taking the form of a 3-3-5 "flat."

Wave a of this "flat" is seen forming from early October 2011 through mid-March 2012. Its "a" wave unfolding entirely in October 2011 saw the McClellan Oscillator rise to a level rivaling its best readings since March '09 bottom (in fact the oscillator might have reached a new peak). This move has been characterized here before as one expressing a "God save our sinking ship" sentiment. Once the fix effected by bailout junkies was in (no doubt anticipating more central bank liquidity), the McClellan Oscillator did nothing but weaken as the "b" and "c" waves of wave a took form and reached completion in March.

Now, since mid-March the flat's wave b is thought to be forming. Curiously enough the "a" wave of wave b, (forming from mid-March through early June) resulted in the McClellan Oscillator sinking lower than any reading it registered during the entire formation of wave a preceding — even lower than that during formation of the "b" wave of wave a last November. Building weakness thus is confirmed, much as might be expected. In formation of the flat's wave b since mid-March its "a" wave already is displaying greater underlying weakness than registered during formation of the flat's wave a.

Moving along, we see in formation of the "b" wave of the flat's wave b (from early June up to the present) another "God save our sinking ship" registering via the McClellan Oscillator. Yet look how pathetic has been the market's coincident performance! Nothing like that last October. One of the defining qualities the Elliott Wave Principle assigns to "b" waves is circumstance leading to the conclusion that, "something is not right." Bingo! This occurring in formation of a "b" wave of a "b" wave is all the more substantial.

The McClellan Oscillator thus is likewise offering fine substantiation to an outlook supposing the market's decline upcoming could be worse than that of August-September 2011, which was worse than that of May-June 2010. This pending swoon would form the "c" wave of wave b in the "flat" thought forming since October 2011 (this "flat," again, being the second "three" in an a-b-c-x-a-b-c complex Elliott corrective wave unfolding since March '09). Once the "b" wave of the flat's wave b completes over days ahead, things could get rather exciting. The heat being directed toward hopelessly trapped central banks on both sides of the Atlantic couldn't be more perfectly timed.

Fast Money
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