graph from: http://tmacktrading.blogspot.com/
You should know, because I’m going to tell you, that there is a lot of hype in the money press about something called Elliott Waves. This is a theory of market movements developed by a Ralph Elliott, while convalescing from an illness in the thirties.
Boiled down to its essentials, it’s a three-up two-down model. But each cycle of three-up, two-down, is a component of a larger scale three-up, two-down, and each cycle is also composed of smaller three-up, two-down cycles.
The industry has corrupted this rather simple and elegant theory into a complex set of rules of movement. Pundits suggest that they, and only they, have done the right reading of the ‘waves’ and can predict future movements.
So, that is why some financial pundits are predicting doom, that we are on the verge in 2011-2012 of a catastrophic depression. Except, the catastrophy keeps not happening.
The reason for this is that the pundits have, in my opinion, read the waves incorrectly. Elliott waves are, or should be, pretty simple in concept, and shouldn’t be made into something more complex than they are.
If you look at a graph of the stock market (either the Dow Jones or the SP500, doesn’t matter which) and blur your eyes a bit, it can easily be seen that 1942 to 1966 constitutes a big swing up (up #1); 1966 to 1982 a long lateral flat (down #1); 1982 to 2000 (or maybe 2008) another big swing up (up #2). So, in my view, we haven’t seen the big ‘third wave’ yet, that ends this particular cycle.
Of course, this particular counting of the waves assumes that the Great Depression of the 1930’s was a momentous enough event to have constituted a proper ending of the prior cycle, and the beginning of a new one. Many pundits are saying the Great Depression was down #1 of a new cycle, and not the super crash that makes up the ending of a cycle. But I think this is a misreading of the waves.
I think that the current recession will go on a bit longer, maybe even take a dive for the worse, but it isn’t the big one. For one thing, Wall Street is obviously not contrite, and fully prepared to continue with its shenanigans. We will probably enter a fervid period of speculation more wild and crazy than what we’ve just seen. Frankly, it just isn’t time yet for a major unraveling of ‘business as usual’.
SO, how do things look moving forward?
If you look at a chart of the markets beginning March 2009 (a major low point), and again blur your eyes a bit, you can see two upward movements (breaking at April 2010 and April 2011) and a final third unfolding, in which we are currently riding.
After this third wave (remember – three up, two down), we will see the beginnings of a recessional crash that will probably go lower than the point in March 2009.
But it’s not the big one. That’s coming much, much later, after the third up cycle begins and ends. So when is this recessional crash going to occur exactly?
My guess (looking at April 2010 and April 2011 dips) is, April or May of 2012. We have already seen up[ wave #1 (ending October 2011) and down #1 (Thanksgiving 2011) and are currently in up #2. My guess, somewhere around Dow 13500 the medium-weight crashola will happen.
