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Responding to 5th of a 5th of a 5th Thread


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#11 dcengr

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Posted 14 January 2007 - 02:46 PM



since this board has a multitude of vocal bears, it would be nice to get some bulls to plow on their opinions. I would like to see more argument supporting 3rd wave from the large # of silent bulls on this board.


And I pray the multitude of bears here never go away. I believe a lot of silent bulls on this board have already made their case and are too busy exploiting the opportunities since the summer lows. Charles (Tuffy88) comes to mind among a few others. Nothing much has changed. Record cash in corporate coffers resulting in a record number of buybacks, record and growing cash in the hands of private equity/buyout firms worldwide resulting in a record shrinkage in the supply of stock. Heavy shorting by the public and hedge funds vs. the NYSE Members. A junk bond market that refuses to buckle. Leadership seems to have shifted to large cap growth/tech such as Microsoft, IBM, Hewlett Packard, Cisco and now even Intel showing signs of life. The past two years 90% of fund flows have been outside of the U.S. Watch out above as those flows revert back domestically. Eventually it will all come tumbling down as IPOs swamp the market, rates rise worldwide, the derivative markets begin to unravel, and the public becomes more fully invested. But until ***price*** begins to reflect such scenarios what is so wrong with exploiting this wondrous bull trend for as long and as much as you can? Just as in the late 90s, it seems the risk averse and those so intent on compounding complexity are sitting idly by as the markets make new highs after new highs.


Those are all good arguments why this could be a wave 3 and not wave 5.

And if we are in a wave 3, which should be the longest wave of the impulse waves, then I would expect this trend to continue.

Hence, we should, in the coming days (because earnings season is due on us), see rising earnings, not diminishing earnings. But more important, rising guidance, not lowering guidance.

Plus an increase in private equity activity, which is fueled by junk bonds, so a continued rise in junk bond prices should be seen.

Also, price increases in large cap growth tech issues, mainly represented by NDX. Since NDX was lagging for much of this leg so far, we should see NDX leading as its shown at least in the last few days.

And with primary wave 3, since it is the trend that many start to "recognize" as the true bull market, the short positions should start to come off as prices head higher? Now one evidence that's disturbing, however, is that with this leg up, the commercials are heavily hedged.. but I am fully in agreement that the public is highly skeptical of this rally, and it is still by far the biggest evidence arguing against a 5th wave.
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#12 fib_1618

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Posted 14 January 2007 - 03:31 PM

Thanks Fib. What happens after 5th? Just curious about how it plays out after all 5 waves.

"The full text definitions of the other Elliott wave structures can be reviewed by clicking here."

Also, just for demonstration purpose, would you please identify 1-5 waves in 1940-1980 Dow?

There are differing opinions of the Elliott Wave price structure from the 1932 lows to the 1982 lows. However, the majority opinion is that the impulsive structured advance between the years 1948 and 1959 was that of a third wave (in part or total). So, going from the definitions noted in the above link, can you (or anyone else) identify the labeling of waves 1 through 5 from the 1932 lows to the 1960's highs? (and beyond?)

Can you provide a chart with your labeling of the current bull market? And of the current leg?

Because of the historical importance of the current market juncture, I will meet you half way on this one. I will show you the labeling of the prior bear market of 1998-2002 for now and save the bull market count for another time.

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Btw, if you think we're in wave 3.. why are you flat at the moment?

Although my "core" accounts are flat at this time, I am actively trading this advance. Every account has different rules in which to trade by, and at this particular moment, the rules for core force me to be in cash.

During the climb from 03 to 04, NASDAQ and semis were going up.. wouldn't that characterize wave 3? After 04, semis sort of lagged behind... of course, Russell and NYA kept going up as you said, but from an AD cum perspective, the period of 03-04 was increasing properly.

"Properly"? Hmmmm. Interesting descriptor. Each and every price pattern will produce its own characteristics based solely on how the markets participants perceive "value". For example, the NYA is certainly impulsing to the upside, but can the same be said with the COMPQ? Can it be that one market is in full bull mode and one in bear? And, of course, you had both the 4 year cycle (where the growth sector tends to lead to the upside after the bottom) and complete annihilation with the tech stocks at the 2002 lows. Under such a scenario, wouldn't it then make good common sense that some sort of reflex rally were to occur from being as over extended as the tech stocks were after such a two year debacle?

1. short interest is very high.
2. all brokerages agree this year is going up.
3. news outlets are not all jumping for joy about markets (plenty of doubt, wall of worry)
4. volume is expanding.
5. ISM near 50 (ie not higher).
6. housing slow down.. where's the economic catalyst? alternative energy?
7. record margin debt (probably exceeding 2000 level by now)

These are characteristics of:

1) 3rd waves
2) 3rd and 5th waves
3) 3rd waves
4) 3rd waves
5) 3rd waves (keep in mind that this particular data is still working off the recent 4 year low...and corrective)
6) 3rd waves (money making more money and being reinvested with a low tax base)
7) 3rd and 5th waves (all depends on where you we are in each structure, and with like comparisons)

Majority of the country is participating in the housing market

I would argue that there is more participation in the stock and bond markets based on retirement savings than that of housing. And unlike housing, much more funds are added to the kitty each week than that of paying down a mortgage. I also find it intriguing that the first week of January 2007 saw the highest amount of mortgage applications filed since 2005. This included both new purchases as well as re-fi's.

Either Dow Theory is worth considering or it's not. You can't have it both ways. If the Transports are failing to confirm the Industrials, then that's a non-confirmation. It's inconsistent bring up Dow Theory and then to say "well, the Transports will confirm it sometime in the future." Maybe, may be not...the point is, right now, they don't.

Dow Theory is solely based on the horizontal price trend of both of these indices. Because of this kind of support and resistance levels, buy or a sell signals are slow to come which makes Dow Theory the slowest reacting technical tool out there (next to the Cuppock Curve) to use to verify bull or bear market conditions. Right now, we continue to be on a short, intermediate and long term Dow Theory buy signal, with my mention of expected new highs in the Transports having little negative impact to these same signals.

On the other hand, I realize that the start of this bull market was mainly due to:

1. Housing boom
2. Commodities boom

Actually, it started with gold, went to commodities, then to debt, and now to equity. This is the natural progression of stimulative monetary policy as it moves through the system. The usual time element it takes for money to progress from gold to equities is about 18 months on average. Housing was actually a by product of the 1998-2002 bear market as part of the nesting phase that occurs when the populace is uncertain about the future and decides to improve their "protective zone". Remember that the majority of the price increases we saw in U.S. housing took place between the middle of 2004 and the beginning of 2006 - about 3 years after the 2002 lows. Using the same monetary rotational time line mentioned above, was it housing that pushed equity prices higher - or - was it equity prices moving higher that pushed up housing prices??

I'm going to stop for now and see where this thread goes.

Fib

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#13 dcengr

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Posted 14 January 2007 - 04:06 PM

On the other hand, I realize that the start of this bull market was mainly due to:

1. Housing boom
2. Commodities boom

Actually, it started with gold, went to commodities, then to debt, and now to equity. This is the natural progression of stimulative monetary policy as it moves through the system. The usual time element it takes for money to progress from gold to equities is about 18 months on average. Housing was actually a by product of the 1998-2002 bear market as part of the nesting phase that occurs when the populace is uncertain about the future and decides to improve their "protective zone". Remember that the majority of the price increases we saw in U.S. housing took place between the middle of 2004 and the beginning of 2006 - about 3 years after the 2002 lows. Using the same monetary rotational time line mentioned above, was it housing that pushed equity prices higher - or - was it equity prices moving higher that pushed up housing prices??

I'm going to stop for now and see where this thread goes.

Fib


This is the part that I think we can do more discussions on. The natural progression of money migration from one area to another.

What you are saying makes a lot of sense. If we can look back in history to see where boom bust cycles of certain markets point for the stock market EW roadmap, then I think we may get our smoking gun.

I guess we can go look at actual prices of different markets like homes, oil, gold, etc., or maybe we can look at the stock sector prices to see if they are representative enough (which I think they are), and easier to gather anyways.

So if we're to do a typical bull to bear emotional roadmap, then we should have (starting with bear - more defensive then going to bull - more speculative)

1. gold rising
2. homes rising (more defensive)
3. commodities rising (improving economic conditions)
4. conservative stocks leading/rising (oex, spx)
5. speculative stocks leading/rising (techs, etc)
6. final orgasmic peak

I think this could be vastly improved on, and maybe then overlayed to the EW count to see when these things occur.

Maybe better to categorize it in emotional states then try to fit sectors into it..

For instance:

1. Lots of fear (gold rises, home rises)
2. Less fear (commodities rises, bonds rises) - wave 1
3. Neutral (conservative stocks rise) - wave 3
4. More optimism (techs lead) - wave 5
5. Orgasmic peak (media frenzy) - wave b
6. Denial
7. Fear
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#14 AChartist

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Posted 14 January 2007 - 04:59 PM

[/quote] Majority of the country is participating in the housing market, with more speculating there than have ever speculated in stocks (including 1929). [/quote] I don't know how that's real. All it does is raise property tax, raises home insurance rate, raises utility bills, raise interest payments, collateralizes more debt. That's a terrible drag on consumers. And when it's sold you have to replace it with another thing as expensive. I guess collateralizing more debt is the only advantage to stock markets.

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#15 fib_1618

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Posted 14 January 2007 - 08:57 PM

1) It would seem to the casual observer that the fundamentals have been improving since last summer as all of the major market indices have gone to new highs. It would be highly unusual for any stock pattern to make new highs, and especially by such a wide amount, without some sort of fundamental basis behind it. As far as those who continue to suggest that either the economy is slowing, or have just recently decided a "soft landing" is possible, these are the very same people (fundamentalists, economists) who have used this same excuse of staying out the market during this same time and have thereby missed much, if not all, of this same advance. You can decide for yourself who will be eventually right in all this - money on the barrel or misguided emotional (political) fundamentalism.

Talk about your timing.

Fib

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#16 securelstmile

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Posted 15 January 2007 - 12:57 PM

Fib, Our discussion of housing below might have you believing that I am bearish. I am bearish over the long term on housing although we may see some st strength. (housing stocks might show some strength with the spring season upon us.) I think that we can not sustain a market environment with everything, commodoties, growth stocks and real estate all going up at the same time. I believe when we see all of these moving up together it will be a sign we are near the end of this expansion. I believe this because of the fed. The fed will fight very hard against such an environment. As it stands with real estate looking weak this takes the fight out of the fed. The market will continue to shift asset classes until the fed drains liquidity. I really think we saw the peak in real estate but some areas like N.Y. which is largely influenced by the financial markets won't take much of a hit. I feel that I saw an overexuberant penchant for real estate amongst pretty much everyone I know over the last few years. This is the type of thinking we saw in 2000 in stocks. It is hard for me to quantify but when I see the smart money pointing one way and everyone else pointing the other I pick my side carefully. Even though I know very little about elliott wave my idea of the stock market fits your third wave scenario. There is just not enough interest out there for this to be a 5th. Real estate did show a 5 th wave based on sentiment. This is just my view and is subject to change if I see something convincing to the contrary.
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#17 fib_1618

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Posted 15 January 2007 - 05:30 PM

In my hope in keeping this thread alive, I present what Bob Prechter's count was prior to the current advance from the 2002 lows. Many Elliotticians, and other followers of EWI in general, were using this longer term count consideration as their proxy of the upcoming "crash" in the markets over the last 4 years. Using the "blue book" as a guide, many had good reason to expect such a scenario as the advance from the 1932 lows including many textbook examples of wave structure including a final "throwover" of the price channel at what should had been wave 5's termination point.

Now that this chart is up, maybe other Elliotticians on the board will chime in on what they believe the current longer term count might be? And, of course, anyone else who wishes to add their opinions are more than welcome to as well especially after reviewing the wave structure definitions linked previously in this same thread.

Remember, Elliott not only includes price pattern structure labeling, but it's very foundation is based on the social mood of the masses. Keep this key ingredient in mind as you review your options in this exercise.

Fib


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#18 dcengr

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Posted 15 January 2007 - 05:37 PM

Just thought I'd add the Elliott Wave Principle's definition of 4th wave in addition to Fib's version of it, for reference sakes:

Fourth waves -- Fourth waves are predicatable to the extent that, by rule of alternation, they should differe in complexity from the previous second wve of the sme degree. More often than not they are complex waves, building the base for the final firth wave move. Lagging stocks in an up-cycle build their tops and begin declining during this wave, since only the strength of a third wave was able to generate an motion in them in the first place. This initial deterioration in the market sets the stage for the non-conifmrations and subtle signs of weakness during the fifth wave.


Ofcourse, I want to also point out that semis peaked some time ago, as did internets and other sectors..

As Fib says, it could be that these other markets are in a bear market and thus do not apply to the other bull markets and should not be considered in junction with them.

However, for sakes of argument, if used the stock market as a vehicle (ie separate from commodities, but including techs, etc), then the rise of all stocks in the 2003-2004 period could still be called the third wave, and by definition, the period between 2004 to 2006 would be the 4th wave. And we would be on our way to the 5th wave.

One take is that many maybe expecting similar speculative froth as 2000 as evidence of 5th waves.. but if Fib's count is right, then maybe 2000 peak was a B wave, and therefore, 1998 serves better as a termination of 5th wave, and sentiment should be compared to 1998 vs now?

Just a thought, but the futures position of 1998 vs now does seem somewhat similar, with exceptionally high long/short ratio amongst large traders (and small traders, at least in SPX but strangely or rightfully not in NDX).


ALSO I WOULD LIKE TO ADD:

Mark, if you're reading this, I think this thread deserves to be placed on the top voting area, at least for some period, so that it doesn't get lost with new posts.

Very good convo so far.

Edited by dcengr, 15 January 2007 - 05:39 PM.

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#19 dcengr

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Posted 15 January 2007 - 05:57 PM

Btw, if EM's count is correct, and we are on a 5th wave... We may know very soon. According to EW theory, many times the length of two impulse waves are the same. And if wave 1 was the small nub that started in 2002, at least for the dow and QQQQs (I didn't check the others), we are currently at a value where wave 1 value would equal the potential wave 5. Hence that translates into Dow 12,500 ish, and Qs 45 ish. Ofcourse with many of these theories, there are exceptions and exceptions and stuff that'll drive people crazy. So if we get an EXTENSION to the 5th wave, then it can go higher and still be deemed a 5th.. unless 3rd wave from 03-04 had an extension.. Since I'm an EW noob, I couldn't tell you if the potential wave 3 from 03-04 was an extension or not. Apparently only 1 extension is allowed in one of the 3 impulse waves.
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#20 fib_1618

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Posted 15 January 2007 - 06:41 PM

Let's stir the pot a bit...I've added both the political administration in office and the key wars fought by the US during this same longer term time period to help in understanding the social shifts that occurred in relation to the price pattern.

Fib

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