interesting perspective on the SP500 from Tom Drakes’s(twocents) blo

http://twocents.blog...0038_ew_2cs.gif

http://twocents.blogs.com/weblog/

2003-2008: One Opinion

Excepting July 2006 to February 2007, the SPX and other broadly-based US stock indexes had a “heavy” or corrective feel and profile since March 2004. Chart analysis and sentiment analysis confirm that. The movement up from March 2003 to March 2004 was a definitely bullish impulse wave which was not continued thereafter.

I have borrowed my Elliott Wave approach from Elliott, Frost and Prechter, and from Neely. Each of the successors to Elliott has stressed a different aspect of Elliott’s work: Frost and Prechter favor the simple 12345-abc with basic waves, and Neely favors complex waves mostly consisting of triangles. I use some of each, all of which is seen in Elliott’s own works.

From March 2004 to July 2007 the modest rise consisted of back and forth movements suggesting an ascending triangle. For a long time I thought that the triangle started from the red 1 in March 2004 and ended in July 2006. That is still a viable pattern with the red 1 changed to red A and the black d to red B. That would make A to B into a running B wave triangle. However, a running B wave implies a lot more followup power than we saw thereafter. SPX went up ~374 points from the March 2003 low to March 2004, but from July 2006 low to July 2007 high SPX only gained ~357 points. So the power projection failed to validate that move as a second impulse wave,
or red wave C.

Given my assumptions and method, I think it makes more sense to consider that last move from black d to black e as a diagonal or terminal triangle which ended at the November 2007 highs. This is not a Glenn Neely count, but I see the whole move from August 2004 to November 2007 as a “bow tie-shaped” triangle irregular B wave whose end was above the end of red wave 1.

From the November high to the March 2003 low was clearly an impulse wave down with the five waves being easily discernible even on a weekly chart. Thus a-b-c equals the wave 2 correction of wave 1 of 2003-2004. In nominal terms wave 2 ended ~20% higher than wave 1.

But if you multiply the 2003 low and the 2007 low by the US Dollar Index prices of those two low price dates, wave 2 last week was only 10% above the 2003 low. At the 2007 high, the same “real” increase was 60% from March 2003. The annualized “real gain” to March 2008 was only 2.16% as compared to >16% at the 2007 high! October 2007 to March 2008: that’s a bear market indeed.

The black numbers in parentheses are the 2CS bearish sentimeter readings at the chart label points. 2CS is the five day running total of the daily CBOE VXO times the daily CBOE P/C ratio. Bearishness was very low at the red wave 1 high, lower than at any time during the bear market from 2000 to 2003. In fact bearishness was lower than at any point in the bull market after 2006. For me this confirmed that it had been a bullish impulse move in 2003-2004.

The 2CS bearish sentiment at the 2007 high points was greater than in 2004 and similar to high index price points in the late 1990’s. At the November 2007 high, bearishness was already over 100 and went to 201 last week: more bearishness than at the 2003 low. For me Elliott Wave labels, the annualized real return of just 2.36% since the 2003 low, and the 2CS of bearishness all support my impression that wave 2 may be over. Nevertheless, in the pursuit of a conservative approach to retirement investing, which I live on, I will make no significant changes until I see if my “guess” is correct.

Is there a conclusion about price direction to be drawn from that analysis? If so, what is it?

Is there a conclusion about price direction to be drawn from that analysis?
If so, what is it?

That Elliott wave 1 and 2 have completed and a 3rd wave up should be next, based on sentiment ...

Thanks, wxman. I'm not very hip to elliott-speak. "Up" I understand.

"Up" I understand.

I hear that, a lot of words to say up, lol. For God's sake, just break it down.