This purpose of this blog is to document my own education in the study of Social Mass Systems and Behavioral Finance. Please read the disclaimer below.
THE PREDICTIONS AND ASSESSMENTS MADE ON THIS BLOG ARE FOR EDUCATIONAL PURPOSES ONLY. DO NOT TRADE OR RELY ON THESE FORECASTS OR ASSESSMENTS. NOTHING POSTED ON THIS BLOG CONSTITUTES FINANCIAL ADVICE AND ALL INFORMATION IS POSTED SOLELY FOR EDUCATIONAL AND ARCHIVAL PURPOSES.
Market movement today dipped below yesterdays target by about 40 points and then began the expected, and dramatic, upwards correction this afternoon. Based on both the traditional wave count and my experimental use of the harmonic wave method (harmonic count may be seen as green alpha-numerics on the charts) I am expected the DJIA to continue this afternoons rally up into the neighborhood of13,212 -13,228. This range corresponds with both a 161.8% extension of corrective wave ([a] black) and a 61.8% retracement of wave 1 (black and green). As this correction will be a second wave in this sequence it has the ability to move up towards the starting point of wave 1 (green and black) , though should not move beyond that point. Thus, invalidation for any continued correction in this count would come at 13,365. Wave two should finish its correction by this coming monday, as it would at that point reach 161.8% the length of wave 1.
From the Harmonic perspective, intermediate (not shown in chart) wave 1 (green) completion should bear a Fibonacci relationship to wave C1 (green) as this is also wave A (green) of an A-B-C bear market pattern in the intermediate fractal structure.
After the market correction to around 13,220 completes, a very strong
bear market will ensue. I am roughly expecting regular single day drops
in the 70 to possibly 200 point per day range during that time.
NOTE: For the descriptions below the (large green a) will stand in for "wave one" and the (large green b) for "wave two". The reason for this is that I am temporarily experimenting with the concept of "Harmonic Elliot Waves" by integrating it slowly into the more traditional method I am use to.
As shown in Figure (1-1) below , the DJIA has fallen in a five wave sequence with its expected terminus and resistance point between the 50% and 61.8% extension of waves i -iii, and 161.8% extension of wave i.
Figure (1-1)
As shown in Figure (1-2) below, I am anticipating a fairly mild but rapidly occurring three wave correction to at least 13,154.46 in the DJIA. Because this will be wave two ( green b) , wave one (green a) having completed in and around 13,070, it is possible that wave two may extend up to the 50% or even 61.8% retracement level of wave one. However, I think strong negative pressure in the larger wave sequence will keep pressure on the DJIA price level from rising beyond at most 61.8% of wave one. Though the timing is likely not very accurate, the below chart provides my general outlook through wave two, and a more vague but bearish directional outlook beyond that point.
I am updating my inter day prediction for the next two weeks or so. What I had formerly labels as the entirety of the corrective wave in my last post I am now considering merely wave A in a larger A-B-C (three wave correction). The reason for this is that flat B waves generally follow a zig-zagging A wave and the near sideways movement of the market over the past few days indicates a larger upward correction. My previous prediction came writhing one basis point of the DJIA futures /ymz2 and was accurate to the extent that it predicted the top of that wave. I would now anticipate, as has started this morning, further upward movement in the DJIA and its futures to the extent of 1.618 times the length of wave A. This will likely find some resistance but ultimately pass through the larger bear market Fibonacci resistance point of 61.8% of this most recent downturn. I will add a revised chart to accompany this post later today, and basing this post off of the uptick which I expected from today's market.
I am updating my inter day prediction for the next two weeks or so. What I had formerly lab
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The correction of the DJIA in the past few weeks is likely indicative of a wave change within the larger bear market correction C wave, which began on Oct. 4, 2011. As is visible per my wave count on the below chart, it is highly likely that the bullish movement which began on Jun. 1, 2012 ended on Oct. 8, 2012 represents a intermediate three wave, within a larger three wave, (a,b,c), corrective-bull-market-pattern. (Figures 1,2).
1. Wave Count
(Figure-2)
The first is that this count, to the best of my knowledge, breaks none of the Elliot rules on the daily, monthly or yearly, fractal scales. Take note of the daily third wave for the period between this past July and August. The count for this wave is critical to determining the larger structure. Based on subsequent market behavior and socionomic observations I will go into later, I think this is the right count. Of course any insight or discussion of this point is greatly welcomed.
I expect that the pull-back of the past few weeks will likely continue through mid November, until a three wave corrective form has been completed. The bottom line resistance for this correction should occur at either 12,800 or 12,400 in the DJIA. If the market continues to move down into the eleven thousands without an identifiable upward "b" wave, it is possible that a much larger correction is in store.
(Figure-1)
I am placing the key point for this determination at 12,030, as the entirety of wave 4 (black) should limit its downside to wave iv (purple) of one smaller degree. After the market bottoms at that point. I am expecting one last bull-market push into next year, at which point, a major top will be completed at [1.618 x (length of [A] (black))]. Thus I believe the final peak of the market will be in and around 14,216. Note that this nearly perfectly level with the 2008 bear market failure top.
(Figure-1)
(Figure-2)
(Figure -3)
(Figure-3)
This chart, represents what I think is the most likely wave count and future market action on the daily scale.
2. Socionomic Indicators
The second reason this count is likely valid is because the turning point within the past few weeks has been accompanied by some major socionomic indicators. The first major indicator in my mind is the hotly contested race for the Presidency. Incumbents generally face a tougher shake when the market (i.e. optimism, pessimism ratio)is turning into or in the midst of a bear market. This effect can be seen in the past with such examples as President Nixon and Carter. On the other side is market growth (optimism growth) which allowed for the likes of Reagan, Clinton and G.W. Bush.
More appropriately G.H.W. Bush's run for a second term was stymied by a fairly flat running correction through 1991 and 1992. Assuming for a moment that the markets, mood and politics, are correlated, even a downturn within a larger bull market wave sequence will parallel a difficult road to re-election for the incumbent. I will make the prediction that this incumbent will not win re-election if the market continues to pursue a bearish correction through election day. This prediction is slightly clouded by the fact we are still moving upwards toward the top of a primary degree bear market correction. The question is whether social mood is generally at a turning point, or whether this is merely a blip on the road to the completion of intermediate wave 5 and primary wave [C]. Those waves will likely occur sometime next year.
While the latter social events and trends are similarly indicative of a bull market failure and ensuing bear market drop, it is key to point out, that PSY's Gangnam style, with 580 million views it is currently a pop culture phenomenon, and has followed the more negative pop-songs in terms of its growing popularity.
This is essentially the same type of music and excitement associated with the "bubble-gum" styles which present themselves near the top of bull market sequences. Similar energetic and flamboyant (bubble-gum) sound, has been seen in the bull market tops of the late 20's, mid 60' and the late 90's.
The absurd popularity of "Gangam Style" is possibly indicative of the transition from an optimistic bull market to the new intermediate wave bear market, or simply a reminder that the larger primary wave structure is likely still bullish through next year. I will expect to see another shift to optimism in music after the current bear market correction completes its intermediate corrective decline.
2) However, Maroon 5's, "One more Night" is still number one in the U.S. Billboard chart. This song and the corresponding video, which has been viewed nearly 50 million times, plays out a conflict between a man who is a boxer and apparently insists on pursuing his career as a boxer, where he is successful though beaten up in the process, and his home-life. Here the beautiful wife and baby are ostensibly placed in a difficult position and though the fighter wins the match, his wife and child leave him in the process. The one catch line of this song that resonated as particularly indicative evidence of a growing pessimism is the recurrent emphasis on the word "die" in the songs chorus which reads "cross my heart and hope to die", the "die" being extended as a extended whole note in comparison with the quick quarter noted lyrics which precede it.
3) The rising popularity of Carrie Underwood's "Blown Away" in the country music charts represents an expansive american population. This music video strongly incorporates sounds and themes of a coming storm combined with abusive and failed parents. The response from the songs protagonist is to pray that her house is effectively "blown away".
4) The story and strong of sentiment regarding the drug-enhancement scandal surrounding cycling legend and american icon Lance Armstrong has coincided with the market turn of the past few weeks as well.
In closing, both the wave count I have provided and the corresponding and consistent indicators of mass social mood, support the hypothesis that the market will continue this current downward correction through the elections and into November. Moreover, it supports the hypothesis that we are growing close to a major corrective-bull-market peak.
I will be posting more detailed charts and predictions for the DJIA on Thursday of this week, following the corrective patterns of the past few days.
From the socionomic perspective, I will also post predictions for the election and offer more examples of social mood changes as expressed in popular culture.
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The strong upwards movement in the past few weeks has forced me to reconsider the wave count I am applying to this current wave structure, from the primary level down to the sub-minute wave count.
The entire basis of this personal academic exercise is based on the applying the Elliot Wave techniques as well as the socionomic analysis in an objective manner. Where things don't add up they have to be scrapped in light of a more appropriate count. While my last model suffered from at least one contradiction, in terms of the Elliot Wave guidelines and the wave count I was using (namely having to force the market fall of last august into an assumed "A" or primary bear market wave), this current count, though seemingly less than perfect visually before, corrects all of the previous contradictions within the system as far as I can tell.
The following diagrams represent the structure of my new count. All of my predictions and wave counts from here on out will be using this as a basis. SO, IF YOU ARE A NEW READER THIS IS A GREAT POST TO START WITH.
The light green price-line bar reading 1.618% is computed from the base of the market correction in 2009 to the completion of its first five-wave sequence, which is labeled as wave-A. This is followed by a three wave structure comprising wave-B. The new approach is considering the remainder of the markets growth as one large "C" wave which, at its peak, will complete either a cycle "B" wave or a cycle "D" wave. Both of these are listed in the graph below.
In brief, the new count calls for a minor pullback, likely to around 12,500 during the month of October and possibly into early November. This should be followed by a final push up in the market to the point where wave "C" reaches the level of 1.618 times the leangth of wave A.
In the alternate, which is not provided in the graphs, the dip we saw this past May would qualify as wave-4 (black) and this current wave-5 would terminate primary wave "C". I think this less likely the case because the structure of wave-3 (black) fits better with the assumption that wave-ii (purple) (from last October) and wave-iv (purple) from this May tend to allow this wave- v (purple) to tend more towards an equal amplitude with wave-i (purple).
The bottom three charts also have an overlay or sub graph of a technical study referred to as the Elliot Oscillator. Functioning as a moving average of the markets various amplitudes it demonstrates very well the relationships of the different waves in the structure to each other. Notice how third waves are consistently more robust than five waves. This tool has helped me confirm my newly assumed wave count. For a great explanation of this study please see the following site. (As usual, I take no responsibility for the content or quality of its information. This is all an academic / learning exercise on my part, and, as has been shown, is subject to flaws.).
Although there is a likelihood that the Fed will announce quantitative easing tomorrow, my prediction that another bear market motive wave is imminent stands. I am placing the next most likely point of a serious drop around 9/20/12 and believe that a trend downward will likely precede any large drop.My new revised top is 13,389 in the DOW.
What I had labeled as a new one wave down was in fact the wave four correction within the larger Upwards C wave pattern. My call for a critical fall is still on and this current upwards wave should not grow in amplitude beyond the spread of wave 3 ( labels on my previous chart as waves 3 through 5. I will post a new chart likely tomorrow evening to account for this mistake.
I was pleased to see the resistance off of the top of my target area this week (labeled in pink on the last chart, posted 8_9_12). The below chart consists of my daily wave count. Through tomorrow and into next week I expect to see more downward movement with the characteristic bumps of wave 2 and 4 along the way. It is likely that this drop off will occur quite quickly.
Listed below is an hourly chart for the past 180 days of the DJIA. Note that this correction reached 61.8% times the length of wave 1 (green) at right about 13327 points. The resistance to this Fibonacci level is, in my mind at least, a strong sign that this corrective wave 2 (green) has completed and the negative future movement will occur promptly. Wave 3 (green) will move downward briskly and likely take the market to at least 11500 before it completes.
Notice as well the decrease in overall volume as the market has gone up in the past few weeks, as compared to the level of volume when the market was moving downward or sideways. This further gives me confidence in labeling 2 (green) as complete and expecting the sharp downward movement of a (3 - green).
Because the very start of wave 1 (green) began above the top of the market fall last August, and because the correction leading to the start of 1 (green) occurred in a 3-wave pattern. I am inclined to call this coming downward shift as the 3rd wave within a larger downward c-wave. As a result I believe it likely that the market will, as mentioned before sink to at least .618 percent the length of the drop from last August, bringing it to at least around 11,500 before it corrects in a significant way. Minor corrections along the road to this lower target are, of course, expected.
I am expecting completion of waves v and C (blue), as well as wave 2 (black) within this coming week. After the completion of those waves, I am predicting that the market will begin a very strong descent.
When I think the very top of this bull market correction has been reached, I will post a new chart with my downside targets and anticipated socionomic changes. The highest I would expect to go in this last move upwards is 13,543. Moreover, given the complexity of wave iv (blue), this last wave v (blue) of C (blue), should unravel in a fairly neat 5- wave zig-zag.
My current wave count requires another minor shift down in the DJIA to around 13062, before pushing up one last time to about 13221. These two movements should constitute wave iv and v (blue). Upon the completion of wave v (blue) the correction will have also completed wave C (blue) and wave 2 (black).
I am limiting the upward potential of this correction because 1.618 times the length of wave A (blue) is too far above the likely resistance point. Instead, I am placing the resistance point at the point where both wave A (blue) and waves i - iii (blue) have an identical Fibonacci relationship in the price level.
The grey space is my expected containment area for wave iv (blue). The pink rectangle is the expected termination point of wave v (blue). Movement beyond this point would likely reach at or slightly above the beginning of this wave pattern around 13296. However, the DJIA has adhered less strictly to a proper wave count than has the S&P500 or the Nasdaq Composite. Resultantly, movement of wave v (blue) to the top or slight above the starting point of wave 1 (blue) will not invalidate my expectation of a strong downward 3-wave (black), unless there is a substantial permanence above that point across all of the indices.
First and foremost, I was really excited by the fact that I was able to call this past weeks turn-around before it occurred. Granted I had it coming after the completion of what I thought would be one last triangle, but the important part is that it was done objectively and correctly predicted the complete opposite of what my original and incorrect assessment provided.
That being said, I have a new chart for this coming week. Regardless of what happens in the next week or two I am still predicting a very strong down turn in the markets. I believe that the current wave movement is the final sub-minor movement required for the completion of wave-2 which, of course, proceeds the falling waterfall effect of wave-3. I decided to chart the S&P 500 today instead of the DJIA, as I think it is more widely traded and resultantly displays a more accurate representation of the herding behavior which creates these patterns.
I am holding $1415.87 as my upper resistance. The alternate and absolute top resistance is $14.21.85. If the market breaches both of those levels for a significant period of time, more than two or three days, I will have to consider re-evaluating my count.
Until that happens however, my posted count for this week is listed below. Incidentally, the DJIA will likely follow a similar pattern over the next few days.
I have also added a 25 day moving average to the 50 and 200 day in the hopes of spotting some interesting crossover points.
I am making a somewhat significant change to my wave count. I was counting the present triangle as though it were the "c" wave of the current wave-2 correction. Due to the law of alternation, I no longer think this right right. Because waves will alternate between simple and complex patterns, I am inclined now to reconsider my wave count and re-label it as a double three, with the bottom of the first downward moving wave as "1". This seven wave structure will terminate upon its seventh wave and wave "c" (blue) should follow numbers 1-7 and B (blue) upward into the area I have cordoned off with the noted price levels. The grey box is my target area and represents a close approximation of the next most likely upward Fibonacci relationship.
The red numbers, letters and trend line represent my old count, which I am comfortable at this time doing away with. This current sideways movement is not indicative of a "c" wave and is, at least in my mind, more likely a flat "b" which, according to Elliot's rules, is likely. An expansive upward "c" wave will follow.
Furthermore, it is likely that the duration of an upwards "c" wave would be swift and last for approximately six days in total.
In the alternative, the triangular wave structure we see now may be wave b (black). If that is the case, the end of this triangle will be the impetus for a upward 5-wave sequence which would likely retrace towards the top of wave 1.
I don't think that this is the case, but based on the wave structure, I can't make out any diffinitive "b" wave where the triangle is assumed to be a "c" wave ( the third wave in the corrective three wave pattern).
The reason I think that this triangle will be a terminal wave 2 (black) is because of what I am assuming to be the strong downward pressure of an upcoming three wave.
My original assessment of this correction was that the dip on 6/11/12 was the corrective "b" wave and that 1.618 the height of "a" would mark the top of "c". To a large extent that prediction has proven true. While the triangle pattern currently in question has continued for a while in terms of time, the upper resistance level in terms of its price points haven't really changed. This encourages my belief that the current triangle is in fact a "c" wave.
All told I am sticking with my current prediction, though I am assigning it less confidence than usual. When the market is elusive in terms of movement, I prefer to wait until a definitive indicator of future movement develops.
I have added to my analysis a linear regression line (moving downward and to the right in red) as well as the trends in the 50 and 200 day moving averages. I think these provide a reasonable means of gauging the wave count and help provide a rough channel.
Because the current sideways pattern is a triangular patter, I think that wave 2 (black) will complete upon the upward formation of the 7th wave of the sideways triangle. It is likely that this correction will not last past the beginning of August and my macro-assessment is for a major upcoming bear market.
If the market drops below the trend lines I have outlined in any significant way, it is likely that the downward pressure will prevail before early August and we would quickly move into wave 3 (black). However, my official prediction is that this market will finish out its sideways movement before coming down in August.
Please feel free to follow me on twitter @WarrenRaiti to get thoughts on the wave count, socionomic developments and quick updates should a large movement in the market occur.
While my expectation for Friday's market was met in terms of its direction, I am still looking for more downward movement in the DJIA. It should bounce off of the expected resistance point as labeled in the chart.
Furthermore, I am becoming more and more convinced that we are looking not at a "C" but at a "B" wave, meaning that more upward movement would have to occur before the market would take its next dive.
Nevertheless, I am sticking to the prediction that the market will continue to trend in between the red dotted lines and likely complete wave 2 (black) at the end of this month or the beginning of August.
I remain bear in the long term, but will not discount another brief push up before that occurs. "C" waves are usually very strong and resultantly, I am skeptical about it having already formed, given the sideways market movement.
More to come, but I think the best thing to do now is just to watch carefully to see what happens over the course of the next two weeks.
Just to formalize / extrapolate on my impetuous post earlier, I have included a new chart which I believe more accurately reflects the current wave count. I think that the last few weeks of market action has demonstrated a "flat top-bottom rising" pattern, comprised of 3-wave subsets. As is noted in the graph, I believe that today's market growth was filling out the last leg of that process. I have labled what I think is the fifth and final wave of this pattern with E (black). Waves 1-4 are labled A-D (black) and you will notice that 1.618 times the length of wave [a of E] is pretty close to equivalent to both the current market price level and my proposed levels of resistance.
Again I am predicting another major downward shift in the market after the completion of this corrective 5-wave pattern.
Based on this weeks movement so far, the market appears to have started a new bear market third wave. However, last weeks trading, today and likely into early Wednesday are part of a triangle type pattern that will terminate upon the completion of its 5-wave structure at the point labeled "e" (red) in the top chart. After this wave form has completed, I am anticipating strong negative downward movement in the market which will flesh out the 3-wave of the larger trends, as noted in both the second to bottom and bottom chart.
In terms of timing, the rest of the summer is going to look very bearish. As noted before we are entering a powerful downward cycle. The two bottom charts both demonstrate the market weakness as the price level has been meeting upward resistance in 3-wave pattern and exploring new territory with 5-wave structures on the down side.
Given today's market movement, I am having a little bit of trouble coming up with a definite daily wave count and thus prediction for tomorrow. As a result, I will wait until the pattern fully unveils itself to continue the count. However, my general expectations for the rest of the week are as follows"
1. If the downward pressure we have seen in the last few days moves beyond $12,647.89, the completion of minor wave 2 (black) has occurred and the beginning of wave 3 (black) is underway. This means that the market will again take a hard tumble over the course of the week
2. If the market goes up tomorrow, its resistance will likely be in the neighborhood of $12,818, and will then tumble.
Either way, and even if the DJIA can push past the $12,818 mark, the minor and primary degree waves all indicate that there is a major crash approaching, likely in the next few weeks, if not earlier.
The corrective wave labeled as 2 (black) is coming to an end this week. It is highly likely that the market will top out tomorrow or the day after. The corrective pattern, as noted before is that of a 3-5-5 correction (3 waves up, 5 waves down and 5 waves back up, forming minor waves a, b and c [orange], respectively). As a result the remaining pattern which has yet to unfold completely, is that of C (Orange), which requires one more set of five sub-minor waves for completion.
My target area in terms of price for the completion of this wave ranges is wide at the moment, and falls between $12,885 and $12985. Though this range is somewhat large, about a hundred points, the important takeaway point is that this will likely be a major market top. I am inclined to think that it will travel to the upper resistance point, since that is in Fibonacci relationship to the length of wave A (orange).
After I posted my chart yesterday and viewed it today, I realized that I was not giving due weight to the breadth of bull market corrective waves. Because such corrections tend to last 1.618% times the length of bear markets and because of the extension in wave iii (black), I think it is instead likely that iv (black has not finished forming yet. THIS CONTRADICTS MY CHART FROM YESTERDAY. What this means is that a motive wave upward is still on the way and that the DWCF (Dow Jones U.S. Total Stock Market Index), AND the DJIA will push up to right around $14390.20 and $12,973, respectively. Once the market reaches this point it will have completed wave 2 (black) and wave 3 (black, not shown) will begin.
We are currently in the beginning stages of the bear market I have been keeping my eyes open for these past many months. So far the wave count supports my assertion that this is the case.
Because this entire experiment is based on the theory that transparency and openness is the key to progress, I am leaving the faulty chart from yesterday online. If not as an example to learn from, then a show of good faith. I look forward to doing another Socionomic assessment, perhaps this weekend.
Below you will find my daily chart for the period beginning on May 2nd of this year. The corrective pattern which has been in place since June 1st should be coming to an end this week. I think it is unlikely that the DJIA will push up too much further in this correction as it seems to have filled out a 3-3-5 corrective pattern. I mistakenly thought that this had occurred earlier, but it turns out that the A wave of this correction was a 5-3-5 pattern which, because of its amplitude, and proximity to 1.618% the length of the bear market fall, I mistook for a completed correction. The difference in price however, between the top of wave A and what I believe to be the top of wave C ( both marked in dark red on the chart) is not incredibly significant. This leads me to believe that the upcoming push downward, likely to begin with the remainder of this week, will be quite strong.
I have also separated and labeled the minor motive wave and its correction in the hopes of making the chart a bit clearer for those who are not already familiar with counting the waves.
The chart below is my wave count for the past few days and the dotted and solid red lines indicate my prediction for the rest of the week, and perhaps a bit of next as well. The chart, as you might have noticed is the $DWCF, which is a measure of all equity securities that have their pricing information available.
I noticed, upon discovering this chart that it really seems to hug the Elliot Wave pattern much more closely than the DJIA. I am not sure if it is more widely traded, but it does seem to be a really nice EW indicator.
The count for the DJIA is substantially similar to the count for the DWCF and my prediction for both this week is the same. We should see a drop in price which is followed by a push back up. The drop will occur either tomorrow or friday. It is also possible that the market will move sideways and then up. The termination price is listed on the chart and it is likely that the DJIA will follow the same pattern by percentage change.
In essence, this weeks market prediction is very simple. I believe that the market is at or near the completion of wave 2 (black), which means that the next large movement will be a 3-wave down and will move the markets very quickly in a negative direction.
It is possible that the correction we have seen in the past week is only part [a] of a larger three wave correction. However, given the fact that this wave sequence is an impulse and not a corrective wave in the larger scale, I think that the correction we have seen for the past 3 weeks will be most the upward movement we see for before a strong pull downward.
P.S. During the corrective pattern we have seen over the past few weeks Gotye's "Someone I used to Know" has fallen to number three on the weekly songcharts and has been replaced by the decidedly more upbeat both in tone and message "Call me Maybe" by Carly Rae Jepsen. I thought that was a neat correlation.
While I have recently become too busy to map out an entire count, my rough estimate is placing the markets near the end of their upward correction. As a result I am expecting very strong negative movement across all the major indices very soon. The last time I attempted to call the top of a correction such as this I was off in terms of amplitude. While that is possible again this time, I think the wave structure is now in its motive form and overthrowing "b" waves as was the case through the winter of this year should not surprise the 5-wave count. I will post more as I find the time.
I was pleased with yesterdays prediction, as the market traced it extremely closely in completed wave -d- (blue). It still has to fill out sub-minor waves b and c (black) to complete wave -e- (red), which should also be wave [b] (black).
61.8% of the length of minor wave a (black) of -e- (red) would bring the bottom of -e- (red) to ~12,372. This is an alternate low however, since the baseline resistance should be found again at $12,410. Again, given the strong building downward pressure of the larger wave cycle, -e- (red) ending ~12,372 is very feasible.
After wave -e- (red) / [b] (black) completes, an upwards moving C wave will likely bring the market up to ~$12,840 in a simple 5-wave structure which I will channel more accurately upon the completion of sub-minor wave 1 of that larger [c] wave.
[Socionomic Observation]
For a brief socionomic correlation to the overall market sentiment, check out the two following videos. The most recent video "Someone I use to know" features a simple recurring / descending melody in the key of D minor with a high C acting as a leading tone for a sixth which then falls to the fifth before finally descending again to the tonic of D. In English, this is what is typically regarded by listeners as a REALLY depressing scale. The bleary eyed nude male singing the lyrics face on recalls in his lyrics a relationship that has passed. Expressing nostalgia however he seems to note that it wasn't a very good experience even before the now nostalgically recalled. At one point he declares " I am addicted to a certain kind of sadness". Since this song is at the very top of the present charts, I don't think it is a stretch to say that mass social mood is identifying and reflecting an emotion that correlates with the present and coming Bear markets. While this is obviously just something that I have picked out, I would argue that the same general sentiment can be found across the most popular songs since late April of 2011.
As a measure of comparison, take a look at what is generally popular in terms of styles of music today and compare it to the "Swing Revival" of the late 1990's, which hearkened back to the start of Bull market cycle wave III in the early 1940's. Social mood in 1997 /1998, the peak years of the past century's bull market 5-wave sequence, produced the following sound.
The "Zoot Suite Riot" begins with a forceful brass blasting set of saxophones (which barely fade throughout the song), also in a minor key (G), but resolving the major second of that key in an ascending form and heavily complemented by an incredibly colorfully dressed front man. Smiling and dancing, the singer encourages the listener to "throw back a bottle of beer" and advises that "you can't run fast enough". While this is a far cry from today's mostly dark / passive hits, it seems very in line with mass social mood in 1997/98.
One last thought. While "Someone I use to know" centers around the idea of individuals who share a relationship alternatively fading into the background....literally, "Zoot Suit Riot" features a very strong individual singer whose ecstatic confidence is made plain and who is centered by a spotlight. Popular advocacy of individual achievement is also tied with Bull markets, while more collectivist mentalities are expressed during societies more fearful and pessimistic times.. i.e Guilded age vs. Great Depression.
After the DJIA bottomed at $12,411 before breaking back upwards in a 3-wave pattern. The good news is in terms of my own observations that I got both the market direction and timing with yesterdays prediction, even though I went too far down on the morning low end. The good news is that I think that this pattern is a primer for a triangle pattern which expresses itself in waves a,b,c,d,e (5-waves). This is tentatively confirmed by adopting what I believe to be a more accurate wave count, based on today's wave structure.
As a result, the market should drop tomorrow. It will do this probably after coming a pinch closer to at least the lower resistance point, though given the strong underlying sentiment, it is possible that it may drop right out of the gate. The baseline is roughly $12,400. I think the market will remain at or above that level since flat B patterns generally follow zig-zag A waves. [labeled as A (black)]. After filling out point -e- (red), the market should begin its upward thrusting wave C (black). The length of wave C (black) will depend greatly on how low the market goes tomorrow.
I am expecting this b wave (blue) to terminate in and around $12,319, as it still has to complete waves iv and v of its 5-wave sequence. (labeled in chart). This b (blue) is comprised of a 3-5-5 wave structure which began on 6/7/12. After wave b (blue) completes, there should be a strong upward movement as wave c (blue) will advance upward to form wave 2 (black) at its completion which should be in and around $12,850. However, because of the strong downward pressure associated with the upcoming bear market three wave, it is possible that the completion of wave c (blue) may be somewhat truncated as the weight of mass pessimism will be quite strong going into the next 5-wave bear sequence, which will be the 3rd wave, within a larger 3rd wave. In other words I am predicting that the completion of wave c (blue), which will likely be comprised of a 3-3-5 pattern, will mark the start of a significant selling frenzy in the markets. In terms of time, I would expect the completion of wave c (blue) / 2 (black) to occur on or around 7/12/12, though a more precise time may be given once wave c (blue) has developed enough to graph its channel.
The following chart is a rough wave count for the days ahead. I miscounted the daily 5 wave sequence on my last post which incorrectly was looking for a subsequent 5th wave to complete the daily progression. Based on my correction to that mistake, we are currently experiencing an "a" wave. The 61.8% retracement level of this wave is very close to a 1.618 x the leangth of what I have marked as wave a. Once wave C of this wave cycle is completed a very powerful third wave will bring the market down in price level very rapidly.
I will update in greater detail as I have the time later on this week.
The following two graphs represent my daily wave prediction for the coming week. Both the S&P500 and the DJIA are demonstrating an upwards correction diagonal correction, which I believe will be followed by one last wave down in the labeled 5 wave sequence. The larger corrective trend in the markets will be a 3-wave pattern and occur after the completion of this final downward move. The turning price points where corrective wave 4 ands and wave 5 will begin are noted on the charts.
So after a bit more upwards movement in the Dow Jones this past Thursday and the subsequent downward movement on Friday, nearly breaking the critical level of wave-ii-blue, I think that wave [4] black has completed and that we are now in the midsts of what I will chart as wave [5], and sub-wave i-green. As two of the five waves within a motive sequence tend towards similarity in amplitude, I am fleshing out my previous prediction of [v]-black at $12,088 with $12,064.
$12,064 is $505 from the peak of wave [4] and the amplitude of wave [1]. It is sufficiently similar to my original prediction of $12,088. I will use the 24 point difference between these two numbers as the high probability region in terms of the price level upon the completion of wave [5]. While the strong negative tendency in the market makes it feasible for wave [5] to dip down to 50 points below this estimate, the price range outlined above is my officially forecast endpoint. I will draw a more accurate channel for this wave as i and ii-green complete this coming week.
The current wave form has placed the bottom of the [3] wave at $12,336. I believe that the upwards movement which followed in the past few days began with a 5-wave structure comprising of wave [a] of [4]. The following downturn in [b] back to the start of wave [a] and will I believe yield a truncated [c] wave, again signaling a very strong underlying negative force in the markets. I am estimating the likelihood that the correction will bounce off of the upper channel to be about 55%, though this is conservative. I think it is respectively unlikely that wave [c] will retrace wave [a] to 1.618% and have thus marked it with a rough 10% likelihood. The last option which is likely in my opinion is that the [c] wave meets with the top of wave [a] before falling. I placed that likelihood roughly around 40%.
Thus, given the strong negative motion in the market thus far, I think it is more likely that wave [c] will bounce from the upper trend channel and push the DJIA down to 12,088 in completion of [5](1), before the entire [ wave ] retraces. I do not think that the (single degree larger) upward correction will reach .618 percent of the length of (1). Again, this presumption is based upon the strong overall negative force inherent within the market / economy at this time.
I am very excited that my last prediction with regard to the high point before a bear market correction in the DJIA came within 9 points of the actual turning point on May 1st of this month!!! I predicted a height of $13,329 on March 26th, 2012 and the $DJIA touched at $13,338.66 before the current drop. The scope of the prediction is charted below below.
I have attached new charts giving the general breakdown of my updated predictions for the Dow Jones. In brief, the fact that the market has broken beneath the low of April 9th (~12,716), seems to indicated that the sideways movement we have seen was in fact a "flat correction" which broke down into a subwave-structure of [3-3-5]. The first [3] ended on April 9th, the second [3] ended on April 30th, and we are, as of the moment I am typing this, within an extension of the third sub-wave of the downward [5] in the previously mentioned [3-3-5] corrective pattern.
This downward movement should stop and correct somewhere between $12,357 and $12,379, at which point I believe the negative movement will retrace back upwards by 50% in a three wave structure, which will correspond to wave 2 of 5 (this present [5] of the [3-3-5] being wave 1 of the larger degree). My estimation for the price level at the completion of wave 2 is ~$12,848.
[It is possible that this negative [3-3-5] correction could just be a wave four and that the market would rise again by about 1000 points.] However, I am fairly comfortable dismissing this eventuality and labeling the fifth bull market wave as a fifth, instead of tying it in as a third wave extension, since it would hamper the "right look" of the wave structure. This prediction will be confirmed by either 1. an unfolding three wave corrective pattern after a fifth wave is completed in the current drop, or 2. a drop which exceeds $12,259.
[Assuming my predicted pattern to be the correct count] Corrective wave two should complete right around early June. June 1st-8th is my best estimate at the moment. At that point, intermediate wave 3 will bring the market down very quickly, and with a weak correction in intermediate wave 4, intermediate wave 5 should follow carry the market through to ~9300.
This process will occur fairly quickly. If the market has not experience significant downwards movement, namely breaking the next key price level at $11,760, it will certainly do so following the days of early June, which is the next time period that corresponds by 2.618 times the duration of minor wave - a - which completed on October 3, 2011. This is significant because bull markets generally run 1.618 times longer than bear markets. (people are optimistic for a longer period of time than they are pessimistic). What that means is that the stores of social optimism should be thoroughly exasperated by that time and any negative movement which was being held back would certainly manifest itself as greater social pessimism unfolds.
Minor and Minute wave count and prediction (everything past early June is a rougher estimate but the basic structure should be accurate).
Because we are now moving into a bear market C-wave, it should be noted that social mood often takes a violent turn at or near the completion of a bear market C-wave. Many of this and the past century's major conflicts erupt at the bottom of these types of waves. It will be interesting to watch international affairs, as well as domestic social behavior as this wave unfolds, though a certain wariness should undoubtedly coincide with the observation.
Minor and intermediate waves.
Moreover, I think we are beginning to round out the right shoulder of a head and shoulders pattern as displayed below. The first shoulder hit its peak in 1999-2000 and dipped into the collar in 200-2001, with the terrorist attack on September 11th prompting the very bottom of the c-wave correction. Then a large 3-wave corrective movement occurred, largely based on all of the various "bubbles" which burst in 2008-09. Since the bottom of 2009, the market has been forming its right shoulder. We are currently rounding out that form and will begin to slide down the right, likely correcting back to the lows of 2009.
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