Wave Count Simplification ~ The Risk Averse Alert

Monday, September 10, 2012

Wave Count Simplification

Here's a fresh look at the five component waves forming wave (a) of B off March '09 bottom, itself being the initial wave of an a-b-c "zig-zag" up from March '09 (the likes of which whose "b" wave presently is thought forming). This new found Elliott wave view is in keeping with perspective put forward here over the past couple weeks, wherein the possibility of an a-b-c "zig-zag" (5-3-5) up from March '09 is seen following an a-b-c "flat" (3-3-5) down from Y2k peak—a prospect both satisfying the Elliott Wave Principle's "alternation guideline," as well as serving to delay to sometime in the foreseeable future major indexes returning to levels last seen in the 1987-1994 period.


Probably the most objectionable matter per this view is the labeling of wave 2 of (a). How can this rightly be considered "proportional" to wave 4 of (a)? Well, "time" plays no factor in the rules put forward in the Elliott Wave Principle. So, time elapsed forming wave 4 versus that forming wave 2 is of no regard. Yet price proportionality of corrective waves in a 5-wave sequence (i.e. the 2nd and 4th waves) has relevance in the framework of the Elliott Wave Principle (still, this more as a "guideline" than any hard-and-fast rule). So, consider what of wave 1 of (a) wave 2 corrected. Now consider what of the S&P 500's gain from March '09 bottom to the end of wave 3 of (a) wave 4 corrected. I'd be willing to bet there's proportionality founded on a Fibonacci relationship between waves 2 and 4.

The above wave count certainly lends itself to channeling on arithmetic scale. Likewise was another Elliott Wave Principle guideline satisfied when wave 4 ended within the range of the fourth wave of one lesser degree (i.e. wave iv of 3).

Further supporting this wave count is the performance of both RSI (top panel) and MACD (bottom) over the duration the five component waves forming wave (a) of B unfolded. Note that, never were respective RSI and MACD readings at March '09 bottom ever exceeded during formation of wave (a). This distinction did not occur until wave (b) of B began taking form last year.

Again, this is just one possibility among several. Right now, I like this prospective view, though, particularly on account of the fact it simplifies the view on wave (b) of B currently forming. This middle wave of the a-b-c "zig-zag" up from March '09 bottom will subdivide into a 3-wave form. Given the viewpoint indicated above, the 3-wave form slated to become wave (b) of B is unfolding as a 3-3-5 "flat." This flat's "a" wave unfolding from February 2011 through early-October 2011, itself, took the form of a 3-3-5 "flat." Its "b" wave currently forming is seen "alternating" and taking the form of a 5-3-5 "zig-zag" (whose component waves I will detail tomorrow). Although this "zig-zag" forming wave b of (b) of B probably has some days remaining before it is completed, its upper reaches are thought not far off (for reasons detailed Friday).

As wave (b) of B is more precisely taking the form of an "irregular flat"—this being confirmed as a result of the "zig-zag" currently forming wave b of (b) of B exceeding the peak from which wave a of (b) of B began to unfold last February—we have further basis for suspecting wave c of (b) of B [down] will bring the S&P 500 to fall below its low reached early-October 2011, this when wave a of (b) of B completed. Thus does the S&P 500's projected decline to the trend line formed off its 1974 bottom find further substantiation (as was suggested Friday), making the prospective wave count above all the more interesting. (At this point we might better suspect the greater bulk of the S&P 500's projected decline to its long-term [rising] trend line might not develop until early next year, although this decline's 1st and 2nd waves [of five waves down] could unfold going into year end.)

p.s. I just noticed complexity increases for every corrective wave from wave 2 up to and including wave 4. Check it out. More reason to better regard the potential validity of the above Elliott wave count alternative.

Fast Money
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