A Probable Path Revealed

Tony Cherniawski is back with an update to his Not Wave 3 guestblog.  He now sees enough wave clarity he can make a fairly crisp call.  He also gives some good insight into Elliott Wave theory and practice.  Highly recommended!

Elliott Wave often allows so many potential outcomes that there are often fierce arguments about the probable path of a new wave.  As the wave develops, the probabilities narrow down to only one or two outcomes.  A retrospective look at the waves show a clarity that is absent when needed the most, before the the onset of the big move.  The best Elliott Wave analysts, in my opinion, use multiple analytic tools to gain clarity and thereby gain an edge over their compatriots.

I believe that a certain clarity has now emerged in the wave structure that should be examined more closely.  Let's start with the assumption from my last blog that the decline ending on January 23rd was not wave 3, for all the reasons I gave in that article and proceed from there.

First, let's examine the head-and-shoulders (H&S) pattern to see what is revealed there.  A study of past H&S patterns suggests that the normal course is that wave one will stop at the neckline and wave three will complete the pattern to its minimum target.  The first wave down from the October high did not accomplish that goal, so something else is at work here.  I have labeled the first decline wave A, instead.  B waves can be rogues, so it is possible that wave B terminated on December 26th, not December 11th.  That allows wave (i) of C to decline to the neckline.  After the bounce, wave i of (iii) of C probed down to the cycle low on January 23rd.  Wave ii has now retested the neckline, preparing for the next move down.

Am I forcing Elliott Wave to fit my own  notions of what is transpiring?  In truth, I would also agree that the first wave down in December could be part of an impulsive wave (i) of C.  But not THE THIRD WAVE.

An analysis of the Fibonacci retracements reveals that wave i of (iii) of C nearly completed a .382 retracement (1267) of the advance from the October 2002 low.  This leaves wave iii to probe down to the H&S minimum target of 1175, only points away from the .50 retracement at 1171.50.  Coincidence?  Hardly.

There's more to follow.  An extended wave C pattern compels us to put in waves iv-v and (iv)-(v), or alternatively, an impulsive wave (v).  Assuming wave iii stops at 1170-1175, the final probes of waves v and (v) could take the SPX to 1076, the .618 retracement of the advance from October 2002.  All of this assumes an orderly decline.

What if chaos intervenes?  A hyperextended wave (iii) of C may go to the .618 retracement, or even much further.  How will we know which is taking place?  We'll soon find out.  The January 23rd low was an important cyclical low.  If the markets are failing here, it may mean the next month will more clearly reveal the severity of this pattern.

If you want to ride this roller coaster, I suggest buckling your seat belts and shoulder harnesses.

- Tony Cherniawski

Disclaimer: opinions and projections contained are of the guestblog author and may not represent the views of Yelnick, The Practical Investor, or any other organization. The information contained herein is for information purposes only and this report is not to be construed as an offer to buy or sell any securities. Neither Yelnick nor the author accepts any liability whatsoever for any loss arising from use of this report or its content. The statements and statistics contained herein have been prepared by sources we believe to be reliable but we cannot represent that they are complete and accurate. This material is published for general information only. Readers should obtain professional advice before applying any ideas mentioned to their own personal situation to ensure their individual circumstances have been properly considered. 

Comments

[andy]

Yelnick wrote: "Elliott Wave often allows so many potential outcomes that there are often fierce arguments about the probable path of a new wave. As the wave develops, the probabilities narrow down to only one or two outcomes."

I have read many competing predictions here. Clearly "Elliott Wave" is a useless phrase. 1. It doesn't have any consistency. 2. It doesn't have any utility.

I doubt anyone who posts here has gotten rich of his predictions. If his methods were useful he would have made lots of money and have lots of followers and probably sewn the seeds of his own destruction.

The posters on this site seem capable of reason but consumed by religion. It is fun but it is masterbation.

[Eventhorizon]

Andy,

Don't be a wanker - it's "mastUrbation" ;-)

I think "Intellectual Onanism" nicely sums up the whole Elliott endeavor; it's a pleasurable and harmless pursuit.

At least you can't see your furry palms after you go blind!

[Lui Yuan]

Mr. Carl Futia lays out a nice case for SP heading above 1600.

[Mario]

Thanks for publishing your point of view.
The head is identified by the highest high. The neckline of a H&S should be constructed by connected the head’s low points and not as illustrated.
Connecting the low points 1370,60 and 1406,10 the neckline passes by your point marked by (II) and not as illustrated in your chart.

[yelnick]

Mario, interesting observation. I will let Tony comment on the H&S methodology. But your revised line would suggest the down point is higher than SP1175 - more like SP1200. Tony?

[Upstart]

Lui Yuan,

I think Carl Futia is spot-on. And if you want to put things in Elliott wave terms, we completed at the January low an a-b-c decline that is the b-wave pullback within Y of a double zigag that began in 2002. (The huge triangle from early 2004 to October, 2005 is the X-wave.) New highs in a few months will complete c of Y. This is diagrammed in a Theorist from about April, except Y is larger and extending beyond what is shown.

[dlu]

Yelnick,
My count show sp500 finishing an ABC (x) WAVE at recent lows and now s&P should lift up in (Z)wave of tripple combination of (W)(X)(Y)(X)(Z) to finish the
the big B wave.DO you Agree?

[yelnick]

dlu, this has become my preferred alt count to the nested 1-2's of Prechter. I have thought the action since 2003 as corrective - your Big B wave - not impulsive. The drop off July or October is so sharp it is difficult to count it as a small degree wave 4. In some indicies I beleive it has crossed intot he wave 1 top on the way up. But an X wave works, and could support Z wave for The Surge. What is unclear right now is whether the X is over or will meander in into, say, March.