Do Panicked Central Banks Signal B Wave Alternation? ~ The Risk Averse Alert

Thursday, September 20, 2012

Do Panicked Central Banks Signal B Wave Alternation?

Keying in on the Elliott corrective wave forming since Y2k—this countering (i.e. "correcting") five waves up from 1932—we find opportunity to make certain assumptions about the presently forming wave B up from March '09 bottom, this unfolding as a 5-3-5 "zig-zag" and alternating from the 3-3-5 "flat" forming wave A down from Y2k top. To wit, comparing wave (b) of A (unfolding from 2003 to 2007) to wave B up from March '09 bottom—both forming a 5-3-5 "zig-zag" higher—we might reasonably set expectations of what is to come.


$SPX monthly

Being that wave B is one higher degree than wave (b) of A (i.e. a like wave of larger magnitude), we might expect its component waves to reflect a technical character emblematic of this fact. Already, in formation of wave (a) of B we see both the S&P 500's monthly RSI and MACD exceeding the same measures registered when wave a of (b) of A off March '03 bottom completed in January 2004. Likewise, in formation of wave (b) of B thus far both measures have registered a greater degree of weakness than was displayed during formation of wave b of (b) of A (this forming from Q1 '04 to Q4 '05).

Now, one thing to wonder here is whether wave (b) of B will be "like" wave b of (b) of A in its upward bias, or whether it might instead alternate and, upon its completion, display a distinct downward bias. Up to now wave (b) of B rather is forming much "like" wave b of (b) of A, similarly unfolding with an upward bias so far. Yet unlike the technical situation when wave (b) of A began unfolding off March '03 bottom, significant negative technical divergences and confirmations were registered going into March '09 bottom prior to the commencement of wave B higher. Both the S&P 500's monthly RSI and MACD diverged when the S&P 500 reached a nominal new high in 2007 (this versus their respective best readings going into the S&P 500's Y2k peak). Likewise, both measures confirmed the S&P 500's lower low reached upon completion of wave (c) of A, this versus wave (a) of A. Thus, a weakening technical backdrop might prove decisive in leading currently unfolding wave (b) of B to alternate from the upward bias the S&P 500 displayed during formation of wave b of (b) of A. Indeed, given a well-established, weakening technical backdrop, it seems entirely reasonable to expect wave (b) of B to register a good deal more technical weakness than coincided with formation of wave b of (b) of A, and in the end display a decided downward bias. Time will tell.


$INDU monthly

The Dow Jones Industrials Average very much presents the same picture as the S&P 500 per technical developments since Y2k. I wanted to include this here because in formation of wave (b) of A the Dow Jones Industrials Average significantly eclipsed its Y2k peak. Entirely within the realm of possibility at the present moment is prospect that wave B eventually might find the Dow's 2007 peak similarly eclipsed to some significant degree sometime over the next few years.

Likewise, just as wave (a) of B fell short of the Dow's 2007 peak, wave a of (b) of A also fell short of the Dow's Y2k peak. And just like was noted vis-a-vis the S&P 500, the component waves of the Dow's wave B off March '09 bottom are registering stronger coincident technical readings than those registering during formation of wave (b) of A, confirming it a wave of one larger degree.

Now, judging by how decidedly the Dow Jones Industrials Average's monthly RSI and MACD diverged upon the Dow reaching its 2007 peak (this versus respective best readings going into the Dow's Y2k peak) and seeing how near both measures currently are to their respective readings going into the Dow's 2007 peak, bolstered seems the case for suspecting the market might suffer a fairly steep hit in formation of presently unfolding wave (b) of B, this ultimately leading it to form with a decided downward bias and alternate from the upward bias displayed during formation of wave b of (b) of A. The same negative technical divergences and confirmations as the S&P 500 registered going into its March '09 bottom likewise set up the Dow Jones Industrials Average for a considerable bout of weakness as its wave (b) of B further develops and completes.

Again, time will tell. One thing worth noting here is that, unlike the case in the 2004-2005 period when wave b of (b) of A was forming, the Fuehrer's EMU and euro debt trap swindle today is gravely threatening the present day's concerted, open-ended, [lilliputian] central bank backstop and, more critically, is running out of viable national treasuries which to hit up for debt securities needed to paper over the trans-Atlantic banking system's still growing, gaping hole of insolvent garbage. All the more reason, then, to suspect wave (b) of B likely will display a downward bias and, as such, notably alternate from wave b of (b) of A.


Fast Money
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