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  • Which Scenario Is It? 2 comments
    May 24, 2010 1:23 PM

    So far I have two potential scenarios for the bulls.

    Scenario #1:

    -    img37.imagefra.me/img/img37/2/4/5/aarc/f...

    Target for the Inverted Head and Shoulders was minimum 1233.

    -     img40.imagefra.me/img/img40/6/5/24/aarc/...

    Unfortunately, SnP500 was not able to reach the Inverted Head and Shoulders Target.  When that happens;  there is a potential for a deep pullback toward 61.8% fibo support instead of a shallow A-B-C pullback ( > 38.2% but less than 50%) that may last a year or two. 

    The deeper the correction goes;  the less time needed to finalize the correction and the bottom of an A-B-C to be achieved.  I call it "Pay the fine or Serve the time".  Shallow corrections tend to consume so much time when investors are not willing to go into a major sell-off.

    It is a lot easier to analyze a rally or a sell-off than to speculate what the end result of a correction while the correction is still in a early- to midrange stages.  Most of the time;  even at the very final stages;  corrections will almost always try to whipsaw everybody out of the final bottom unless they have very wide stop loss provisions or have no stop loss at all.

    Scenario #2:

    -   img37.imagefra.me/img/img37/6/5/10/aarc/...

    -   img37.imagefra.me/img/img37/6/5/21/aarc/...

    This is the most dangerous.  It is a potential "Heaven or Hell" as I call it everytime I see this type of pattern develops.

    That is the reason why I try to shy away from the US stock markets because of Scenario #2. 

    And instead go for China, Japan, and/or Greece and potentially Italy since they are already in their advanced stages of corrections.

    One thing is for sure:  A correction no matter how shallow or how deep it is will only happen during bad times -  not when all the problems in the world seem so far away.

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  • The shark
    , contributor
    Comments (159) | Send Message


    Your initial wave count from the March 2009 low assumes a 5 wave upleg. If this was rather a A-B-W-X-Y then we could assume this was a corrective wave and not an impulsive wave. If the A-B-W-X-Y is correct then the current wave down is either a B wave which should correct to a Fib 38.2 or 50.0. However, the more scary scenario assumes a 5 wave impulse wave is unfolding - in which we have completed i, ii , i of iii, ii of iii - with iii of iii about to unfold.


    I have my doubts the full impulse will unfold.


    Another possible medium term wave is the expanded flat from late 2007 to March 2009 morphs into a triangle A-B-C-D completed with E currently unfolding - since E can be 1.618 of A this would see the SPX bottoming around 791 which would make a symmetrical triangle.


    As you always say "who knows" - maybe we bottom at 1,095 and rally strongly to 1,500 over the next 12-17 months.


    My guess a fairly strong correction which hopefully creates the triangle - a full Wave 3 impulse is to scary to contemplate.
    24 May 2010, 02:12 PM Reply Like
  • aarc
    , contributor
    Comments (3845) | Send Message
    Author’s reply » Yes, actually I know an EW Guru who counts the waves as potential triangle from year 2000. It is in the assumption that a Super-cycle 4th wave is in progress and that the rally from 1982 is the 3rd wave.


    4th wave will tend to consume more time than the 2nd wave. Since the correction of 1965 to 1982 consumed 17 years as the 2nd wave (double combination pattern); then the 4th wave must consume more than 17 years that started in year 2000.


    BUT ....


    As I said in my comments of Feb 2010; the major indeces are like Vampires. They are unlike companies that can rally then die in banckrupcies. The major indeces got replenished with new blood everytime a listed company "dies"; thus they do not perform similar to individual companies.


    The 54% meltdown for Dow Jones and 57% meltdown for the SnP500 are very deep and deep enought to be considered a 2nd wave rather than a 4th wave. And the 9+ years of consolidation range can be considered enough time for a 2nd wave (Pay the Fine or Serve the Time) when 54% - 57% price penalty had been paid.


    Another mitigating pattern against a triangular 4th wave is that triangles tend to have a-b-c-d-e legs that consume more or less the same amount of time. Indu and Spx have legs that are extremely time deviant from each other starting year 2000. The corrective rally from 2002 to 2007 cannot be considered as anything else other than a B-wave of an A-B-C Expanding Flat for Dow Jones. The meltdown of 2007 to 2009 is a classic C-wave.


    I know a C-wave when I see one - and I almost always countertrade a C-wave since the success rate is more than 90%.


    Based on my analysis of hundreds if not thousands of Expanding Flats; Dow Jones has more than 70% probability of going into a rally that may last at least 10 years.


    I simply don't want to fight the odds.


    Expanding Flat is my favorite pattern since it has a very high success rate as compared to almost all other flat patterns.


    Among the 30-% Expanding Flat Failures is when the rally off the expanding flat C-wave bottom proved to be an X-wave. In which case the most common pattern that develops after the X-wave is a Zigzag down. Thus if the rally off March 2009 is an X-wave; then the Zigzag down will most certainly break below March 2009 bottom. But then again; that is less than 30% probability. Not worth the effort speculating.


    The wavecount 1-2-i-ii starting from March 2009 is also possible and the iii-rd wave of the 3rd still to unfold. That is why I have the Expanding Triangle on the daily chart as Scenario #2.


    Most of the time; after an Expanding Flat has completed; the rally after the C-wave will not go into a pullback a-b-c more than 38.2% in any i-ii-iii-iv-v initial wavecount (March 2009 to April 2010) until the whole C-wave (Oct 2007 to March 2009) down has been completely retraced or exceeded to the upside ( > 14,198 ). But then, most rallies after A-B-C expanding flats are vigorous consuming much less time in the initial stages than the last stages of the C-wave selloff. The 14 months rally from March 2009 to April 2010 is simply too anemic to be trusted since the meltdown of Sept 2008 to March 2009 took only 6 months.


    Thus, the only possible answer to the 14 months of anemic rally is that it is forming a running correction since running corrections tend to consume massive amount of time. But then again; counting the waves of a running correction tends to be an exercise in futility - it is simply too darn hard to find the correct wavecount of a running correction ii-nd wave of a 3rd wave (not until the iii-rd wave of the 3rd is already gone far enought - more likely after Spx has already reached or broke above 1350).


    Wait and Watch is my Strategy for now until I can find a wavecount that can satisfy a running correction ii-nd wave of the 3rd wave.


    I believe timeframe is within early Oct 2010 to late Dec 2010 before the final wavecount will show itself - IF and only IF a running correction ii-nd wave of the 3rd wave is in progress.
    24 May 2010, 03:09 PM Reply Like
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