Dollar Bottom? Elliott Soup!

After a precipitous fall, below most pundits' support levels, the Dollar has managed a tickle of an impulse wave back up.  The most likely scenario over the rest of the year is for stocks to fall much further, albeit with a possible retest of the recent highs first, and the Dollar to rebound as the Fed continues to increase short-term rates.  The STU has been pointing out that all markets have become linked worldwide, with the Dollar going countertrend.  Hence they are looking for the Dollar to go quite a ways back up (more than 10% on the Dollar Index) while stocks take their four-year cycle dip (more than 10% down).  Let's take a look at what other Ewavers are predicting, and what this means. 

Several of you did an excellent job calling the recent stock peak & sharp drop.  Dominick is now a reformed bull, having hit this to the day.  Prechter also claims a small victory, as he had made May 5 the 'final' turn date about six months ago, and came within a week of it in the Dow and hit it on the head on the S&P.  Before we get a bunch of Prechter bashers, remember that the boy who cried Wolf! Wolf! was right in the end.  (And yes, the people he was protecting got eaten alive.)   Glenn Neely has been watching this ending process with amazement, but last week he notified his readers that the top was nigh, and called it very closely to the day.  He now sees the sharp drop as clearly setting up a year-long drop of at least a third off the rise since Mar03.  His NeoWave service gives a specific target. He also expects that gold has peaked - the rise of $100 in 10 days is the type of parabolic rise that ends badly; one just never knows how far it will spike.  It now appears to have reversed.

What is the implication?  Is it the Big One yet?  Nope.  When the Dollar truly begins to free-fall, the various disaster scenarios may begin to unfold.  If the Dollar does solidify, it may run for a year or more before turning again.  The US has a terrible debt overhang, yet has such depth of wealth and credit that it can continue longer than most Cassandras can imagine. 

It usually takes a precipitous policy change to drive a crisis.  In 1986, excessive Japanese liquidity caused us to push the Dollar down, precipitating the 1987 crash and the Japanese Bubble.  In 1971, inflation caused Nixon to devaluate the Dollar from $35/oz for gold to $40/oz, and close the gold window, ending the Bretton Woods gold standard.  The Dollar promptly fell to $140/oz, and the crisis came with a vengeance.  Inflation had surged to 6% in 1969, but had been dropping below 4% when he imposed wage and price controls.   Why would a supposed conservative ravage the world economic system?  "We are all Keynesians now," said Nixon.  In 1970, we had had our first trade deficit, and Nixon got spooked.  Now, we truly are all Keynesians, rationalizing the current massive trade deficit away.   

Comments

[mhd]

Wow... all indices are going to new highs soon. Tony, I wish my balls were as big as yours!!!

[Nostradamus]

I find myself pondering that the stock market is like the early 1980's. Everyone scared about oil, nukes, Iran, gold. And we all know what happened after that. Could it just be a "wall of worry" that we're climbing? And is it relevant that stocks didn't trade at single-digit P/Es in 2002?

I dunno guys, but this is one helluva weird market.

[p/e]

In deflationary bear markets, P/Es rise. Prices follow earnings down. Single digit P/E avg might be decades or centuries away.

[Paul]

The market is like the early 80s? When hardly anybody owned stock? Single digit PEs? Stock market going nowhere for 16 years? Does that sound like today? Folks were still up to their eyeballs in stocks in 2002, particularly mutual funds. Maybe that's why the PEs never went down.

[J Lee]

hey some people call it "spooky action at a distance," but it's all relative I guess (or is it ?) :)

so when do all us monkeys start hoarding and then the elitist take back with force ?

are we still in act 2 of this shakespearean tragedy? good thing no one reads shakespeare and reads elliott waves instead. Smart guy you know. Makes a lot of money peddling newsletters I hear for the magic show. Soon to be in high definition.

[J Lee]

Oh yah, I almost forgot.

This may keep you directionless monkeys for a little bit. Then you can return back to your flickering screen of digits and fibonacci fan lines.

http://www.tomorrowstrends.com/ViewItem.asp?Entry=460

Don't forget to convert to a basket of currencies and hoard ok? Good thing to teach your kids. How to flip commercial real estate and stocks and fill my belly. Use the right side of your brain just as much as you guys use your right hand. And I will guess the market will respond (maybe). Who knows? I sure don't. Oh well maybe it will come in a secret message one day on ESPN after Tiger's birdie on the 13th.

[Nostradamus]

What really gets me about Elliott wave is this idea.

The Russell 2000 has been making fresh new all-time highs, but the Dow hasn't, and the S&P hasn't, and the Nasdaq hasn't. If you look at the patterns traced out by each of these indices, they have a lot in common, in terms of when the turning points occur, and the shape traced out between highs and lows. So you could say they're all approximately the same thing.

Since the Russell has been making new all time highs, EW people count the whole up move as an impulse. And with all the indices (Dow, SPX, Nazz) that *haven't* made fresh all-time highs, the similar-looking wave-forms are counted as a *corrective* pattern.

But here's the rub: if the Dow makes a fresh all-time high, all of a sudden the move from 2002 will probably have to be counted as a five-wave impulse.

So, PRICE is the most important thing. And yet so many EW'ers judge the function of a wave from its "look"! Or from almost religiously-held idea about the biggest bear market of all time, that is at best just an idea worth keeping somewhere in yousr mind, or at worst an idea about mean reversion that forces one into a particular EW view.

Therefore I just don't put much into this idea of "corrective look". It provides completely arbitrary conclusions and yet some people cite it as gospel! I've seen corrective-looking impulses and impulsive-looking corrections, which can take you off the pitch in a stretcher if you get sucked in by this bogus approach.

People, recall that Elliott is all about being "smarter than the crowd", but if you get attached to a corrective count and then change to an impulsive count only AFTER a fresh high has been reached, doesn't that mean that EW makes you *dumber* than the crowd?? It means that you only change your mind in wave 5 - at the last point in the move. Man, why don't people talk about this more???

[skierwaver]

>>But here's the rub: if the Dow makes a fresh all-time high, all of a sudden the move from 2002 will probably have to be counted as a five-wave impulse<<

LOL! Probably. But even with a new high that advance may still turn out to be corrective - like in a "B" of an Expanded Flat.

No trading method that can be easily learned by reading a $25 book can possibly make one far "smarter then the crowd". Most of the time one can see several possible "legitimate" interpretations for the price action. Developing the ability to pick the "correct" scenarios takes both sides of the brain - the left AND the right -- plus experience.... ;)

Once upon a time there are "easy" calls... For example, an Ending Diagonal in a "C" position, stretching out in the last little "c" while accompanied by an extreme in sentiment... I'll take that any time. Come to think of it, maybe it's best to trade ONLY such "easy" ones.... ;)