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Friday, June 30, 2006


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A nice collection of annecdotal evidence, supported by invoking the authority of Frost, Prechter and Murphy, but unfortunately not supported by statistical significance tests.
We shall see whether it goes the way of Prechter's diamond calls issued at the end of 2005.


Yelnick: good, interesting article.

Here's what I see...

Stock indices: no strong directional opinion. Monthly indicators down (still at just the beginning of a multi-month downturn) having finished a pattern of 3 symmetric humps; weekly turning up (on the verge of a buy signal); and daily up (but getting overbought). This Fed rally is strong and so at least correcting the downturn since May 11th. A problem for the bearish case (one that I had preferred) is that it clearly looks like 3 waves down since 5-11 and I don't see how this current rally works as a 4th wave. EW'ers feel free to correct me, but I'm thinking B wave of a larger A-B-C. That would fit with my indicators -- when the weekly again turns down, then a final "C" wave will complete the monthly downturn.

On the RUT, these are the waves and wave nesting that I see:

1: 10-2002, 2: 12-2002, 3: 3-2003, 4: 4-2004, 5: 8-2004
5.i: 8-2004, 5.ii: 12-2004, 5.iii: 4-2005
5.iii(1): 4-2005, 5.iii(2): 8-2005, 5.iii(3): 10-2005, 5.iii(4): 5-2006.

It sure looks like 12-2004 should have been the end of a 5th wave from a wave begun in 10-2002. But it kept going, thus the subdivisions. The above, to a non-ew'er seems the most natural basic fit, but I'd be very interested in the comments of the ew'ers here.


Other markets:

TNX (yield on 10-year): The upper trendline of the 20-year long down channel is holding. And my short and medium term indicators point to lower yields. I find this fascinating as it defies my non-technical sense of things. Yields dropped significantly on Thur and Fri. I don't get it -- the bond markets see slowing; the stock markets continued growth.

Housing: the HGX and DJUSHB are crossing into intermediate buys, obviously based on the low longer-term interest rates... an oversold rally.

Gold & Silver: both jumped up after the fed. I thought we had another wave down to go, but am not sure now. They seem to be coupled with the stock markets. Are they in a 4th of the May downturn, a B of a larger A-B-C, or beginning a new impulse up?

Well, there's a big picture emerging that'll be obvious in hindsight. It's still a little too undeveloped for me to figure out. I'll of course be awaiting the sage commentary of Yelnick and the rest of you to enlighten me ;)


>>A problem for the bearish case ... is that it clearly looks like 3 waves down since 5-11 and I don't see how this current rally works as a 4th wave<<

Agree - it doesn't. It is certainly possible - assuming the bears are right - that the decline may unfold as a combination of three-step moves.

It is also possible (for as long as the June 2 SPX top holds) that the current advance is W2 of 3. True - for that, we would have to accept that "1 of 3" was not very pretty... but, months from now, not many people will bother going to the hourly chart and analyze the precise "anatomy" of what happened during those few days between June 2 and 14...

Yet another possibility is that May 24 was the orthodox low, and what we have since is an Expanded Flat wave 2.

I think we should welcome confusion. For EW analysis to continue to work, we NEED confusing charts - and more doubters.... ;)

tony caldaro

Just posted this, interesting that you would have a bear market scenario posted:

SPX should approach all time new highs!

Now that it appears we have concluded the fourth steep correction of the bull market. It's time again to start looking ahead, instead of behind. I had analyzed the NAZ in late 2005, and the DOW in early 2006. Now it's time to look at the SPX, the peoples index, to determine what it projects for the coming months/years...In the end, at this point in time, it appears that the SPX will fall just short of all time new highs, probably topping at around SPX 1500.


The structure of the first decline from 2000-2003 is corrective thus it was a wave A and not an impulsive wave 1. The B wave we are in since then had to last at least 100% of the time of wave A. It has satisfied that requirement by a few days if it ended in May, BUT B waves in flats usually take much longer than the A wave thus it probably has until 2008 to go after a correction into the four year cycle bottom later this year. That would mean that any viscious C wave is a few years off in the distance and when the real bear market will return. But the entire thing is a massive guessing game at best so don't try to trade based on Elliott or you will lose your shirt.

Prechter sees Dow 600

Is Prechter really still calling for Dow 600 before 2014?

Prechters reading of Elliott waves is utterly beyond ridiculous.

tony caldaro

Hi EN,
I've been bullish for 4 years, and still bullish. When the EW crowd starts looking up instead of down, they will finally see the correct count.


I was going to say, Tony you are one of the few Wavers that sees a bullish outcome for the next year or two. It will be interesting to see whose right, especially in light of all the negative technicals, such as the ones just presented by Yelnick's last post. Even the Wavers who are bullish long term, see a big correction coming. With the housing bubble appearing to be coming to an end, the odds are not with you, but then again, NASDAQ did go to 5000 on no earnings, so when humans are involved anything is possible. Ultimately, what price you get for your stock is what some greater fool is willing to pay you for it. I use the word "fool" because that's what I think buyers are with the current fundamentals that we have.
If the Dow and Transports break to new highs, I would have to erase the word fool, as that would be a major buy signal according to Dow Theory. The odds of a continuing bull market then swing to your bullish view. Until that happens, I think your bullish call for next couple of years has little chance of success!


Tony, I think the day your blog went from "long term: Bullish" to "Bullish but wavering" marked the low of the correction. What are your odds of testing the recent lows vs the recent highs first?

tony caldaro

Very observant! The low was put in the following day.
Considering the action in the Internationals, I'd say 70/30 in favor of highs at this point.


A brief observation after reading various comments. I am taking an outside-the-box view that the end of wave (1) or (A) was September, 2001. What followed is an expanded flat wave (2) or (B), ending with a 5-wave C in May 2006.

Just as today's interpretation of the market is all over the map, the market often offers patterns with multiple outcomes that only become clearer with time...and sometimes never clear up at all. One example is that the high on March 19, 2002 looks very much like a truncated wave [c]. It has five waves and follows an irregular correction down. But it is 2 points lower than the January 4, 2002 high, leading Ellioticians to count 1/4/2002 as the top of wave [b] of a larger A. Sorry, but there aren't the Fibonacci numbers to support it.

What makes today's market intriguing is that we have a choice in wave counts again. On the bullish side, we may have an [a]-[b]-[c] decline from May 5th which foreshadows new highs in the SPX. Assuming the entire move to October 2002 was an A, then the May 5th high was only a 70.65% retracement, leaving room for at least a Fibonacci 78.6% retracement to finish wave B.

Or, if we assume an expanded flat wave (2) or (B), the peak on May 5th had a near-perfect hit of the 61.8% Fibonnaci retracement from the October 9, 2001 low and what follows is a 1-2, [i]-[ii] start of an extended wave (3) or (C).

What I am attempting to establish is that a single discipline approach to the market carries pitfalls which are hard to overcome. A multi-disciplined approach looks for agreement using other tools in order to raise the level of certainty that one's analysis can stand the test of time.

In any event, we shall soon know which view is correct.


Wouldn't it be amazing to see the Dow and Transports go to new highs! It would cancel the bearish technicals such as the rising wedge, head and shoulders, Elliott count, historical lows in mutual fund cash, etc, etc. Might as well throw all technical studies out the window if the market ignores so many bearish patterns that are saying the same thing. Maybe manipulation of the markets would not be as far fetched as some believe if this happens.


I have learned to be flexible and that anything is possible in the stock market. But one thing is for sure, the longer this market stays above water and fails to break 10K DOW (April 2005 Low), the more and more bullish it is for the next few years as it would indicate we are getting a right translation of the four year cycle into 2007. The longer that cycle is put off, the less and less chance there is of breaking the 2002 lows anytime soon, perhaps ever. If that cycle bottoms far above the 2002 lows, new all-time highs in the DOW in the coming years are a virtual certainty.

tony caldaro

Posted this on my blog this AM:

"Markets are driven by an Investor Psychology cycle. This is an underlying force that lasts for a number of years. We call these events, bull and bear markets. But actually they are positive and negative cycles, created by the long term consensus of investor sentiment. Therefore, no matter who appears to be control of the markets for even months on end, the positive/negative Investor Psychology cycle will eventually seize control again. Even a stock market crash, such as in Oct 1987, did not impede this longer term cycle, which continued to rise until the year 2000.
Currently, in our market, we are not dealing with anything even remotely close to Oct. 1987. In the SPX, for example: the 2004 correction was only an 8.5% decline, the 2005 correction 7.6%, and our current correction 8.1% at the recent lows. These are normal corrections during rising bull markets. Historically, a 10% correction during a bull market, is not only accepted from time to time, but expected.
From an Objective Elliott Wave (OEW) perspective, the only event that would subvert the bull market scenario, would be for the market to drop below the lows of April 2005. For those following the SPX, that level is at 1136.15; NAZ 1889.83; NDX 1394.36; and DOW 10,000.46. Other than that, the wave count on all major indices remains the same, as posted on the weekly charts in the chart link. The Investor Psychology cycle, as measured by our proprietary Market Momentum Indicator (MMI) remains positive, as it has been since Oct 2002, and continues to subdivide along with the wave structure of the major indices."


Tony, I guess for you then, 11753 in the Dow, and 1136 in the S&P are the lines in the sand as far as bull and bear markets. Since we need to borrow almost 3 billion a day from the rest of the world to support our "consume beyond our means" habits, I suspect that 1136, here we come. But, if the rest of the world continues to fund our overspending so we can continue to buy their products, this lunacy will continue.
If all this easy credit was not made available by Greenspan and cooperating Asian countries, we would be in a deflationary depression similar to what Bob Prechter predicted. By inflating another bubble all Greenspan has done is delay the inevitable, and made sure it will be worse than had he let the normal business cycle take place.
I know you want to be bullish, but this country can't continue to go further into debt forever. And when the Asians quit feeding the credit monster, that's when all hell will break loose!


If it were different, Prechter would be right. But guess what, it is not different, so Prechter and all the other crackpots are wrong and will be wrong in the future.


Forget Prechter, and just look at economic history. Any country that has done to itself what the US has done has ended in economic disaster. There are no exceptions, whether you want to believe it or not. How bad it will get is the great unknown.


> If all this easy credit was not made available
> by Greenspan and cooperating Asian countries,
> we would be in a deflationary depression
> similar to what Bob Prechter predicted.

They seem to have done a good job so far in avoiding that scenario. Fed. Debt/GDP has peaked and is lower today than it was in the 1940s during the last peak. Corporate america has recovered and is swimming in cash accumlated by its conservative investment practices since 2000. The consumer's tired after 6 years. That's 2 out of 3, and all 3 have performed their parts to avoid the scenario described in earlier posts :)


As I said before, if things were different Prechter would be right, but guess what...
Yes, you got it, they are what they are and Prechter is wrong.


The four (or five?) most expensive words in history ... "This time it's different"


As Mark Twain put it: "'History does not repeat, but it does rhyme".

I prefer this view of the world. Viewing historic precedent as a straightjacket is quite fatalistic, and does not take into account the inherent randomness of it all...and the fact that every time, it IS a little different!


"This time it's different" - safe in Waves 1 and 3 only!!!

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