The nasty selling panic that began three weeks ago has confused the fundamental and technical analysts. The fundamental guys fear a recession along with declining earnings and those risky European banks. The technical guys study the MACD, the RSI, stochastics and moving averages. The only thing that works is Elliott Wave because when the count is applied to long term charts we can see where we were and where we are going.
Our first chart is the basic 8-wave count of a full bull and bear Elliott Wave count. Note the bull phase – impulse wave to (1) which is followed by a counter trend corrective wave down to (2). We then get an impulse wave to (3) which is followed by a counter trend corrective wave down to (4). We then get the final advance to (5) which is then followed by an A-B-C or three wave correction or bear phase.
Some basic tenents are the corrective (2) will never violate the low of impulse wave (1). Impulse wave (3) is never the shortest wave and the low of corrective wave (4) will never enter the space of impulse wave (1). The theory of alternation holds that if corrective wave (2) is short and simple than corrective wave (4) will be long and complicated. So there you have it as set out in our simple diagram
Now I am illustrating an Elliott Wave count on the Dow Industrials using weekly data to set out the 2009 to date 1-2-3-4-5 bull advance count and the subsequent A-B-C correction or bear phase. Note the last C wave corrective wave has been a sudden and sharp decline accompanied by fear, confusion and panic which is typical of a C wave bottom. If this is a bottom then we start into a new Elliott Wave 1-2-3-4-5 wave advance that should run through 2013. Keep in mind that a new impulse was (1) is always thought to be a bear market rally
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10 comments:
Can target rules be specied for the points (A), (B) and (C) of the down wave ? Thanks.
Minor violation of EW 1 but so far so good.
http://screencast.com/t/SMO8ulLnbYN
on BNN you said you saved front page headlines of doom and gloom as a contrarian indicator. I read where watching time magazine front covers are more reliable as they cater to a more general reader. Time's recent cover was "The Decline and Fall of Europe (and maybe the west)" Looks like the bottom may be in for the Euro dollar and maybe european stocks
the only thing that holds back another up pattern would be oil prices. I think and increase in oil prices will stop any furter advance in it's tracks. we need oil to stay around 80 dollars per barrel for a year or more to get a sustainable up in the markets.
The top of (5) could be a very large B wave whcih means the current ABC move down could transition into 5 waves to complete minor wave 1. So we need to watch for 4th wave retracment and then a 5th wave down which will bring back more volatility.
Hi Bill. Do you think enough time has passed to assign the current correction as an A-B-C correction? Perhaps this is only the 1st leg down. Many international markets and the Russell 2K are in bear market territory already. Volume is also very bearish. What do you think?
Hi Bill. The last time the 10-year treasury collapsed to these levels was Dec 2008. The markets continued to decline ultil March as divergence developed between treasury yields and stock prices. A painful recession ensued. What do you think will happen this time? Are we looking for a bottom to develop over the next several months or is this it now?
Hello Heinz
There is no rule as to the extent a C wave low can enter the space of the corrective wave 4. But a corrective C low is always accompanied by a bearish stampede & acute panic
Bill C
The advance/decline line does not confirm this move. It is at it's March 2011 levels while the Dow is at August 2011 levels.
andyt
RIM is sporting a great example of the Octave in time and price.
http://screencast.com/t/SQ1h2OMamRBW
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