It's time for me to fess up. When I was much younger, I used to do a great deal of stock trading. I was very much into technical analysis and cut my teeth on Elliot Wave Theory. I saw Bob Prechter on Wall Street Week, as he had nailed gold prices back in the early 80's, and I was hooked. The truth is, as I've matured, I've veered away from Elliot Wave as a primary tool for analyzing markets. Imo, EWT is too limited, and frankly there are always multiple interpretations. Again, imo, the practioners of EWT are always perfect in hindsight, but there have been too many major miscalls along the way (Dow 3686 as THE major market top, for example) for me to look at EWT as a primary analysis tool. It simply hasn't been reliable enough, and frankly, it's too simplistic.
Having said all that, I suppose due to my early training, when I look at a stock chart, especially an index chart, I see it through the eyes of Elliot. 5 Wave as a basic impulse, 3 Waves as a counter-trend wave.
I mention this because as I look at the Nasdaq chart, it seems to be pretty clear.
From October 30, 2007 to March 17,2008 the Nasdaq was in an initial primary leg down.
10/30/07 High: 2828.32
03/17/08 Low: 2,155.42
Total decline: 673.4 point or 23.81% decline from the high, 31.24% decline measuring the 3/17 low as the denominator.
Counter-trend rally targets:
Math for calculating targets:
I'll create one example for the 61.8% target, you have to walk through the rest of the math on your own, or trust my numbers.
673.4 (Nasdaq Point Decline) / 2155.42 (Nasdaq Low) = 31.24%
31.24% * 61.8% = 19.30766% * 2155.42 = 416.16 points (Counter-trend Point Target)
2155.42 Wave 1 Low + 416.16 (Counter-trend Point Target) = 2571.58 Target
61.8%: 2571.58
50%: 2492.10
38.2%: 2412.64
The counter-trend rally appears to have ended on 06/05/08 at 2549.99. Based on the wave structure, and that we came very close to hitting the 61.8% Counter-Trend price targets, I've concluded that a Wave 2 counter-trend rally ended on 06/05/2008. The significance of this is that Elliot Theory states that Wave 3, which we have entered into if I am correct, is typically the most brutal, violent leg down.
Subdividing Wave 3:
Wave i :
06/05/08: 2549.92 High
07/15/08: 2167.29 Low
Points: 382.63
Short Term Chart:
Wave ii: (we are currently in counter-trend wave ii up)
So we are in what is called a complex wave ii, what's called a triple correction. The key point is that it appears that the market is very close to the end of this correction, so we should know very soon, whether I've got the big picture correct. And the big picture is for another major market decline, with the lows of March 17 at 2155.42 on the Nasdaq to be significantly broken.
Technicals Meshing With Fundamentals
I mention all this because there have been a number of stories about Freddie Mac today, it's potential insolvency, and speculation about how much more pain we have in the housing market. It's a situation where the fundamentals in the economy fit with the technical picture painted by the Elliot Wave analysis. Consistent with this theme, is the story from Morgan Stanley, freezing Helocs.
Morgan Stanley Said to Freeze Home-Equity Credit Withdrawals
Home Prices Could Plunge Another 20%: Freddie CEO
Banks Lead Decline After Freddie Results
Freddie Mac
FREDDIE MAC
FRE
7.14 -0.90 -11.19%
lost $1.63 a share, about three times as big as the loss of 53 cents a share analysts had predicted. The company said it's doubling its provisions for loan losses to $2.5 billion since the end of the first quarter and that it will slash its dividend by as much as 80 percent.
FREDDIE MAC
FRE
7.14 -0.90 -11.19%
lost $1.63 a share, about three times as big as the loss of 53 cents a share analysts had predicted. The company said it's doubling its provisions for loan losses to $2.5 billion since the end of the first quarter and that it will slash its dividend by as much as 80 percent.
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