Friday Pre Open (Thursday Eve)

Dow Dances with DevilInterestingly, as stock indices stretched further into hope-mania, the breadth didn't confirm, barely closing positively, which wasn't enough to keep the M.O.'s from rolling over; becoming less positive.

Here's the latest chart of the Dow, which we're calling the "Dow's Dance with the Devil", showing the rise Thursday, and the potential for this week to be a major reversal point.

Why have we been pointing out the risks of being long (or leveraged long) since mid-'11, and missed the past two years of rally?  Simple, the rules of EWT define the crash into the '09 low as a five wave decline.  That means the '07 high was THE end of the rise from the '02 low.  We pointed out each potential turning point of the corrective bounce off the '09 low at the places where the evidence was sufficient to make that case.  At the Fibo 50%, Fibo 62%, and Fibo 78% retracements of the crash, where Elliott patterns could be counted as completed corrective structures, and other technicals were in place to get the DSE to warn of serious danger.  All along, we've looked for the structure of the rise off the '09 low to morph into an impulsive pattern (which it still has not, even by making new price highs), so we could join the bullish bandwagon, but the evidence doesn't support it - except for higher highs in price.

Dow monthlyThis condition (non-impulsive, overlapping, correctively-structured uptrend) is only identifiable as a b wave of an "irregular/expanded flat" correction, where the '09 low was wave C down of wave a, at very large degree (Grand Supercycle, per EWT).  Once the final wiggles of sub waves are done, wave c down should last less than three years, and will form another five wave structure, much like the decline of '08, but at one larger degree of trend.  Therefore, it should cause more damage than the '08 crash.  The last two times corrective trends of this degree have ended in the way we expect this next few years to behave were 1720-22 in Britain, and 1929-32 in America.

The Grand nature of this correction explains why it's been so hard for tools (like DSE), that work so well in typical environments, to succeed recently; this ain't your father's typical correction.  In fact, few fathers (or anyone for that matter) were even alive the last time one like this appeared.  But, make no mistake, few investors will capture the current wealth that has been created in brokerage accounts in the past few years, and most will suffer so greatly that their "buy and hold" resolve will fail near the eventual lows, as always happens to humans caught up in manias.

As chart two (Dow-monthly bars - click charts to expand to full view) shows, the risk is enormous for marginal benefit.  Could the Dow climb higher, along with the other indices?  Sure, but the aftermath of wave b ending should be nothing short of catastrophic, as wave c unfolds.

There is no change to crude, gold, silver, Tbonds, dollar, yen, or euro since the last BOOM.

More this weekend...

Friday Pre Open (Thursday Eve) by

About twwadmin

Ken Goldberg is a Registered Investment Adviser, and is the president and chief market strategist at Trading With Waves. Connect with me on Google+

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