The Nearness of the Inevitable Moment of Truth ~ The Risk Averse Alert

Thursday, May 16, 2013

The Nearness of the Inevitable Moment of Truth

What can I say? I really haven't been much for writing while watching everything play out as it has. Besides, it has been all "top" risk alert here for several years now. Nothing has changed either. All the same, as far as we can tell, too, levitating trash still remains the nature of the game we're watching play out...

Let's take the view that, an a-b-c-x-a-b-c is unfolding off March 2009 bottom—specifically, a "double zig-zag." Although these prospective component waves are not labeled above, we see this "double zig-zag" forming wave X, which is labeled. The Dow's advance off March '09 bottom, then, is assumed forming a "connecting wave" of a "double three" Elliott corrective wave that has been unfolding off the Dow Jones Industrials Average's January 2000 peak.

The first "three" of this complex corrective wave formed a 3-3-5 "flat." Its component waves unfolded from January 2000 - March 2009 and are labeled A, B and C.

As I said, the "connecting" X wave up from March '09 bottom, itself, formed a "double three," this being a so-called "double zig-zag."

Now, the second "three" in this "double three" corrective wave forming off the Dow's Y2k peak is likely to take a wave form "alternating" from the first "three." So, the first "three" being a 3-3-5 "flat" raises probability the second "three" will take the form of a 5-3-5 "zig-zag" [down]. This anticipation, again, is raised by the Elliott Wave Principle's "alternation guideline."

So, anticipating a 5-3-5 "zig-zag" down once wave X is completed (see below), enter possibility March '09 bottom could be taken out like support never existed there, this forming the anticipated zig-zag's wave A in a 5-wave collapse. Picture the Dow falling to 3600, stat, as in some approaching moment even this year. Subsequently, the zig-zag's wave B, lifting the Dow back to the 6600 to 7500 range, only to be followed by the zig-zag's wave C, tortuously sinking the Dow to as low as 1733 over the course of a period lasting, say, 5-8 years.

I've mentioned this possibility here before. I'm mentioning it again because it still is very much living.

Ya know what, too? If it happens, the Dow still will remain in a long-term uptrend! Just sayin'.

Could such a spectacular collapse, indeed, actually happen? Absolutely. The true craziness of modern "finance," indeed, finds but objective concurrence in this very credible Elliott wave-based possibility I am again raising here.

Now, the Dow's weekly chart technicals provide provocative substantiation of this possibility, too. There are a couple negative relative strength divergences to keep an eye on. There's also on display via MACD the Elliott Wave Principle's "alternation guideline," this contrasting the components of the "double zig-zag" forming off March '09 bottom. As we can see, too, the Dow's upside momentum (again, looking at MACD) is reaching a peak level subsequent to which the Dow (and the entire market for that matter) typically has reversed course.

We might likewise wonder here, too, though, whether in the framework of fundamental reality finding quiescence with a fantasy-filled regulatory policy a "double zig-zag" unfolding off March '09 bottom could evolve into a "triple zig-zag." This certainly is possible. So, as the second zig-zag of the double zig-zag forming off March '09 bottom nears its completion, we should be aware how fundamental developments in fantasy land might determine which of the finite Elliott-based possibilities here actually come to fruition.

As the dynamism of [the second zig-zag's] wave c up from mid-November 2012 has been notable (and excruciating to the bear camp, no doubt!)—a very typical Elliott third wave characteristic—closer inspection of the Dow's technical state at daily intervals provides us bearing on the nearness of the inevitable moment of truth.

There is a good technical case to suppose the 3rd wave of 5 waves up from mid-November 2012 is just completing (these 5 waves up are completing wave c of the second zig-zag up from March '09 bottom). In fact the 5th wave of this 3rd wave has "extended," this off late-February 2013 bottom.

Note, though, how during formation of the 3rd wave of wave 3 unfolding from mid- to late-January 2013, the best technical readings were established, while ever since negative technical divergences have coincided with subsequent Dow peaks. We see this both via RSI (top panel) and MACD (bottom).

Note, too, how momentum (i.e. MACD) during formation of wave iii of 3 of c from mid- to late-January 2013 bested its best reading during formation of wave b (this unfolding from late-November 2011 to mid-November 2012), while failing to exceed its best during formation of wave a (this unfolding during the market's spectacular advance of October 2011, itself in fact bringing a positive "outside month": a true rarity, as well as fitting a climate of sheer panic insightfully remembered as "God save our sinking ship!").

The question is, then, does this negative momentum divergence, wave c versus wave a, possibly project a whole lot of nasty once wave c completes?

Well, as they say, time will tell...

Word on the Street
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