We are reverting back to our original thought that the drop in October, at least on the TSX, was a 5-wave affair. The steep and deep up and down movements subsequently were somewhat of putting but after all is said and done this is by far the most plausible interpretation. Only in the event of decisive developments to the contrary we will stick to this scenario. What it means in practice is that drops expected in the years to come could literally decimate the market. Therefore we reiterate our previous recommendation that you only buy stocks that go up! Or follow Mark Twain’s (?) words of wisdom. “There are two times in a man’s live that he should not buy stocks, when he has the money and when he hasn’t”. Today this would apply to both genders.

After looking at the HXD and HXU, it occurred to me that the TSX might – I repeat, might – be peaking at around this level. Again the drop in September is unequivocally a 5 wave downward move, not 3. The bounce following it is without question a 3 wave leg. The next one down, b , is ambiguous. The c that follows should be 5, which might actually be the case if this is a wedge. Put all this together and you have a W1 down followed by a wave 2 retracement. It is a lot of retracement but , provided the peak stays below the 15685 level of Sept. that is fine.

     The bullish alternative would be if the Dec. low was the end of a correction (or alternatively there is actually a triangle that ends in Jan. In those scenarios we would be in wave 3 of 5 that could continue to 16000 or so (see chart below). The RSI and MACD do not support this.

At this point all this is rather academic considering how far it has already gone, but it will be helpful in determining how fast we go down. If 15685 is not exceeded we will find ourselves in wave 3 down, good for at least 3000 points!

Using the TSX , here are the possibilities discussed earlier. First is a series of 1-2’s of different degrees( in purple). This is in line with a very bearish outlook as the bottom is very far down. Then there is the rather awkward possibility of this being a wave 4 (in black), one more high would be needed around 16000 or so this summer and only then will the real bear start. To me, with oil already in the dumps and the banks obviously overbought it is not entirely clear what would bring this about. Then the third possibility is that this is a triangle B-wave (in red). The problem with that is that the downside would be limited to about 11000. Time will tell.