aarc

Expert Predictions: Finding Value in Knife's Edge Markets

Unless Dow Jones breaks above 11,000 before Q2-Q3 2009, the direction is clearly downward to 4750 target by Q3-Q4 2009.

This is using Elliott Wave analysis of the 100 year Dow Jones chart. Dow Jone is a high probability expanding flat on the monthly, quarterly, and yearly charts. This vicious downside plunge that started Oct 2007 is characteristically a C wave of an ABC expanding flat that started year 2000. C waves usually cover more price area (hence expanding) that breaks the A wave and consumes less time than the A wave. The plunge from year 2000 to 2002/3 is the A wave that consumed almost 3 years. This current C wave plunge should consume less time than that.

The complex pattern developing on the 120min and daily chart is a normal characteristic of a iv-th wave of a 3rd wave of a C wave. It may either finalize in either a triangle or a complex flat or even a double combination. iv-th waves and 4-th waves are extremely volatile and highly unpredictable and the terminal point can usually be found with high level of centainty after several "mistakes" and in most cases only when the v-th or the 5-th wave is already on its way.

At any rate, target for v-th wave of the 3rd wave of the C wave is still 7300-7500 on nominal basis. This is necessary to provide the divergence buy signal on the weekly chart in order to dissipate the excess momentum to the downside.

However, a relief rally to 9000-10000 from the 7300-7500 will only be able to dissipate the weekly chart momentum but not the monthly chart which will need the 5th wave down of the C wave target of 4750 nominal (assuming the 5th wave dont extend to 2393 or even over-extend to the 700-1000 area).

C wave of an expanding flat on the long-term charts can be killers. A recent example is MER which has an expanding flat on the monthly and quarterly charts that projects a target of $9.00 nominal. MER was consumed by BAC even before the pattern was consumated.

This DJ plunge could be a killer. Many stocks in the Dow Jones are projecting death spirals that will eliminate them from the list. However, who are going to replace them?

With the demise of the 5 horsemen of Wall Street (GS, JPM, MER, MS, and BS) who should be acting as the "white knight" in this current downturn; the fate of US stock markets is now at the hands of the government.

There is still a 20% to 30% chance of preventing an expanding flat since Dow Jones was able to form a 154% fibo price extension to 14200 Oct 2007 from 7200 of Oct 2002. Meaning the B wave formed from 7200 to 14200 possess some strenght in order to prevent a C wave from fully forming. This is called a C failure which happens when the 3rd of C got retraced more than 62%.

But 11,000 must be broken to the upside without 7200 getting broken to the downside. That will project a target of 16000 for a d:3 of a simple abcde running triangle on the quarterly chart.

That's it, pay the fine (ABC expanding flat) or pay the time (abcde running triangle) with ABC expanding flat almost all certain given the current conditions with no possible effective solution for this "once in a century" crisis on the cards for the rest of the year and into the H1 of 2009.

Govt has to do a "once in a century" solution which means something not done before by the Fed and/or the Treasury in the past. China's "once in a century" $600B solution is not enought unless the west do something really effective immediately. A drop to DJ 700-1000 area is catastropic to say the least. Why take the risk?

C wave of an expanding flat consumes massive acreage at an extremely short period of time. Time is the essence.

Hopefully, if 4750 holds, then a massive rally back to 14000 can happen in less than 5 years. An effective bullish expanding flat usually retraces the ABC within 50% of the time it takes for the ABC to form and in many cases consumes less time than the B wave (Oct 2002 rally to Oct 2007 consumed 5 years). C waves of expanding flats have less long-lasting effect due to the extremely short period of time it consumes . That is; a massive rally from 4750 will prevent most companies from declaring bankcrupcies due to the sudden turn of events and give them a new lease of life.

Only if the C wave dont extend or worse over-extend to the 700-1000 area. Like a knife plunging right into the heart of an ailing economy.