Russell 2000 index, DJIA

 

 

This is the 2000 small cap index. It is a very broad index and as such it should probable “represent” the US economy the best, assuming of course that stocks actually represent anything at all. I have left the chart blank as it illustrates very well how the recovery rally from the March 2009 lows is, at least to date, clearly and unequivocally a 3-wave affair and therefore a correction. What is equally clear is that the correction did not stop (as expected) at 50/62% and instead, like the energy bunny just kept going and going and is now at the double top level. A count could look like this;

Rus apr 2011

In this count the actual top would have been in early 2008 from where the index started a huge “flat”, A-B-C where the A was the great recession, the B the even greater recovery and the C has yet to come , but most certainly promises to be the greatest disappointment as it should drop below the March 2009 lows. This interpretation assumes that the tech drop in 2000 is unrelated to the recent calamity.

A different count has been offered by another practitioner of EW as per the chart below;

RUT april 2011

In this particular approach the last 10+ years were spent tracing out a single pattern, variously called the “Jaws of death” a “megaphone” and other descriptive  names. The only pattern within the EW orthodox repertoire that remotely resembles this one , would be the expanding triangle wave 4. At a later stage concessions were made by some (Neely) to allow for an upward sloping lower boundary as in a running triangle. What argues against this is the clear B-wave, which is clearly NOT a 5th wave!. In any case the difference is academic for the next big move. In both cases we could, but do not need to, go higher to the upper trend-line at about 900 and then we should drop like a stone.

These , and two other counts are compressed in the chart of the below. With only one unlikely exception (if we are in a new bull market) every count points down even if there is a little room for more upside.

DJIA Apr 2011