Monday, October 8, 2012

Potential Long Term Wave Counts

The market is in a similar position as late 2007. With October 11, 2012 being a Fibonacci (5) years away from October 11, 2007, the day the stock market registered its all-time high, many divergences are present, such as the Dow Theory non-confirmation ("major" flashing red signal) yet the market keeps on crawling higher. Since the Dow Jones Industrial Average, the bellwether index, has retraced over 90% of the 2007-2009 decline, it can now be labeled as a flat. No matter what waves the market creates going forward, it is quite obvious the structure from 2009 is corrective. However, corrective Elliott Waves can take on many different forms, a flat being one and an expanded flat another. In the flat scenario, wave b must retrace over 90% of wave a, and that level was 13,425 on the Dow. Since the high so far is 13,661, the market now qualifies for a flat. Should the market be tracing out an  expanded flat cycle wave b scenario, the market would make another all-time high, likely be completing an expanding wedge, and then crash in a cycle wave c down. Below is an illustration of such a scenario.

This would be under the expanded flat scenario with the market making new all-time highs. The market does not have to make new all-time highs in what could also be a regular flat, which does not require a new high. Either way, the upside seems very limited and the downside risk extremely high in what could be a Grand Supercycle Bear market.

As a side note, R.N. Elliott ,the original Pioneer of the Elliott Wave Principal, projected the Grand Supercycle degree top guessed it...2012. While the market has really been in a bear market in every other denomination but nominal terms since 2000, 2012 may be of great significance as the final peak in the decade-plus long topping process is completed. 

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