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« Do We Feel Lucky? | Main | Demographic Destiny and the Long Term Market Picture »

Sunday, January 17, 2010


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Hank Wernicki

1/14/2000 was the Top for the Dow

Interesting ...........

A Similarity ?


Of course the Industrial Revolution is over, the entire Enlightenment period has ended. Does this mean the market will behave as Prechter predicts. Not likely.


What is over is capitalism. I believe at this point the gov't WANTS the system to collapse. It WANTS people dependent upon it and will work to ensure they are. They will CAUSE the chaos and then ride in to "save" us, just like Hitler did. THAT is why we WILL see Dow 400.


Yelnick seems Prechter has no issues being wrong once, twice and three times. I'm not sure the top is in although I'd love it to be. Seems that there maybe one more push in the cards up to 1200 area for the end of January. This will squeeze the retail bears one more time enough so when the correction begins they really won't be participating in it for fear of the bounce back rally. I agree with your assessment that 2010 will be a sideways year. Sometimes folks do things for strange reasons..i.e. an anonymous fellow who writes into Barron's three times a year with uncanny projections that are so spot on target that one wonders why he bothers. Personally I think it gives him the ability to let folks know how to make $ in this market but the real reason will probably never be known. Anyhow long story short he's playing 1200 on S*P prior to a 10% correction and then a huge rally into the end of the year. My thoughts is this correction could take a few months to play out so a lot of sideways over 3 months or so to lose 100 pts.
Keep up the good work!

da bear

Sounds like Figure 5-7 of At The Crest of the Tidal Wave is a likely scenario.
That would mean that we are approaching wave 3 of Super Cycle (c) down.

It could mean that we are in a correction of Millennial degree (similar to Prechter's earlier views). That would mean that we get the mark of the beast and one world government soon. Likely in wave 4 upward correction. The end times basically. Then you get Grand Super Cycle Wave V of Millennial degree which is, fascinating as it may seem, Biblically based. Basically the Millennial reign of Jesus Christ. In one of his writings (perhaps Conquer the Crash) Prechter thought that we would see a better government system set up in Grand Super Cycle Wave V. One of the keys to the Millennial Reign is government based on Biblical principles (ruled by Jesus) as well as people working with their hands and keeping the fruits of their labor. Oh, and the "lofty city" is laid low.

Perhaps Prechter's bearish forecasts are not so outlandish after all. I have also
found significance to the years 2010 and 2015 (Perhaps) based on the Bible. Let me know if it is of interest.

da bear


Again, Prechter does NOT understand how fiat currency works. I read in an interview that 400 is his upper target for this low. 40 is the lower target on the Dow! I'm sure this comes from the notion he references of "correcting" back to the 1930s. He does not understand how fiat currency works. The inflation of certain goods and assets may wax and wane, but general inflation, in a fiat system, is essentially permanent.

Japan does not contradict this assertion either. The CPI has never really gone below -1% during the whole "deflationary" period in Japan, and only for a few years. And what "deflationists" like Precter don't account for in Japan is the inflation that was present during the Japanese bubble did not just disappear or "deflate", it moved into the Japanese bond market on a massive scale.


It's going to be SnP 1240-1260 to finish off wave b of A before wave c of A sets in.

Prechter's achilles heel historically has been his impatience.

A DOW 400 comes after the War, some forty years away.


Yelnick, this is a great site - you've always got a nice, reasonable, rational breakdown. I have been visiting for some time and this is my first comment. In contrast, it seems quite obvious that Prechter is constructing wave scenarios to fit his pre-conceived notions.


This will squeeze the retail bears one more time enough so when the correction begins they really won't be participating in it for fear of the bounce back rally.

I'm pretty sure "retail bears" are already out of money, man. If they aren't, why squeeze them only one more time? Why not two more? Or ten more?


An endogeniously regulated fractal system is not a pre-conceived notion. It's a proven mathmatical solution to observed behavior over hundreds of years.


I checked Robert Shiller's stock data to see what the S&P 500 prices would be in current dollars at the bottoms in both 1932 and 1982. 1932 is 76 and 1982 is 243 so the Dow would be either 710 (1932) or 2,270 (1982).

Because Bob is looking for a reversion to 1932 prices and significant deflation as the credit bubble deflates a Dow well below 710 fits his analysis.

Looking at the price and PE10 trend channels using Shiller's data back to 1870 suggests a low in the S&P in current dollars in the 200 to 300 range seems reasonable in the next 5 to 10 years.

Bob's prediction suggets a "Road Warrior" future is coming rather than "just" a severe depression.

Dushyant Desai

Dow below 400 opinion could also be to get attention. I was a sell side analyst for several years and can tell you from experience that if you don't have significantly extreme view, you will not get attention. You are then just part of consensus. Markets are computationally irreducible systems i.e. unpredictable. I am more inclined towards Yelnick's target range of Dow around 3000 to 4000. This will retrace the entire bull market from 1982 adjusted for inflation. Only time and market will tell.



Bottom line is that we pay far, far too much just to live. If this bubble has taught us anything, it is that people will borrow what ever they can get their hands on and it is that ability that sets price.

The attached addresses the consequences of the required deleveraging. Whether it is P3 or not, Prechter's message remains in vogue imo.

As for traders, my hat is off to you. I'd be broke in 5 minutes.



Bear slaughter to begin as soon as this Tuesday

Even an end of the world situation will not bring DOW close to what Mr.P is forecasting. If you have been reading Mr.P's material you would have already lost risked capital. He is doubling down on a losing position. Mr.P and his firm has no credibility.

This week market action will tell you all how to lose money reading internet articles.


I agree.. this market is going up from here, DJIA 12000 in February or March.


Bear slaughter to begin as soon as this Tuesday

Actually, since the March low, the typical reaction off a new rally price high short signal, which I got on Friday, has been 3 days, counting the day of the signal as day 1. Friday was day 1. There is the cross-current of the "Monday gap up" phenomenon to deal with for Tuesday, of course, but statistically-speaking Tuesday should be flat to down due to Thursday's new price high.

The average time between short signals has also been shrinking since December 23, meaning that the bulls are losing momentum and price highs are exhibiting less follow-through over the last month.

The last time this momentum follow-through was decreasing, it bottomed in early August and accelerated back up. That was still the era of "green shoots", though. If anything, even bullish prognosticators admit that era is now over.

This shorting signal has a 75% accuracy rate since April (29 signals, 22 winners).

Anyway, those are the facts.



"Even an end of the world situation will not bring DOW close to what Mr.P is forecasting. If you have been reading Mr.P's material you would have already lost risked capital. He is doubling down on a losing position. Mr.P and his firm has no credibility."

As a premise to this discussion, let me say that I am not a trader, nor have I ever been one.

To me your comments imply that people trade off what Prechter prints in the EWT. I find that hard to believe. Even with my limited EW skills, it is clear that the views are all over the map and that only in the rear view mirror will folks be singing from the same page.

But if the Dow breaks the March low in the next 2 years, if we see general deflation in the next 3 to 5 years and if RE continues to crumble, Prechter will have a lot of credibility in my eyes, and he will have saved me lots of money.

But to have run out and bought March at the money puts last Friday based on the Jan EWT, leaves me a bit confused at best. Prechter has repeatedly said that he is often early. If you are saying that day traders should not formulate their trades based on the EWT, I think Prechter would be the first to agree with you.


Mamma Boom Boom

>The target is Dow400, and the time looks around 2014-2015<
Seems like it would happen faster than that. Wouldn't investors be running for the door?

>Prechter thinks that 2000 was the top of the whole wave from 1784<
Hard to argue with that.

>Is 1974 the start of the final wave 5 of V?<
I think 1982.

>and at the end of the period we were the new global power<
Not this time.

>All of this suggests this count is extreme, to say the least<
I guess that's why people read it.

Just assume for a moment, that he is correct. If so, shouldn't we all be paying more attention to the happenings in Haiti? Could this serve as a survival guide, for all of us, over the next few years?


Mamma, I assume part of what informs your opinion is the rise of China. Maybe I am jumping to conclusions. Otherwise it is hard to see what replaces the pre-eminence of the US. We are the great world power and despite the feckless policies of recent leaders do not appear to be losing that position.

I think people are way ahead of themselves on the demise of the US and the rise of China. Around 1900 we were China - the great new manufacturing power. During the 1914 War gold rushed into the US, and by 1925 the return to the gold standard was really a disguised Dollar standard. From 1870-1900 the US was enormously inventive, not just cheap labor (telephone, electricity, lights, steel, etc.) We had huge immigration until around 1930. In contrast, China is growing on the flows of capital and cheap labor. They have not been particularly inventive, their workforce is aging, and they lack immigration. It is hard for me to see why they don't become a bigger Japan vs a new US.


Yelnick this article meets your projetions. I'm in agreement. The question is the cycle dates of the lows this year. Do you know them? If so can you do an entry with them?
Many thanks.


Sanjay, nice article - I added it to the post to support the crashes don;t follow crashes point. As to entry points, the historical patterns have all gone haywire since 2007. We have had Jan peaks inmost of the past 6 years, so a Jan peak should not surprise (or early Feb.) We have had major turns around March 21 for a decade, so a low around then shouldn't surprise (we had Mar lows in 09 and 08 for example, after Jan peaks of sorts). We have had May peaks as well, sometimes meandering into late Jun. So a vague map for the year is a top within 3 weeks, a bottom in Mar, a secondary top in May or mid June, and a low in Oct, followed by a Santa Rally into 2011.

Mamma Boom Boom

Yelnick, China was not a consideration, though it may be. I can't seem to get a handle on the next power. It may be decided in a world-wide war victory. Rio is almost sure to blow away all records of investment, over the next few years. Or maybe it will be Russia.

My main problem with the USA is the attitude of the population. I've seen studies that show the lions share of the people are socialists, now. My guess is, even these studys under-count the problem. This is much different than the 30's when people were hungry and fit.

I can't visualize coming out of this mess, with fire-in-the-belly.


Clif Notes:

"Of course the market cycles which comprised the 1973-74 bear market were considerably different than the cycles underlying the 2007-08 bear market. Yet the market dynamics between the two eras are so remarkably similar that the inference can still be drawn that ours is a situation analogous to the 1975-76 recovery."

Wow! In 73/74 we were living in the vertical section of the aggregate supply curve (means we could not produce more regardless of price). Today, we are the exact opposite, we reside in the horizontal section of the Aggregate supply curve (means this is the price, tell me how many you want).

I look at it this way: Say you have a beaker full of reactants. At steady state your yield is 74%. You repeat the test and the yield is only 3%.

What happened? In the first run, the pH of the solution was 11.2 and in the second case it was 4.7.
The yield is pH dependent. You have to know the pH to make money.

Prechter is all about pH. Droke has never heard of it.



Interesting to see what the market does if Brown wins in MA.


Mamma, when a crisis comes, the US people give enormous latitude to the Prez to fix it, then pull it back when the crisis abates. The Mass election is very telling - the people want to send a message back to Obama that he is off track. We had a financial crisis, it has not been fixed; instead, we seem in worse shape with record banker profits. Meanwhile, Obama is off trying to do healthcare, cap&trade, and election shenanigans. We didn't pull out of Iraq, and have doubled-down in AfPak when the problem has moved to Yemen. I could go on, but you get the point. The People already want to pull back on the crisis powers and get back to normal. The move towards Socialism is not that; it was a move towards fixing the crisis.

So when you hear surveys and polls which suggest the People want socialism, be very skeptical.


Upstart, Cramer was touting a big rally last week. Why? He seems to have it backwards. Insurance, pharma, financials, GE (turbines in windmills) and many more large companies are all buoyed by healthcare & the Obama Agenda, not hurt by it. I expect no more than a blip, then a drop in recent sectors that have done well. I also expect gold to fall if healthcare falls, since gold is a hedge against bad government policies. Dollar should go up.

Mamma Boom Boom

Yelnick, you give entirely too much credit to the masses, 99% are electronically lobotomized and beyond redemption. Majority rules and the majority can't get it together to care. This is not a new item. The parties in power make no dif.

But, it's more fun trying to figure out which way the market moves.


We had a financial crisis, it has not been fixed; instead, we seem in worse shape with record banker profits.

Let's not forget that those "profits" are actually a result of the relaxation of accounting rules to enable banks to mark their on-balance-sheet securities to BS levels.

The "powers that be" think the banks are going to be able to grow their way out of the holes they're in on those securities and that if we just wait a while, their capital will be replenished.

That changing of the rules mid-stream was the most egregious abuse of regulatory power I can recall. That's actually what made me most angry about the bonuses, too. That money should have went to bolstering capital so that we can change the rules back to what they were and get real balance sheet transparency in the financial sector.


"In contrast, China is growing on the flows of capital and cheap labor. They have not been particularly inventive, their workforce is aging, and they lack immigration. It is hard for me to see why they don't become a bigger Japan vs a new US." - - - Yelnick

Agreed 100%.

China has not engineered or invented ANYTHING!
Their government decides where resources should be directed, and not the marketplace. Their lack of engineering/invention is a huge contrast to many other emerging economies.


China invented banknotes :)

Hank Wernicki

From STU :

"either Primary wave 2(circle)is complete or some other pattern is developing."

Question, what is the alternate count if wave 2 is not complete ?

Futures are boucing tonight up


Hank, they staked a lot on an ED, but if it goes much farther up they will have a problem. he easiest modification to their count is to make the drop last Fri a wave 4 with 5 still ahead. This works better if the wave 4 is more than one day! But a jump Tues and then a fade the rest of the week - the pattern we have gotten familiar with - would fit quite nicely. Then the week after could be their final 5.


"In contrast, China is growing on the flows of capital and cheap labor. They have not been particularly inventive, their workforce is aging, and they lack immigration. It is hard for me to see why they don't become a bigger Japan vs a new US." - - - Yelnick

Agreed 100%.

China has not engineered or invented ANYTHING!"

While I agree on the democraphics of China, I'd be a bit careful here. Let's not forget that some 200+ years ago, that is exactly what the British said about us (copying industrial processes). They also didn't like the way we fought (the minute men/terrorists).

Plus ca change
Plus c'est la meme chose!

I flew out of Chicago at Christmas and the gal next to me was working on her phd in Biochemistry. She was bummed because someone from Beijing University had just published on what she was working on.

I don't think the bet is on China anyway. It's India and the stars are lined up there well into the 2060's (demographics, infrastructure, you name it).


Hank Wernicki

that's what I'm thinking, thanks


Infrastructure and Demographics have nothing to do with technological breakthroughs and inventing new technologies. You guys keep missing the point!


Michael, maybe, but wealth from production is driven by both efficiency (productivity) and innovation. England seized the lead in the Industrial Revolution through tremendous innovation, including automation of factories, steam engines, RRs, and much more. The US took over in the late 1800s and has driven innovation since. China has invested in engineers, and many VC firms (including my former firm) are happily investing in Chinese entrepreneurs, but core innovation is not there yet. Might be due to culture, might be due to command economy, might be lack of entrepreneurial infrastructure. Chinese who come to the US do really well in a different context. I just think without that they cannot seize the lead, and innovation of this sort works better in a more open society.


If you look back at the H&S (various indices) from which we departed tho those many moons ago and consider where we are now, you'll see that much higher will put the bear in palliative care. Not that it couldn't be resurrected with violent implications - but the probability is then strongly against the bear's re-invigoration.

Then again, maybe that's what the EWI need to see for their 3rd of a 3rd of super cycle degree. If only they were around to participate...



"Infrastructure and Demographics have nothing to do with technological breakthroughs and inventing new technologies. You guys keep missing the point!"

I guess I missed some posts. The demographics of India shows that the population is young. That means a huge chunk of the population have their peak spending years in front of them. That means growth. China on the other hand will be where we are now in 20 years. Their economy will slow then like ours is now. India has no infrastructure. When the government builds out its infrastructure it will do two things.

First it will help expand the middle class by providing good jobs. Second, the development of infrastructure will result in huge efficiency gains for their economy, much like our roadwork in the 30's and 40's. By contrast, our roadwork today just provides jobs. The roads are already there. Very little efficiency gain.



Well you can add Gary Shilling to the Dent/Prechter duo.

FWIW, I agree with everything Shilling is saying here:



Awe, the best for last. The love of my youth, still has it:

I'll be buying this one




Regarding that Shilling article:
Also, a quarter of homeowners with mortgages are under water, 40% of those who took out mortgages in 2006. Increasing numbers of these people are convinced that they'll never regain positive home equity and are abandoning their abodes in favor of renting other houses at lower monthly costs. Still, the subsequent foreclosures on their mortgages will keep them from qualifying for a government-guaranteed mortgage for three to five years and will stay on their credit records for seven years.

I think this is a HUGE "tell" for the true direction the gov't wants to take. YES; ordinarily I would agree a foreclosure SHOULD stop one from buying another house in the near future. BUT, in my humble opinion, in order to get the markets back on track, I would think that the powers that be would WANT to forgive those who simply got caught in the swirl (as opposed to those who should never have bought in the first place). For the benefit of the system, we WANT people to own homes.

Now here is the "tell". I think the gov't LIKES owning our homes. There are MANY progressives who believe PRIVATE PROPERTY is the problem. This issue will show us whether the gov't will CAPITALIZE on this crisis. Will they find creative ways to KEEP private property OR to give it BACK.


There will be so many people with foreclosures on their records that the requirement for pristine credit will be dropped. When you can rent a property ofr 20 - 50% less than the interest on your mortgage, only a fool would not walk away from an underwater property, especially if they put down a very low downpayment.

The government should not guarantee mortgages anyway. This is one of those ridiculous attempts at social engineering that are doomed to failure: if govt gurantees mortgages home prices go up. There is zero benefit to the public, because house prices are a function of affordability - if you make homes "affordable" more people can afford them which drives prices up and the "affordability" goes away: it is absorbed by the rentiers (i.e. bankers).

The choice is not just between home-ownership and government ownership, landlords also rent out properties. The aim of high homeownership is wrong-headed. The country with highest home ownership is Bangladesh the country with the lowest is Switzerland (or at least was last time I checks a couple-three years ago). There is an inverse correlation between homeowenrship level and standard of living. Why? Labor mobility. Notice in the US, the regions with the lowest levels of homeownership also have the lowest unemployment levels. You don't want your labor pool tied to a millstone.

The govt must get the fuck out of all markets if they want the economy to recover. The myth of homeownership promulgated by the builders and realtors needs to be over-turned!


agree with whoever wrote that Precter's extreme view is to grab attention, subscribers

likeliest scenario is we tread water. too much bearishness and bullishness

but who the heck knows


Once again, Tony Caldera's discipline shines through.

No top calls, no hype. He just looked at market action and proposed an alternative count without bias or agenda.

5 waves down and 3 waves up of minute degree.

Until you have that Mr. EWI you don't have a trend change!


Stop publicity, stop junk research

You follow junk research, you become Goldman fodder

Fools listening to idiots Mr.P and Mr.D. After losing so much money for subscribers, these guys have no shame to continue to churn out junk for the sake of publicity. No person with right mind would want to read their junk research. I request Mr.Y to stop propaganda and stop this junk research from reaching to innocent readers on internet.

Mamma Boom Boom

>China has not engineered or invented ANYTHING!<

That's a bogus claim, if it's intended as proof why China can not be a world power. Engineering and inventing are not the components of the formula China is responsible for. Their's is manufacturing, and they seem to do a world-class job of it.

Blessed Angel of Our Virgin Mother's Sacred Honor of Fatima

Their's is certainly not punctuation, and they seem to add gratuitous commas.

They also seem to like clunky sentences, like "Engineering and inventing are not the components of the formula China is resonsible for."

Nor can they spell "cannot."


Hi Yelnik
Great Post.Re A crash is never followed by a crash the following year. I would argue that while the downturn into the March lows was incredibly destructive, it doesnt qualify as a "crash" as the public percieve it. If so what date is ingrained into peoples mind as to the "crash" occurring?

William Schraeder

Yes, Prechter did make a good call in February, but remember how wrong Hochberg was and kept calling for one more wave down until what EWI is calling P2 had already made it to 950. Going back to fall 2008, Hochberg consistently got what they were calling wave 4 of P1 down wrong causing investors to miss 5 of P1 down---a big move.

And how about Gold and Silver? Everyone at EWI grossly got that one wrong so while I will acknowledge that Prechter got it right for once in 20 years, his long term record is abysmal. According to the Hulbert Financial Digest that rates investment letters, Prechter and EWI are dead last in performance over the past 20 years, with a compounded return of -95%. In other words, listening to them would have resulted in a 95% loss of your money. You can find the numbers by searching for Prechter on Marketwatch.




Government has done everything possible to create the mess we have in housing. They have done the exact same thing in higher education.

The issue is price. Prices for both do not reflect reality(a thoughtful decision based on what you get for what you pay). The invisible hand is moving to make the needed adjustments. We must have deflation so that future generations can boom.

I don't think the gubmint can halt the invisible hand with handouts. It is not that they won't try, it is just that the debts are too large. That is the Prechter/Dent position.

I have no problem with 60 and 70 year olds, who worked all their lives(but saved nothing), rooting through my garbage at night for metal and plastic (think green). Just as long as they are off the streets when I pull out of my driveway in the morning. Otherwise, I guess I'll just have to hold my nose.


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