Dear Doves,

Below is an excerpt from a financial newsletter that I have followed for may years and found to be very insightful.  One more sign, and a very good one, that things are about to get very interesting.

blessings,

winston


A 216-year Grand Supercycle advance in the stock market peaked in 2000, when inflation-adjusted prices topped out. Now its echo, a mighty wave b within a corrective pattern, is cresting in its wake. The topping phase has been frustratingly persistent, but we may be face to face with top tick.

The May 22 issue of EWT called for a peak in the Dow on that day, and stocks turned down immediately. The August 2 issue of EWFF called for a peak on that day, and again stocks fell immediately. These were the right calls to make. After a one-day new high on the Fed’s “no-taper” day of September 18, the Dow fell again. Despite lots of noise, the Dow remains below both its May and August peaks.

The S&P 500 has managed to edge to new highs three times since May. “Good news” is reaching full bloom in the form of the canceled taper, the appointment of Yellen and the postponement of a government shut-down. At the same time, the S&P appears to be finishing a pattern called an ending diagonal (see text, p.36). This form, illustrated in Figure 1 (from Elliott Wave Principle), serves to terminate the larger trend. Figure 2 shows a diagonal completed in the S&P 500 and in the Dow Jones Transportation Average. At today’s close, both indexes breached their upper lines, a common event at the end of a diagonal. When using the daily-range chart (not shown), today’s close is right on the upper line. Either way we view it, the market must turn down immediately to leave this pattern intact.
Otherwise, it’s a false alarm and we’ll go back to figuring out
the next likely juncture.

Normally, the peak daily advance/decline ratio in wave five of a diagonal is less than that in wave three, which is less than that in wave one. So far, that’s exactly what we have. Wave 6’s peak ratio was 6.2:1 on July 11, wave 8’s peak ratio was 6.0:1 on September 18, and wave 0’s peak ratio so far is 5.3:1 on October 10. So, momentum figures support our case from wave form.

Now contrast these ratios to the peak downside ratio of wave 4, when on June 20 declines outpaced advances by a whopping 17.9:1! That stunning ratio in a little Minor degree correction is a petrifying foreshadowing of the kind of advance/decline ratios we will see when wave c gets underway.

The October 2 Interim Report said, “If the Dow makes a new high this fall, and if it does so in the right way, we might be able to identify the final high very close to when it happens.” The Dow probably won’t make a new high, but the S&P is right there. As for targeting: In diagonals, wave five is always shorter than wave three, which is shorter than wave one. Wave 8 in the S&P covered 102.39 points, so ideally wave 0 should not exceed 1748.86. Today’s high is 1745.31. The equivalent number in the Dow Transports is 6919.18, and today’s high is 6830.45.

A couple of observations by Peter Atwater of Financial Insyghts seem to support this conclusion: At 1745.66— right where the diagonal should end— the S&P will be Fibonacci 2.618 times its value at the 2009 intraday low of 666.79. And, October 2013 is a Fibonacci 55 months from the low of March 2009. Three of the bull market’s biggest turns—those of 1987, 2002 and 2007—have occurred in October (see chart in the October 2012 issue), and the probability seems high for another one in 2013.

Along those lines, the Dow’s first decline in the bear market, from 2000 to 2002, lasted 33 (34 – 1) months. EWT’s ideal target for the low of wave c (see April 2010 issue) is June 2016, so if the market tops this month and bottoms at the projected time, the final decline of the Supercycle-degree wave (a) would last 32 (34 – 2) months, about the same time as the first.

By this analysis, the S&P should make its final high today or Monday, no higher than 1749. The Dow Industrial Average, shown at the bottom of the chart, is lagging significantly, suggesting that our previous calls will hold and the Dow’s October rally is just wave 7 in a new bear market.

Wave c, which will be the biggest decline in U.S. stock market history, is coming one way or another. Right now it seems it should start next week in most averages and resume in the Dow.