EW DOOMSDAY: The Wrong Rodeo in the Eyes of Stock Market Black Monday Players Expectations
Stock-Markets / Elliott Wave Theory Nov 13, 2007 - 09:54 AMBy: Eric_Chevrette
As you know, some if not most EW experts make a reputation if not good business while consistently trying and calling 5 wave tops of various degrees with more or less success. As to me, understanding that EW is basically discounting a collective psychological behaviour of the human species which is based on the repetition of fatal errors brought about by GREED (what is a wave 5 if not pure greed doomed to be punished & erased after the correction dips BELOW the previous wave 4? ) is making me aware of the MORE useful application of EW when it comes to pick a bottom. This is why I feel the need for explaining in details why “Black Monday players” (those being the ones anticipating a “Black Monday” as the first step into a major multi-year bear market) are still eyeing the “wrong rodeo” despite the market action which took place last week. As I have shown in my previous article on November 7, many of you may fear “the worst”, especially if they are misled to anticipate a remake of 1929 with the looming view at “DJIA 400” on the base of false assumptions (see my 1 st article on August 27) . This “worst” already depicted in my previous article (see chart #1 , November 7) now stands like shown below in chart #1 .
Chart #1
Well, the trouble for “Black Monday players” comes from chart #2 below, where you can see that NORMAL MARKET CORRECTIVE ACTION is ABOUT TO END & REVERSE TO A NEW IMPULSE OF HIGHER DEGREE .
Chart #2
As shown on chart #2 , we now have with the NASDAQ an excessive dip below red wave 4 , so we have reached an excess of pessimism which is exactly the right place where to” jump in” after a full 5 wave move has been corrected. The light green waves 1 & 2 which have now fully developed after August 16 with the NASDAQ are exactly the waves you could expect to grow after my 1 st article was published on August 27 (see chart #3 below).
Chart #3
One more time, the overlap of light green wave 2 with the top of violet wave 1 (see chart #2 ) is the key factor giving you the right count about how many degrees are open. So you can expect a 180° reversal to take place “now” (see the 3 red circles on chart #2 ) ; as to what is to be expected to take place “now”, you should bear in mind that the next impulse wave is of HIGHER degree which means that:
• the µ angle (see chart #2 ) is going to grow STEEPER
• red impulse wave 1 is going to be BIGGER than in the previous cycle (thus at least 120 points for the SNP500 in the next red wave 1 )
Chart #4
Chart #4 above is showing what “Black Monday players” should really see beyond their fascination for chart #1 : because of market synchronicity, the NASDAQ Composite makes it possible to understand that a “5 th wave failure” took place in larger US indexes (SNP500, Wilshire 5000, Nyse Composite, etc.) due to the weight of the financial sector which is responsible for the current wave of pessimism in the first place.
As a matter of fact, it is VERY important as well to view NOW the current situation of the financial sector as a whole, because it is helping to understand how it will be possible for the global stock indexes to rise worldwide in the 3 years ahead of us (see my article on August 27 for the larger scheme about the unavoidable DEEPEST economic crisis in 100 years which is to come around the year 2010 at the end of the current bull market) .
As you can view with chart #5 below, the US banking sector developed a full 5 wave rise from October 2003 to July 2007 while the recent break below the red trend was a sign of “big trouble ahead” ………… Well, maybe you noted that chart #5 is already somewhat “old” (dating from August 29) …… Then why don't you just try and guess at what price level the Philadelphia Bank Index traded last week? …….
Chart #5
YES , market action has now brought this index BELOW green wave 4 (right into the red circle ) ….. YES , US banks are a “buy” ( BUT please take a look at charts #6 & 8 further down in this article for BETTER market sectors) …… Well, could you then be surprised to see so many “heads” currently falling down in the US banking sector while the Banking index has reached the NATURAL TARGET of its corrective pattern where pessimism is extreme? …… As to me I'm just wondering IF those “smart heads” in the US banking sector were bright enough to anticipate their fate as EW was ALWAYS telling.
You must also have noted the dark blue 345-ABC on chart #5 above; as a matter of fact, if April 2000 was indeed the top of dark blue 3 in the large dark blue 12345 originating in 1982 , then the banking sector has already made its final top in this multi-decade cycle.......................... … which leaves us indeed with a B wave to come in the US banking sector in the 3 years ahead while the global market is going to enjoy a further rise towards its own dark blue wave 5 (see chart #8 in my 1 st article on August 27) ………..
Of course, the inability of the banking sector to reach new highs at any time during the next 3 years while the global market will enjoy a row of new highs will be an obvious sign of a B wave in the banking sector; no surprise then when the US economy falters apart around 2010 like never before in the past 100 years …. No surprise either if the years after 2010 are the scene for unprecedented geopolitical trouble at worldwide level with the USA coming to a financial halt (read below about inflation and the collapsing US dollar) ….
Despite the fact that major market lows along with poor economic conditions (like dark blue 4 in 2003) are recurrently at hand exactly when the US authorities get most tempted to make a “show of strength” abroad in order to blur the then ominous evidence of weakness displayed by US economy, it is highly doubtful that the USA will be in a position in the years after 2010 to raise sufficient financial means to further support their “war against terror” (Irak, Pakistan, etc. ); indeed ever higher costs for “warfare” along with sharply decreasing financial strength amidst the WORST crisis in 100 years may well force the USA to retract from abroad for the 1 st time ever since 1945 ……….
While 3 years from now is much too early for China to reach an economic status making it possible for the UNIQUE applicant to take over from USA as a world power (which would mean that the Chinese Yuan would then replace the US dollar as a world currency backed by gold) ……… Sure enough, the next world crisis is likely to open new space for MORE worldwide instability with too many countries ( China , Russia , Iran , etc.) being in a position to challenge American power in one way or another ……
As to you as an investor wanting to preserve your financial ability to live though these years of trouble with the least “pain”, there's not much to worry, because the world is already offering some very good opportunities in the coming months to grow your capital efficiently (“efficiency” is here equal to “capital gains higher than inflation” as I have explained in my 1 st article on August 27) ); among the BEST places where to invest your money with a view to beat the inflation rising tide, you will find Brazil & Hong Kong as shown below in chart #6 .
For both markets below, you can find light blue waves 1 & 2 as well as violet waves 1 & 2 and light green waves 1 & 2 mentioned; these waves are the same ones you can find for the Wilshire 5000 (see chart #3 above) and for the NASDAQ Composite (see chart #2 above) : thanks to a global interactive use of EW, you can KNOW that a HUGE light green 12345 is underway since August 16, 2007 in the US markets as well as in Brazil and in Hong Kong with tops and lows occurring pretty much at the same time everywhere (world market synchronicity) ; no matter how high Brazil & Honk Kong have risen over the last weeks since August 16 , world market synchronicity is helping you to see that both markets are now at a green wave 2 low along with the NASDAQ Composite.
Reasonable targets (estimated from 1.5 the size of light green wave 1 ) for the BOVESPA and the HANGSENG indexes are respectively above 90,000 and 45,000 at the top of light green wave 3 within a few months ….. All of it taking place while NY will be fighting its way to clear its previous highs ………
Chart #6
You should nevertheless be aware of the “other side of truth” (truth being always two-sided like a coin) with the tremendous potential currently available with raw materials in the same time frame . Chart #7 below reveals how the CRB index is enjoying an extended violet i/ii/iii/iv/v as green wave 3 within its extended dark blue wave 3 after an irregular abc corrective pattern as dark blue wave 2 .
Chart #7
Looking at the same time at the CRB & oil is very important, because it makes it possible for you to SEE how oil went thru a RUNNING abc while the CRB went into an IRREGULAR abc …….. As a consequence, you know that the rise above $ 80 was ONLY green wave 1 for oil ………… As violet wave i went from $ 79 to $ 97 which is an advance of $ 18, it is possible to estimate the violet iii top around $ 122 (18*1.5 = 27 then 95+27=122) then if violet wave iv is a $ 5 pullback you get the violet v top around $ 136 (122-5=118 then 118+18=136 in case of wave equality) ………. $ 136 being a target reached in early 2008 (while the BOVESPA reaches above 90,000 at the same time) …… As I said in my previous article on November 7, $ 100 is REALLY a worn out joke for oil ….
Chart #8
Of course, fully similar EW road maps are “at hand” in the same time frame for gold and goldmines (see chart #8 ) with oil around $ 135 “meaning” gold around $ 1,100 ….. which in turn is “meaning” a XAU index around 290 ……. As a consequence, there is apart from Brazil & Hong Kong a nice 55% rise to be searched for with goldmines from current price levels …….
Please mind that those “nice events” will come along with a further collapse of the dollar: as I already mentioned in my article on September 17, the relative stability of the US currency since June 2006 was mainly supported by the intermediate gold bear market which is now definitely OVER ………… As a matter of fact, the euro rose straightaway from 134 on August 16 to 146.71 at the end of last week.… Well, NO surprise if the euro reaches out for 165 when gold tries to hit $ 1,100 within a few months.…. So the necessity to protect ACTIVELY your purchasing power is even more acute if you live in the USA …
As a conclusion, let the “Black Monday players” believe in vain in their rodeo while you go for THE BEST in this world ( Brazil , Hong Kong , goldmines) ….... Unless you wish to see your purchasing power further erode if not vanish while riding the clearly exhausted “American horse” (from August 16 to November 9 the SNP500 rose about 3.7% while goldmines had a 50% hike and Brazil and Hong Kong a fair 40% increase) ………..
AS TO ME , no matter what happens in 2010 (or later or earlier) , no matter in which country I am going to live at that time, no matter what I would be told about the “usefulness” of such a behaviour, my decision has long been made as a human being to refuse to hold any weapon in my hands , because I can't be blind and accept to participate to any kind of “warfare”, especially when EW behavioural knowledge makes it able for anyone to understand that the “right mood climate for warfare” is always the self-inflicted pain which human societies repeatedly look for over the centuries by means of collective prolonged GREED (greed being materialized in a levitating wave 5 which ushers in a wave C which in turns is destroying capital and the collective mood to a low point of pessimism where “warfare” can be presented by some “leaders” to a large audience in society as a viable “exit” – see Napoleon coming to power after a 10 year financial crisis in France & Hitler rising from nowhere after the crisis of the 30's which was most severe in Germany -).
IF I ever were to become weak about this decision, I would only need to think of “the little Prince”, a wonderful book full of wisdom which the French pilot and author Antoine de St Exupéry wrote during WWII as a way to express his deep despair about what he was seeing take place around him. Except for a few facts (it may take a small island instead of the small islet mentioned by St Ex to accommodate the now 6.5 billions of human beings currently occupying planet Earth) , not much has changed since 1943 and human nature has remained as it was below the glaringly sophisticated surface of “progress” achieved by “democracy and technology”.
As a matter of fact, all it takes to realize this persistence of “human nature” is a “tight net of extreme conditions interacting together” ……..….. Which is exactly what human nature persistently knows BEST to bring out of itself after recurring excessive collective greed has “failed” (on the way from wave 5 to wave c) . Indeed I have little doubt that the next economic world traumatism around 2010 with the collapse of the US currency featured as “the eye of the typhoon” will assert and testify this persistence of “human nature” which made St Ex so sad that he felt eventually like writing “the little Prince”…..
Always remaining at your disposal for more information about my services with a view to help you “make it” thru the man made folly otherwise known as “progress”.
Eric F.M. Chevrette
France
eric_chevrette@yahoo.fr
Fone: 00.237.9.660.53.59
© 2007 Eric F.M. Chevrette
Eric Chevrette translated Bob Prechter's “Elliott Wave Principle” in 1989 after graduating in 1984 from the ESCP (Ecole Supérieure de Commerce de Paris, see http://www.escp-eap.net ) which has been ranked 6 best business school in Europe by the Financial Times in 2006. He since has become interested in “market forecasting” and “global economical analysis” since 1987 and is currently helping people to protect and grow their assets while anticipating the big trends.
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Raymond Shah
29.11.07, 07:14 |
A very interesting and well written in-depth study. Thanks! |
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