Saturday, July 23, 2016

Yearly Historical Dow & The Perpetual Money Machine

Below is the chart that made be count the current up move in the US Equity Indexes as Primary Five, or P5. This chart remains the count until it can be proved otherwise. Why? First, the chart made an accurate prediction. Second, the chart showed the counts of Elliott Wave International, and a number of other casual web wave-counters to be entirely incorrect. This was demonstrated recently with new higher highs in the cash S&P500 and Dow Jones Industrials. And, third, and most importantly, the chart's theory is simple and elegant.

Dow Jones Industrial Average Yearly


What is that theory? It is, "That Elliott's Guideline of Parallels has not yet been tested at the SuperCycle degree, and it should be."

You will note that if you draw a line from the 1929 Peak labeled SuperCycle 1, through Primary 3 of Cycle 5 (C5), and place a parallel copy on the low of SuperCycle 2, there has never been a wave that retraces down to the lower parallel Elliott Trend channel to Indicate a SuperCycle 4.  Some day there will be.

For now, though, we are satisfied with the prediction of the higher highs. And while some analysts did not even predict these higher highs, even predicting bear-markets instead, 'now' they are showing some 'Super Bullish' counts based on - well on the kinds of mistakes they have made before. They did not take the risk of saying, "we are likely going up in Primary 5 based on their count from the February 2016, low", but now, they want you believe that they really have a handle on equity prices with their new super-bullish alternatives.

For our part, we are just trying to complete the count on a Primary 5th wave in satisfactory fashion. As we have said before, there needs to be five waves up in a diagonal or in an impulse. We have no preference as to which forms but will try to alert our readers when it becomes more clear.

Why are we clear that the up move from the 1929 low is SuperCycle three? That is because of two of Elliott's guidelines:

  • The longest and strongest wave is usually the third wave, and, 
  • The third wave shows the greatest volume

Short & simple! And, both of those are true of SuperCycle 3, although a well-recognized concern for Primary 5 was that volume was tapering off badly. To us, it is exactly that decreasing volume which indicates the characteristic of a fifth wave.

No, as much as some central banks and some analysts apparently want you to believe now, we do not subscribe to "The Perpetual Money Machine" philosophy. It is "NOW" that interest rates are near zero or even negative for some instruments. It is "NOW" that new all-time highs are just being seen in many equity indexes. It is "NOW" that demographics will play increasing havoc with demand. It is "NOW" that politics is more split than ever. It is these types of conditions that will prevail more as the "rot beneath the surface" at a stock market top, than they did when Wall Street was gripped by financial fear at the 2009 stock market bottom.

We think at some point in the near future, the "Magic Money Machine" will slam squarely in the face of another economic law: the Law of Diminishing Returns. The more the Central Banks try to pump, the more they will be met with a desire to be free of them. Just consider Brexit - what is the message? We don't want to be part of centralize economic planning! Backfire # 1. There is more to come.

For the present, we will count the up wave covered in our past posts - until we can count "five up". This wave already has some worrisome signs. We will cover those on a post on Monday. But after that a likely correction will begin - and the only question is the degree.

P.S. After seeing how the authors of certain website handled their recent incorrect views, and the sudden reversal in their current "world view", I will not be 'applying' to any web-sites for permission to post anything. It is too hard to try to counteract their constant and consistent negativity and apparent need to be correct - even though my viewpoint offered their readers the best view of the May 2015 top, the February 2016 bottom, and the recent higher highs in the market.

22 comments:

  1. Thanks TJ. Interesting historical perspective. If I follow what you are saying cycle 5 started around 1979-1980. Would this cycle them be following the 8 fold method that you have presented in other posts? Thanks

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    1. Yes. The "three month" or "quarterly" time frame from 1974 provides the right number of candles (about 168) .. Wave 3 (the year 2000) appears on a maximum of the EWO, the EWO for wave 4 comes down below the zero line but not by more than 40% of Wave 3, and the current wave 5 peak is on the second divergence. Wave 2 is a zigzag into 1980, and wave 4 is flat for alternation.

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    2. Thanks for the info. What charting service do you use?

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  2. i have looked at this chart the upper channel is way above from the present point so if this channel is being followed it will be some point before we touch the upper channel and then go down for 4....perhaps not in my life time or if the fifth doesnt touch the upper channel...

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    1. Just remember we don't know the final touch point for SC3. Usually in the eight fold path method some portion of a wave three will be "above" the channel to show it is the point of maximum momentum. That means, when we do know the end of Primary 5, that we may 'drop' the channel to touch the true end of SC3, and have a portion of wave P3 above the channel.

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  3. TJ have you looked at the possibility that when we complete this move up- it may be completing the 3rd wave for the move that started from 2008 and then the 5th still to come before this whole thing goes thru a major correction

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    1. Not realistic for a wave to start from 2008, because 2009 is below 2007 - at least on the S&P.

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    2. sorry that is what i meant the move from 2009

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    3. So, in that case remember that the DOW exactly touched a 1.618 Fibonacci extension from where my count shows the first move up - which is May 2010. The S&P slightly exceeds that level. Then all U.S. stock indexes went into an almost year-long correction of the move of almost exactly 38%. (For a third wave to be continuing, one would have to posit that the wave was going to go on to make a 2.618 extension.) But a 38% correction is the very definition of a fourth wave after a 1.618 extension, so all the measurements currently fit the current scenario, and not some alternate at this point.

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  4. Joe,
    I really appreciate your analysis. I always look forward to getting your latest views. I have followed you from the beginning and have seen your growth as an Elliott Wave technician and must say that you have made some great calls when others were simply wrong. Thanks!

    One of the things I have learned over the years is that the market moves a lot slower than people want it to. I think you know that and your timing is much more in line with where we REALLY are in the count.

    Keep up the good work. It is much appreciated!

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  5. Thank you very much for posting these valuable updates. Cheers ;)

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  6. Thank you once again for the detailed analysis.

    Back in Feb it was hard to find any EW blogger willing to entertain P5, which gave me even greater confidence that it would play out. Thanks for introducing me to the eight fold path as well!

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  7. Many thanks...excellent work as always

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  8. Joe delivers a top notch, concise analysis on the 'grand scheme of things' context.

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  9. Thanks Joe, will be watching for the five waves in P5.

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  10. Love the long term chart. Keep us posted on that 5th wave up! thanks Joe!

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  11. Love the long term chart. Keep us posted on that 5th wave up! thanks Joe!

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  12. Thx Joe for sharing your work
    trying to learn and understand
    but its not easy

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  13. Tony caldaro no longer allows even mildly critical comments any more. The comment is removed and the commentator blocked for good. Only comments praising him are now allowed.

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