wednesday update -- MrSwing

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wednesday update
Oct 08, 2008

Tony

ELLIOTT WAVE LIVES ON
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SHORT TERM: anticipated worldwide rate cuts result in wild day, DOW -189

Overnight the Asian markets were all substantially lower. Europe opened lower and closed down 5.80%. US index futures were sharply lower overnight, then at 7:00 the FED announced rate cuts by many central banks: http://www.federalreserve.gov/newsevents/press/monetary/20081008a.htm. US index futures rallied about 80 points on the news, and then dropped. At the open the market gapped down to SPX 973, it closed at 996 yesterday. By 10:00 it spiked up to SPX 1020, before retreating again. Also at 10:00 the NAR reported pending home sales jumped 7.4% in August, and are now up 8.8% in the last twelve months. The market hardly noticed. By 11:00 the SPX hit 980, then bounced to 998 by 11:30, only to make a new low for the day at SPX 971 by 12:30. After holding the 970's level the market started to rally. At 1:30 the FED issued the following report: http://www.federalreserve.gov/newsevents/press/bcreg/20081008a.htm. Yet the rally continued to make a slightly higher high on the day at SPX 1021. At 3:30 the market headed lower to close at 985. It certainly is a fast moving market. This market is moving 5% in the same time it previously took it to move 1%. At the close the SPX/DOW were down 1.60%, and the NDX/NAZ were mixed. Bonds lost nearly two points, Crude dropped 50 cents, Gold rallied $27.50, and the Euro was higher. Support for the SPX is at 961 and then 935, with resistance at 990 and then 1018, (the resistance pivot for today). Short term momentum rallied to neutral then turned over, while the near term indicators edged a bit higher. Tomorrow weekly unemployment claims at 8:30, then wholesale inventories at 10:00.

With todays drop below DOW 9438 and SPX 986, the DOW has now retraced 71% of the 2002 - 2007 bull market. This has exceeded the 68% threshold level we noted yesterday morning. Historically, when this has occurred a full retracement of the bull market, with some overshoot, is likely before the bear market ends. Therefore, we need to give the DOW alternate count a higher probability at this time. Currently we are maintaining the count we've had all along, and are still expecting a Primary wave A bottom. The next important support pivots are at SPX 961 and then 912. There is also a significant fibonacci cluster in the 920's for the entire bear market thus far. At this level Major wave C = 1.618 Major wave A, and Intermediate wave C = 1.618 Intermediate wave A. Should the short term count, which displays wave 3 = 1.618 wave 1 at todays lows be correct. After a short term wave 4 rally, wave 5 of this downtrend could fit into a fibonacci relationship as well.

If the pivots at SPX 961 and 912 fail to hold, we could be looking at a much steeper decline for this bear market. Since 1921 there have been only two times that a multi-year bull market was fully retraced. The 1921-1929 bull market during 1929-1932, and the 1970-1973 bull market during 1973-1974. In both cases there was some overshoot on the downside. The worse case was 1974 when the bear market dropped more than the entire bull market by 13%. This would suggest that the DOW could hit 6350 before this bear market ends.

One last note. During the 1921-1929 bull market, the DOW moved from a low of 63.90 to a high of 381.17. This was a sixfold increase! The depressionary bear market of 1929-1932 retraced that entire bull market and overshot by 7% to the downside before ending at 41.22. That major bear market simply wiped out the 1921-1929 bull market and not much more. Our recent bull market rose from 7197.49 to 14198.10, this is intraday data. The speculative excesses were not in stock prices, but were in the credit markets. Worldwide, some the emerging markets that had sixfold or better increases, will likely drop 80%-90% of their value. This is certainly not expected to occurr in the DOW or the FTSE. Best to your trading!

MEDIUM TERM: downtrend makes new low at SPX 971

LONG TERM: bear market continues

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987