3 replies to this topic

[Porter]

Larry Tomlinson made an astute observation that bull markets extend by 1.618 or 2.618 and that bear market rallies extend by 1.272 and 1.38. Since the SPX has not reached the 1.27 extension, Larry argues that this rally is likely a bear market rally. My counter argument is posted below. I view the rally from October 2002 to December 2002 as Wave 1. I view the rally from March 2003 to March 2004 as Wave 3. To me the argument that the rally from October 2002 to March 2003 is an ABC corrective rally while plausible for the NDX and SPX really stretches the imagination for the MID, SML, and RUT. For those indices Wave 3 (or C) is 3 times Wave 1 (or A). ===================== Larry, while the SPX and Nasdaq have been unable to extend past 1.27, other indices have. I would argue that the Nasdaq and particularly the NDX are in a secular bear market, that the 2000 high will be the high for many decades, and that the 2002 low will likely be taken out. You have argued the same thing. In fact you were making that argument in early 2000, which I find amazing. But I would further argue that the other indices which do not contain the NDX stocks are still in a secular bull market. Indeed the MID and SML made record highs this year, and the RUT came close to its 2000 high and may surpass it later. The extensions of some other indices based on the 10/02 to 12/02 wave one are as follows: MID 1.87 RUT 2.17 SML 2.27 NYA 1.63 All of these indices have exceeded the 1.618 extension. The NYA is quite close to the Fibonacci golden ratio. IMO before this cyclical bull market is done, there is a good chance that the MID, RUT, and SML will hit the 2.618 extensions ratio. Porter

[dasein]

would you have any coincident targets for DX or USDJPY, USDAUD, USDSFr? just wondering....

[PorkLoin]

Hi Porter,

On "extentions," I think Elliott Wavers usually talk about them in the context of a five-wave move. If we have a first wave of a given length, and a larger third wave, then more times than not we'll get a fifth wave smaller than the third. The third wave does not have to be the biggest -- Elliott's rule is just that the third can't be the smallest.

So, a first wave, bigger third wave, and we're expecting a normal fifth wave. We end wave 4 and make what appears to be a wave 5, with it subdividing into five smaller waves. Usually, that will be it, and the larger five-wave sequence is done.

However, if we have an extended fifth wave, then what we thought was wave 5 may have only been smaller wave 1 of 5, and there is a lot more of wave 5 to come. Fibonacci relationships between waves, 1, 3 and 5 are common, whether or not an extention takes place. Wave 1 can also be extended, and end up being the longest wave.

As far as the multiples of wave lengths indicating bull or bear markets -- I don't think there is all that much correlation. There are a lot of ABC moves, where C is far larger than A, for example, like the plunge in stock indices in 1987, A, B, then a very long C, but it was still a bull market decline, rather than a larger overall bear market.

On the rally from the 2002 low, we may well get five waves up, and, even with the 1.618 or larger multiples of the first wave present, that doesn't necessarily indicate "bull market" in the larger picture. Five waves up from 2002 could be larger A, with a B and another five-wave sequence for C to come. The rally from 2002/2003 was obviously tradeable, and I'd guess that a similar C would be too.

However, in the indices that don't make new all-time-highs under this scenario, the larger picture would be a decline from 2000 followed by an ABC, i.e. still a "bear market" overall. I would guess that the Russell and some others would easily make new highs -- perhaps even during the "A, above, and thus the overall bull market from before 2000 and from before this year's highs would still be in effect.

Best,

Doug

[Porter]

would you have any coincident targets for DX or USDJPY, USDAUD, USDSFr?

No

Porter