Commentary on politics, technology and stock markets guided by Elliott Wave principles. Is Bob Prechter Hari Seldon, and has he invented Psycho-History? Or is Elliot Wave no more than Ptolemaic epicycles? On Cheer's, Cliff Claven said he had an infallible system for predicting the next President, and it could predict all prior elections. His prediction: "Yelnick McWahwah." And yet, Elliott often provides remarkable predictions. Stay tuned.
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Wednesday, July 30, 2003
Tip of the triangle
Wave count is at a tipping point. Some form of top occurred on Jun17 in the major indicies, Jun6 on the small stock indicies. We have been in wave 2 up from Oct02. It has retraced 61.8% of the drop into Oct02, so the normal Elliott pattern is satisfied. But - there is always a but - Yelnick has noted that the two prior wave 2 reversals in the Dow (sep00-mar01, and sep01-mar02) went 78.6%, reflecting the uber-bullishness of the wave 2s following the Greatest Asset Mania of All Time. So the question is, was the Jun17 top the end of this wave 2, or merely the end of a subwave 3 up from the Mar03 low?
One way to tell is to look at the wave pattern since the top. It can be counted as a stacked series of waves 1 down followed by waves 2 up. But it can also be counted as a triangle. And triangles do not occur in wave 2s, only in B waves of ABCs and 4th waves. If a triangle, then the better count is Jun17 was a subwave 3 top, the triangle is subwave 4, and a final wave 5 remains.
The ewave sites are split on this, but one would expect that the start of the 3 of 3 of 3 down would be much more dramatic than it has been. Also, certain cyles (10 week and 20 week) are ending their downward tilt, and soon to begin their upwards tilt. Hence Yelnick's view is that we will still go to the 78% reversal one more time before we turn south with a vengeance. The 78% target for the Dow: 9930, just under Dow10K. So look for us to rub shoulders with the 10,000 level before disappearing back down to mile-high numbers (5280).
Been off the air a bit due to a broken Blogspot, but they *finally* fixed it. I tried to light a fire under Pyra, the company behind Blogger and Blogspot, but now that they have been bought by Google, they took their time about it. And good time they did! Looks like we may be about to see some action in this market. After going essentially nowhere for the past month, we appear to have stacked up a series of waves 1 and 2 of three degrees. if so, look for a third wave downward spike within the next few trading days. If not, go back to enjoying the summer!
The 78.6% retracement level (which is a fibonacci number, the square root of phi, 61.8%) has held so far. This number is peculiarly interesting in this bear market. Normally wave 2's retrace 61.8%, but in this post-mania market, most wave 2's have gone 78.6%:
> the first wave [1] to Sep00 after the peak was reversed 78.6% by wave [2] to Mar01
> the next wave (1) of [3] to Sep01 (post 9/11) was reversed 78.6% by wave (2) of [3] into Mar02
> the next wave 1 of (3) of [3] to Oct02 has so far been reversed 61.8% by wave 2 of (3) of [3], into Jun17, the recent peak
> the little wave (i) off the recent Jun17 peak has been reversed 78.6%, and that level has now held for several days.
One might think that after the Greatest Asset Mania of All Time, and a 75% drop in the Nasdaq, caution would be in order. Instead, Wave 2 psychology tends to be more bullish than the prior bull market. Thus, it should not be surprising that the wave 2's of the bear market following a mania would tend towards extreme reversal patterns.
What is most curious right now is the Jun17 interim top is *only* at a 61.8% reversal, rather than 78.6%. This at a moment of extreme bullishness not seen since the summer of '87, just before the historic crash. It could be the current wave 2 still has a ways to go, and we will see selloff end and new interim highs achieved. Note that a 78.6% reversal would take the Dow just under 10,000, so maybe we bump against Dow10k and then fall off. Surely that would spook the lumpen investorate, who watch round numbers. Or, it could be the wave 2 psychology is running out of steam, and the long-awaited 3 of (3) of [3] is soon upon us.
Yelnick stays with the summer prediction: whether we have peaked at Jun17 or will soon go to Dow10K, there will be a deeper drop in a wave [i] down and a strong reversal in a wave [ii] late summer rally. The failure to crack the 78.6% level in this recent wave (ii) increases the odds that wave 2 ended on Jun17 and we are in for a steeper drop through July and a final chance to get out (or short) in August. posted by dd at 7/10/2003 09:56:00 PM
Silicon Valley Tea Leaves
Yelnick has been watching the indicators of a bottom in the real economy in Silicon Valley, Ground Zero for the bear market. It appears that an interim bottom in VC investing occurred last Dec02 (some pundits say Feb03), as VC activity has picked up, although valuations haven't budged much. Yelnick noticed a change in attitude of the recently disemployed from seaking jobs to working on business plans. Headhunter activity also picked up. Were happy days about to be here again?
This turnaround seems to have slowed. Headhunters activity has slackened, and price discounting by the major search firms is rampant. (Several went public in the mania, and are visciously dropping price to maintain revenues - is a Martha Stewart story just ahead for them?) Many resumes chasing the open positions are coming from the employed not disemployed, and they are more often the ones hired, leading to a 'musical chairs' of new opens to replace old ones but only a modest increase in overall positions.
Perhaps this is the summer doldrums, perhaps a normal hesitation before a continuation of the trend (ie normal wave action), but it raises a momentary caution flag.
The next big event is supposed to be the Google IPO in Sep/Oct, hoepfully not coming in the face of the 3 of (3) of [3] downdraft. posted by dd at 7/10/2003 07:04:00 PM
Monday, July 07, 2003
78.6% or Bust!
A famous 'line in the sand' was the Oregon Territory's Fifty-Four Forty or Fight! Today we have a little wave 2 reversing up to 78.6% of the little wave 1 down from Jun17. Usually 78.6% is the Elliott Territory line in the sand. Although Elliott rules allow a wave 2 to go all the way back to the start of wave 1, typically when it reverses past 78.6% it means it wasn't a wave 2 at all but the start of a wave 5 up following a wave 4 (not a wave 1) down. In this case, it would mean the Jun17 top was only the end of wave 3 up - an extended wave 3 - and the drop from Jun17 was a wave 4 down, followed by a final wave 5.
This is why the Yelnick advice in this bear market is not to jump in at the top, but let it drop and then jump in at the wave 2 that follows. Avoids getting prematurely irrationally exuberant to the downside. Shorting is tricky as time is not on your side.
So watch the next few days to see if we break the Jun17 highs (as the Naz has already done). And remember that the wave 2 to short is not this little one, but the big one that seems ominously timed to peak in late August before that aptly named season, Fall. posted by dd at 7/07/2003 06:48:00 PM
