Wednesday, August 3, 2011

Big Doin's in DC and the SP

On the macro front, events in DC of a partisan nature have very little effect on the big picture.
The seasons come and go, the precipitation and temperature are of concern only to a few for only a very short period. The massive peak in credit and asset values in 2008 was the natural expression of a 70 year growth cycle ..the grand super cycle top in Elliott Wave terms. The subsequent contraction will last a little longer than 3 years.

The above chart reflects a 7% pullback, while there have been a FEW 1 % and 2% pullbacks since 1955, this is clearly unique AND it is in spite of the huge expansion in Fed Gov. credit.

Global efforts to reduce deficit spending will unquestionably speed the contraction up, but deficit cuts or no cuts, this Grand Super Cycle contraction is unfolding and it likely will be over a generation.

A Little Shorter Term
SP Active Mo. Daily
 click to enlarge
Big head and and Shoulders neckline break and retest failure (so far).
No positive divergence on the 14 RSI (so far). 
Note how frequently there was negative RSI divergence, and how far up the market moved over that time.
The circled pattern is clearly all structured in abc's (so far) . That was to be expected on the upside, on the downside it is somewhat problematic. ABC structuring on the downside will be a pain in the neck.
And regarding necks....the break measuring rule targets 1130.50.

Zoom out:
Active Mo. Weekly
 click to enlarge
  Again the 1375 termination of the B wave was a classic abc structure, retracing .77 (basically a Fibonacci .78) of the 5 wave A  down. 
Most will agree that overlapping the "b" at 1002 will look like death.
That is still a LONG way off, but an early tell that raises the odds of that happening, would be taking out the .618 retrace point, at 1144. 
" And regarding necks....the break measuring rule targets 1130.50."
 Additionally, if you are a bull and looking at this as a 4th wave down to be followed by a 5th to new highs, you DO NOT want 1216, the top of wave 1 to be overlapped. Not that far away.



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