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Wednesday, May 15, 2013

Elliott Wave Update ~ 15 May 2013

Why do we characterize the rally from the 2009 low as one giant historic corrective wave?  Because when all things are considered, form is what matters probably most. And the form since the 2009 low has taken the clear characteristics of a corrective wave. Specifically a zigzag, or a series of 2 or 3 zigzags.  For the sake of simplicity in this discussion we'll just go with single zigzag count.

Per EW guidelines a corrective wave zigzag (according to Elliott Wave Principle: Key to Market Behavior (Prechter/Frost) there is exists some simple guidelines:

* Wave C if often about the same length as wave A

* Wave B typically retraces 38 - 79% of wave A

* A line connecting the ends of waves A and C is often parallel to a line connecting the end of wave B and the start of wave A (Forecasting guideline: Wave C often ends upon reaching a line drawn from the end of wave A that is parallel to a line connecting the start of wave A and the end of wave B)

The last point is important because channeling (which is described in the paragraph above) gives us the form of the wave. And the form of the wave tells us if its likely corrective or impulsive.

Channeling in an impulse is different than a corrective wave.

An impulse pattern consists of 5 overall waves. What does EW guidelines tell us about an impulse pattern concerning channeling?

* Wave 5 often ends when meeting or slightly exceeding a line drawn from the end of wave 3 that is parallel to the line connecting the ends of wave 2 and 4 on either arithmetic or log scale.

What does it matter if the rally from 2009 is labeled impulsive or corrective?

1. Corrective implies that the rally is a correction to the main trend of next higher degree. Since the rally since 2009 low has been UP, therefore the HIGHER DEGREE trend - in which it is correcting - is DOWN. (social mood main trend is down at the higher degree). Hence, since this 4 year rally is being labeled a CYCLE degree rally, therefore the next higher degree trend is a SUPERCYCLE degree wave. This SUPERCYCLE  degree trend - wave (a) specifically  is labeled as a downward social trending wave.

2. Using channeling techniques can help us identify the major turning point.  In this case wave [C] has nearly reached the "typical" turning point by touching the upper channel formed by the zigzag.
I never thought it probable that this rally since 2009 would have met this channeling guideline and hence prices had to move this high as a result. Yet traveled this high to form a channel it certainly did. Although prices are astronomical, the FORM of the wave fits perfectly with the idea of a cycle wave corrective rally all along. A touch on the upper channel line would be perfectly normal and a perfectly normal place for a major turning point.

By the way, the rise since November 2012 is getting an "exponential" look about it. Parabolic, and hence utterly unsustainable and susceptible to a most violent destruction.

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