Sunday, May 1, 2011

Long Term View

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Carefully inspecting the chart of the last century and the incredible 300 year chart above, there seems to be a better conclusion to be drawn than the one found by Elliott Wave International.

For those not familiar, in the way expressed in their 300 year chart found here, Elliott Wave International believes grand supercycle wave [III] topped in 2000 with an incomplete supercycle-degree flat following. They are confident that "primary wave [2]" is correcting the 2007-2009 fall, or primary wave [1] of cycle wave c of supercycle wave (a).

The commonly believed second wave bounce since March 2009 is actually a very weak alternate count. This is because the 2000-2009 structure already works as a well-proportioned flat, but most importantly, the 78.6% retracement level of the 2007-2009 collapse has already been surpassed. It is unusual for second waves to retrace so much of the preceding first wave.

To formulate a good wave count, consider the wave action since the early 18th century. The 1720 South Sea bubble was a major advance in price, but the inflated levels did not hold for long. The correction following retraced essentially all of the advance, and prices did not have a meaningful rally until after this country was founded. The post-1720 consolidation period can be seen as a good base for a rally higher and is likely a bottom of major degree because it was so wide.

Two noticeable up-waves following that topped in 1835 and 1929. The retracements, especially the one correlating to the great depression, were sharp and large which is typical of 2nd waves. Following the 18th century base, the action into 1932 may be a series of first and second waves.

The advance following 1932 was large, dominating the previous advances like 3rd waves often do. Within it, there are 5 clear waves with the 2nd wave correction sharp, the 3rd subdivided, and the 4th sideways. With the exception of an extended 5th wave following 1974, all of these features are textbook characteristics of impulse waves. But given the poor economic practices in this country past 1974, a 5th wave in this position actually can be supported.

Continuing forward, there are many ways to describe the waves since 2000 given that both the 2002-2007 and 2007-2009 structures can be labeled as 3- or 5-wave affairs, but it appears likely that a sideways correction since 2000 or 2007 is underway. In my opinion, using only daily OHLC data, the 2002-2007 rally looks much more like a '3' than a '5' while the 2007-2011 structure looks only slightly more like a '3' than a '5'. So a flat from 2000 to 2009 works the best when considering the structure in its entirety. Regardless of this being correct however, an upward correction since 2009 still appears to be underway. The shorter term count suggests it should make new all time highs or come close to doing so. This action will be the development of an unfolding sideways correction.

The sideways correction since 2000 or 2007 described is larger in appearance than the previous two corrective periods since 1932 and also appears to be incomplete. So a complete impulse wave since 1932 seems probable. Recall that 4th waves are typically sideways patterns that are more shallow than their 2nd wave counterparts and 3rd waves are stronger and longer than 1st waves. Then a 1st wave from 1842-1929, 2nd wave from 1929-1932, 3rd wave from 1932-2000 or 2007, and 4th wave underway now seems to be the best view.

Adding labels to the discussion, let us call 1929 the top of grand supercycle wave [I] with [II] following and bottoming in 1932. [III] then proceeded to 2000 or 2007 with [IV] underway now. This would make the impulse that began in 1842 a completing sub-millennium wave and an underway millennium impulse since the 18th century.

As a side note, since the dark ages were an especially significant low and are often considered to be the start of the millennium wave, perhaps the degrees should be changed so the 18th century is not a millennium wave low. There is little sense trying to perfect a naming scheme that is irrelevant to the structure however, especially when it will just confuse many.

There is a chance that [IV] is already complete, but the wave action and sentiment since March 2009 seems more indicative of an upward correction than of impulsive action. Wave [IV] also seems smaller and not yet well proportioned to [II]. When [IV] does complete, there should be a true depressed feeling in society similar to the 1930s, or at least one comparable to the 1970s and 1980s.

It seems unlikely that [IV] will reach incredibly low levels. Clearly [IV] and [I] should not cross.

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