Subject: 12-22TT
Saturday, December 22, 2007
Diagonal
Triangle: Rocket fuel for a record-breaking Spike!
“Elliott
found the way to Direction, count five waves up or down, and that’s the trend, all
else he said, is just a correction.”
-
Sid Smith, Financial Poet Laureate
In concrete terms that means the
entire move from
the third quarter of 2002 until we finally peak will have all been a correction, otherwise
known as a Bear Market Rally, composed of 3-wave moves. Once we peak this time,
the primary trend to the downside, which started circa March 2000, continues
with a vengeance. Diagonal Triangles always signal dramatic
reversal ahead…. We’re in a
long Bear Market lasting perhaps another 50-odd years, yes there will be
powerful rallies, but always we’ll be returning back near the bottom of the
trough, which is still likely 5 years away.
A diagonal triangle occurs when a
move has gone too, far too fast, and signals a dramatic reversal upon its
completion. In the current position, it’s analogous to a tightly coiled spring,
which when released, thrusts up like a rocket. This is precisely the pattern
forming in most stocks and indices, confirming a Bear Market Rally extending at
least into September 2008.
Our current location on the roadmap
Below
is a pictorial representation of our most likely trajectory, where break in the
Spike indicates a big chunk is missing, which would otherwise make it go off
the page to be in scale with the diagonal triangle body. You see we’re
near a on the way to wave 3, via a detour to b. However in
an overwhelming number of instances lately the subsequent b has
been the top, rather than 3, so going
forward we will either wait, or hedge our
bets and scale out half at 3 and half at the subsequent b. Wave
3 need only exceed wave 1, before we collapse back to the
bottom near Dow 12,750. We are now closer to the b after the arrow, and should
bottom within a day 12-28. When there’s a strong upward bias, as we currently
have, the diagonal becomes extended to the upside after wave 3 as we see below in robin’s egg blue.
Now here’s what the Dow looks
like so far. (needless to say the previous preferred count proved incorrect) At first glance you’ll see that waves 1 & 2 sub-divide into 3 waves. As always if 2 is
simple, then 4 is likely complex, and
vice-versa, meaning wave 4 will
likely sub-divide into 9 waves, where each of a-b-c sub-divides
into another 3. In addition, you see a couple of Diagonal II’s, which
signal the start of a long move, at the beginning of both waves 1 and 3.
When two or more complimentary diagonal triangles are found, they serve to
compound the force of the indicated move ahead. When the market turned in
2002, there were also two diagonal II’s, like this at the turning point,
although those were a bit larger than we see here. You’ll note that the long
move diag II is dwarfed by the terminal move diag >, so we can expect a long
terminal move, which fits September 2008. As we get closer we’ll be able to
judge, by the progress of the Spike, how close we are to the end. Incidentally
there will not likely be a recession, but instead a depression beginning 6
months or so after we peak. (the market discounts the future, better
than any economist)
Notice that the structure of 3 so far looks just like wave
1 to a.
Before fulfilling its destiny, a diagonal II usually retraces at least
back to the point where it began ~ Dow 13,050 at the red hashed line. In this
example it’s probable that the required retracement will be carried out by wave 4. Just when investors are ready to throw in
the towel, that’s when the Spike will likely take off. (in the graph below the bottom paragraph has 1 cut off at the very end)
The Futures to
gauge timing of morning transactions
You can always look up the
futures to gauge your transactions near the opening by going to http://www.cme.com/ where you can see the mini
contracts for the S&P and the NAZ. ( it’s usually a good predictor of what
the day holds: over 1800 usually means big upside, ~1200 is good upside, ~600
upward bias and vice-versa) Obviously if you are buying and the futures are up
big and you suspect a gap up, you want to buy after the opening when you see
the pullback starting to stall. If the futures are down, you wait until the
downtrend completes before buying, however long it takes)
In summary:
This is a long move starting, and
likely the final to the upside. No recession should be expected until six months
after we peak, in the late to mid 3rd Q 2008. Until we complete wave 4 of the Diagonal triangle, we are coiling, storing
energy & momentum for the final all-out Spike. Hopefully you’ll
recognize a good roadmap pointing to the future as a much more valuable tool than
a slew of commentaries about the recent past. If your goal is to make money,
the past is useless until it becomes the remote past as history. It’s history
that repeats itself, with a novel twist.
Wishing you
Happy Holidays & a most
prosperous New Year,
Eduardo Mirahyes
“Opportunistically timed investments
that maximize wealth”