RiskAverseAlert

Reading the S&P 500's Crashing Waves

The one mistake Mr. Shedlock is making with his EW analysis is discounting "the rule of alternation." Thus he stands to miss the biggest rally in years.

The simple fact is this...

The corrective wave currently unfolding from the Y2k top should be relatively more complex than the corrective wave that unfolded from Q4 1976 through Q3 1982. Thus, one should minimally expect an a-b-c-x-a-b-c form to unfold from the Y2k top.

The first a-b-c formed from 2000-2003. Wave x topped last October. The second wave "a" is completing (taking a 3-3-5 "flat" form). The second wave "b" is due next and should result in the biggest rally since 2003.

By way of the same "rule of alternation" expect a zig-zag (up) to form this second wave "b" since the Y2k top.

It is entirely possible new, all-time record highs could be set during the formation of the coming wave ["b"] up. It's a fact the first wave "b" in the [potential] a-b-c-x-a-b-c unfolding since Y2k did NOT set a new, all-time record high. Thus, again by way of the "rule of alternation," one might anticipate the second wave "b" will do what the first wave "b" did not.

First things first, though. We're still looking for the next "Vince Farrell bottom." Current intra-day lows should not be too greatly exceeded before this bottom is in. It could take some weeks, too. So, my advice is be patient and remain calm...