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March 3, 2009

Revisiting Elliott

You all are spoiled. Here I am right off a 6-hour road trip, and I barely took enough time to freshen up before sitting down at the keyboard to peck out a post. Well, equities just completed their fifth losing session in a row, and their 11th loser in the 12 days since the triangle breakdown. Yet, I'm still not seeing any signs of panic. I suspect we'll see that frenzy within a handful of days, probably this week. Let's take a quick peek at the big picture Elliott view. I haven't written much about Elliott recently, though I do keep a set of labeled charts. At this juncture, EWT helps clarify why I expect a panic day.

stock index chart

More specifically, sub-wave 3 of the 5th wave of Primary Wave 1 is unfolding. Wave 3 tends to be where the big panic occurs in bear legs, which is why I think a large hit on monster volume is due any day now. After wave 4 of 5 hammers out a corrective move, wave 5 of 5 will terminate Primary Wave 1 or "A" of the typical A-B-C bear market, if you prefer. Wave 5 of 5 should end on lower volume than the current move and may set only marginal new lows. I suspect all this action will be done by the end of March. We will then enter the primary corrective wave of the bear, which should unfold as a multi-month rally.

The magic question is where the current wave will bottom? Several posiibilites were proposed in the weekend post, and personally, I give the triangle targets the most weight, meaning I expect a bottom somewhere in the low 500s. I'm not going to stay married to the idea if we see a high-volume panic short of that target. However, another expectation jives with that view. I've stated several times that I do not expect to see a monthly close above SPX 800 for the remainder of this bear market. A plunge to the low 500s would leave plenty of room for the primary corrective wave to play out... Wave B could post a 50-60% gain without violating SPX 800.

The next big item on the agenda is precious metals. I have been noting that if gold closed back below the downtrend line that contained the consolidation of the March 2008 high, I would close my silver positions. Well, gold did close below that line... kind of.

gold chart

Of course, some traders never change their trend lines, and in many cases such stubbornness is proper. However, when it comes to consolidations, I prefer to use outside prices, and shifting to the blue line above gave me a tighter safety net. You've probably figured out by now that I haven't closed my silver positions, but I'm not reaching for excuses here. Technical analysis is always mushy, and when one is presented with a borderline decision, other factors must come into play. We do, in fact, have a big piece of information to consider.

stock chart

I am impressed that miners managed to get positive with today's backdrop, but the lack of volume is a little worrisome. Nevertheless, I am giving my positions a little more room.

Another stock that has managed to hold up amongst the chaos is Sprint Nextel.

stock chart

Sprint is behaving well so far, and if the primary corrective wave plays out as anticipated, these shares could perhaps produce a 2-3 bagger. Don't ask me about subscriber base, competitive edges and whatnot. I'm playing this one purely by the chart.

Okay, my eyelids are heavier than stock prices. Hasta mañana.


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