Planet Yelnick

Wolf! Wolf! At The Door?

This two day drop may be the start of the long-awaited downturn. In the battle of Prechter vs. Neely, Prechter may have called this. His STU had been targeting Jun21-3 as a turn window, and caught that as well. Interesting, Fibonacciman called this turn to the day. Send him an email at [email protected] if you wish to get his free newsletter.

Both the Dow and the S&P have been knocking from below on the lower trendline since the Mar03 bottom. Now they have turned decisively south of it. Here is the chart from the STU. 

The steepness of the drop is also a Zoran Bifurcation Point. We have quickly dropped out of the recent corrective trading range. This means a trend change. How big we will find out as this develops.

For those who are angry at Prechter for his Wolf! Wolf!calls, note that the setup to this drop was a nested series of 1 and 2 waves early this week. The steep wave 3 drop is what is to be expected to follow that, the 'coiled spring'. If this is the start of the larger 3 of 3 wave down (to below Dow7200), we should see a continuation of steep drops of larger sizes over the next few weeks and months.

Son of Wolf! Wolf!

Prechter's Wolf! Wolf! prediction last week was back in the kennel after the first few hours of trading Monday. Nevertheless Prechter's analysis as of Friday showed a thrust out of an ascending triangle, which he sees as an ending pattern. Hence he expects a down week, maybe starting Monday after one *possible* final thrust up at the open. So he doggedly sticks to his analysis, and might be back in the doghouse after Monday once again.

In contrast, Eric Noel (a sometime Yelnick commentator) reports that Neely sees us as about to continue a bull thrust that began at the recent May lows (not the April lows), and Eric expects bullish sentiment to become higher than at either the 1987 or 2000 tops.

Zoran sees this as likely part of a larger Rising Wedge since Jan04, which is bearish; but possibly the whole pattern is a Running Triangle, like we saw from 1987-1994, which broke decisively to the upside (ie. the dot-com bubble started!). He sees us coming off the Iraqi War Triangle of the triple bottom in Jul02/Oct02/Mar03 with a clear Bifurcation Move up to Jan04, followed by an extended trading range until quite recently. Like Neely, he marks the recent low as in early May not April: even though the April bottom was lower, the wave pattern that followed looks like an overlapping, corrective triangle that ended in May with a clear Bifurcation out of the triangle range. That thrust stalled in the June trading range, but as of last week has decisively broken out of the trading range into a new Bifurcation upward. Hence he expects continued upside next week. Time will tell if this is a bearish rising wedge or a bullish running triangle. If you review his most recent report, he includes some slides explaining his concepts, which apply Chaos Theory to Elliott Wave and seem to give clearer guidance as to where we are.

Thus Monday provides a clear test of differing wave approaches.

Diogenes the Cynic once listened to Zeno's complex analysis of why motion is impossible. Diogenes stood up and walked away. A simple refutation! So for you cynics out there, since Friday was an options-expiration Quadruple Witching Day, the thrust that has caused all this complex Elliott analysis may be simply anomalous.

Real Estate STOCK Bubble

While everyone debates whether we are in a real estate bubble, The Rude Awakening comes up with this chart showing that real estate stocks have matched the Nasdaq in bubbling up in the last five years.

Coiled Spring

Prechter's STU sees us in a series of nested waves 1 and 2, a formation which creates a coiled spring: when it breaks into wave 3, it will run hard and fast.  The biggest wave 2 (or B wave, it creates the same result) ended on Mar7; the next largest wave 2 ended on Jun1 (Dow), Jun2 (Naz) and Jun7 (S&P) as a bounce of the bottom in April; and since then all the indices have done a small degree wave i down and wave ii back (although the pattern in the Naz is murky at best).  If this count is right, the downside break should happen anytime from next week to the end of the month. 

Prechter called a similar formation to the upside in late 1985, and made his best call as an analyst.  He called the same formation to the downside in Sep02, stating he had the same confidence as in 1985, and made one of the worst calls of his career, as the downward momentum truncated. 

His current analysis also looks to Google as a harbinger, much like AOL in the 2000 top and Netscape in the first Internet craze in 1996.  GOOG ran to just under $300/share last week, then dropped, and seemed to pull the S&P down as well.  CNBC ran a GOOG ticker to see if the GOOG would bust $300. This sort of attention on a stock which has run up 'parabolically' since March means that its failure to sustain the ramp could pop the bubble on a whole class of Internet stocks, which have been running at bubblicious P/E ratios since Mar03.  One of the characteristics of a B wave (or a wave 2) is that the euphoria of the prior top often gets recapitulated, if not exaggerated, since the players believe they caught the bottom and are therefore even more hardened in their conviction for the bubble echo stocks.

Hence watch GOOG to see if it makes another run at $300.  If it crashes through on its way to $400, we may not be done with this wave B psychology yet.  If it fades off $300, we may be close to the coiled spring denouement.

Wolf! Wolf!

Prechter in the EWT issued an interim report, calling the end of our wave ii (of 3 down) yesterday.  He notes we have a classic diagonal triangle pattern, matching one in 1976 - this is an ending pattern.  It is likely ending an ABC correction since early April, and will be followed by the wave 3 of [3] (or C) down we have been waiting for lo these many moons.  Possibly it is only ending the third of 5 waves in this diagonal triangle.  A break of SP1193 confirms the triangle has ended. 

Now, it is hard to call the top with such precision, and Prechter has cried Wolf before.  We should all respect him for his courage - most analysts hedge.  One pattern to watch for is a Zoran Bifurcation moment, a sharp drop out of the recent trading range (overlapping waves).  Note also that Bob Bronson sees us at or near the point when the second wave of this bear market (since 2000) begins, with a deep and sharp drop into 2006 or early 2007.