TSX Elliott Wave Count

If you're ever lost and on a deserted road without a cell phone, grab paper and pen and begin an Elliott Wave count. Within seconds, a stranger will appear to correct your wave count. Ask this guy for a ride.

The problem has always been where to begin the wave count.

Students of Elliott Wave will easily recognize the three advances (impulse waves) that are interrupted by two corrections (waves) to be a perfect five-wave Elliott bull market. The completed bull is then followed by a three wave A-B-C bear phase.. Keep in mind cycle analysts have observed that, for the most part, bull markets tend to persist for about 36 to 42 months and will contain three separate and distinct advances or “up legs” which ties into the three impulse Elliott Wave theory.

Our chart spanning about 200 weeks of the S&P/TSX composite index appears to display a complete Elliott Wave bull and bear phase if we begin the wave count from the lows of March 2009. The first advance or wave (1) ran from the March 2009 low to the peak of mid-June. The first short corrective wave bottomed at (2) in July 2009. The second advance or wave (3) ran from the mid July 2009 low (2) to the April 2010 peak at (3). The second corrective wave (4) was longer the corrective wave (2) and bottomed in July 2010. The final advance or wave (5) ran from the July 2010 low at (4) to the final peak in April 2011 at (5).

The bear phase is usually an A-B-C correction with time duration shorter than the bull phase. The first, or A, down wave is a corrective wave that “comes out of nowhere” and is initially thought to be a buying opportunity. In the example of the TSX composite, the A down wave began from a price peak in early March 2011 and ended in early October 2011 for a loss of about 3,400 points or a 50% retracement of the 2009 – 2011 bull phase.

The subsequent rebound wave B ran from the lows of October 2011 and peaked in March 2012 retracing about 50 per cent of the losses sustained in wave A. During the recovery wave B, many investors are still bullish because they still regard the A down wave low to be a buying opportunity.

The final C down wave can take many forms. It can be a sudden and sharp decline accompanied by fear, confusion and panic, which is typical of a C wave bottom or it could be shallow and not violate the lows of the A wave. In any event investor temperament will change from bullish to bearish and may cause investors to stampede out of risky assets such as cyclical stocks and into safe assets such as utilities and telecoms. If this is a C wave bottom, then we start into a new Elliott 1-2-3-4-5 wave advance that should run through 2013.