Tmd11222008weekendedition

11/22/20085:42 PM Pacific

In Nothing Random on this Walk, I proposed that within the context of an Elliott corrective flat pattern that started in 2000, we were in the midst of the 4th wave of a 5 wave C leg down from the October 2007 high. More specifically, I concluded that the 4th wave was now a probable triangle. In attempting to identify the pattern up from the October 10th low, I limited my analysis to common wave 4 possibilities. This is simply building on the corrective flat thesis that is unfolding with uncanny accuracy and therefore remains the most probable pattern governing price action at the higher level of degree. What are the possibilities for wave 4? There are really only 3 options to consider, a zigzag, a flat, or a triangle. I discussed these in detail in the Buzz and Banter post “Where are we?” Anything else disproves that the October 10th low was the end of wave 3. There are only 3 options instead of infinite possibilities. From a risk management perspective, this is golden. But it still doesn’t make it easy, especially in this market. Wave2

11/22/20085:42 PM Pacific

In Elliott wave analysis there is a tendency for wave 2 and 4 of a 5 wave motive set to be different. It is not a rule, but it happens more often than not. Wave 2 was an A-B-C zigzag which is shown on this NASDAQ e-mini chart which I published on May 14th 2008, suggesting the end of wave 2. The NASDAQ and S&P wave patterns were tracking identically at that time and have been extremely close for most of this bear market. Since wave 2 was a Zigzag, there is a bias for wave 4 to either be a triangle or a flat. Viewing how price was presenting on October 24th, I published that the short-term patterns presenting favored either a corrective flat or expanded flat retracement of the low made on October 10th, 2008 (the probable end of wave 3). With the ensuing rally, it appeared that a corrective flat (black labeled A-B-C) was a strong candidate.

Flat 10/27/2008

On November 4th, 2008, I suggested to subscribers of Buzz & Banter and TheMarketDetective.com that the short-term Fibonacci ratios for a wave 4 corrective flat were no longer looking favorable. Here are the short-term charts I sent to TheMarketDetective.com subscribers proposing that a turn down was imminent. That is also when I published the Nothing Random on This walk article suggesting a triangle. It was a simple process of elimination and probability. However, simple was not to be. I have subsequently tried various 4th (and 5th wave) patterns on for size: the Running Flat, The Barrier Triangle, and the Fifth Wave Diagonal.

11/22/20085:42 PM Pacific

Short-term forecast for down-turn on 11/04/2008

Short-term targets on 11/05/2008

11/22/20085:42 PM Pacific

Running Flat 11/14/2008

BarrierTriangle11/12/2008

11/22/20085:42 PM Pacific

5th wave Diagonal 11/13/2008

While the Running Flat seems to be the clear winner regarding price action, it is difficult for me to identify a clean impulse wave substructure (5-3-5-3-5)-(5-3-5-3-5)-(5-3-5-3-5) for the waves down from C on the Running Flat chart above. If this is the 5th wave, I should be able to count an impulse wave structure. I place importance on the substructure of waves in order to confirm the price action at the higher levels of degree. To me this is a powerful tool for corroborating wave counts. Due to the fractal nature of waves I should be able to dissect a wave on a weekly chart and better understand its substructure by studying a daily chart, then dissect a daily chart by studying an intra-day chart, etc. all the way down to a 2 or 3 minute chart to confirm the higher-level counts. In doing this, I still favor corrective wave substructures even on this move lower, on a daily chart and smaller timeframes. The reason is that the impulse wave ratios are not symmetrical to the degree that I commonly experience them to be, and there some small rule violations required intra-day in order to make an impulse wave count work.

11/22/20085:42 PM Pacific

Therefore, I am compelled to investigate any remaining options to corroborate my corrective substructure bias. There is one. In measuring the move down from A-B relative to the move up from 3 to A on the chart below, I find that the ratio of B to A is very close to 1.382, an acceptable and somewhat common ratio of B waves to A waves in expanded flats. If this is the pattern we are in, and we just completed the B wave, we can expect a sizeable rally, as indicated; a rally that may give investors the false sense that a bottom is in.

Expanded Flat

The Running flat could also be completed, or support one more wave down on an intra-day chart. One more wave down (that goes lower) would only support the Running Flat and eliminate the Expanded Flat from contention. I guess that would also mean that my wave counting skills are going through a short-term corrective phase. In summary, we probably turned the corner for an intermediate term rally or are very close. The completion of the Expanded Flat thesis would mean one more wave down after an intermediate term rally. Upon completion of the Running Flat thesis it is possible that we are finished with 5 waves and have put in the low.

11/22/20085:42 PM Pacific

Updated Running Flat

TMD/DW

The market detective provides personal market opinion based on sound technical analysis and research. However, no warranty is given or implied as to its true reliability. The market detective will make errors and mistakes. The market detective is not an investment adviser and is not making recommendations to buy, sell, or place orders relating to the futures contracts, ETFs, or stocks that he writes about. The responsibility for decisions made from information contained in this service are solely that of the individual subscriber. The individual must fully research and make his/her own decisions before acting on any information provided by the market detective. The market detective assumes no responsibility for subscriber investment or trading results.