Raise the Barricades, Build the Moat
September 10th, 2014
in aa syndication
Written by William Kurtz
All of the stock indexes closed Down yesterday. The Dow Industrials, for example, closed Down 95.55 points. However, it is not the "Down numbers" themselves that are important. The declines have a much deeper significance than simply the numbers.
Here's what I mean: We readily acknowledge that market analysis is an exercise in probabilities, not a determination of certainties. Nevertheless, I think we can say with a high degree of probability that the declines today (especially those in the Dow Industrials, the S&P 500, the Dow Composite, and the NYSE Composite) confirmed that the Great Rally from March 2009 finally came to an end on September 4 with the Dow at a High of 17161.55, and that the major underlying trend switched from Up to Down on that day.
In other words, it appears that the dike has broken. The implications of today's price action are immense.
I had written last evening that "Last Friday's Lows are key" (last Friday being September 5) and:
"So long as the Dow and the S&P 500 stay above their Lows of last Friday (17009.62 and 1990.10, respectively), they could rise a little higher, to new Highs; but if they were to drop below last Friday's Lows, that should close the door to the possibility of new Highs, and they would almost certainly head lower from there."
"Dropping below last Friday's Lows" is precisely what the Dow Industrials did today - as did the S&P 500, the NYSE Composite, the S&P 400, the S&P 600, the Russell 2000, the Dow Composite, the Dow Transports - everything except the NASDAQs - and the NASDAQs nearly did so.
"Dropping below last Friday's Lows" is critical, in that it severely reduces the possibility that the rise from those Lows was a continuation of the long uptrend from March 2009.
Please look at the attached charts of the Dow, of the S&P 500, and of the NYSE Composite. You can clearly see that today's price action punched below last Friday's Lows; and (except for the Dow Industrials and the NASDAQs) the Indexes even CLOSED today below last Friday's Lows. (The NYSE Composite had already shown relative weakness, in that it had led the Dow and the S&P 500 by one day, in that it punched below last Friday's Low YESTERDAY rather than today. I've outlined that in a blue box. The heavy horizontal black line denotes the level of last Friday's Low).
If you're an Elliottician, you will understand the significance of my labeling of the waves of prices on the charts. In sum: I think that the Highs of September 4 represent the culmination of "fifth waves Up" at multiple degrees of trend, and (consequently) they marked the end of the line for the Great Rally which began in March 2009; as well as signifying a change in trend from Up to Down.
(Actually, it's not so much a "change in trend" as the resumption of the major underlying downtrend which began in October 2007, and which has been interrupted by the Great [countertrend] Rally which began in March 2009).
Please refer again to the charts: After the culmination of "fifth waves Up" at multiple degrees of trend on September 4, "Wave 1 Down" followed along on September 5; "Wave 2 Up" then followed along (and came to completion) on the same day; and "Wave 3 Down" (at multiple degrees of trend) then began, is operating now, and will continue to operate for some time to come; whereby prices will continue Down - in "stairstep" or "sawtooth" fashion, as theyusually do.
Elliotticians will appreciate that the implications of identifying the current downmove as "Wave 3 Down" are immense: "Waves 3 Down" are notoriously destructive, especially when there is a multiplicity of them operating arm-in-arm at the same time - as will be the case in the stock Indexes now.
There's one more aspect to it: (First, by way of a little background: "Corrections" always occur in three waves, denominated "Wave A," Wave B," and "Wave C".) The great selloff from the October 2007 High to the March 2009 Low was an "A" wave, the first leg (a downleg, obviously) of a three-wave "A"-"B"-"C" correction - "Down, Up, Down." The Great Rally from March 2009 to September 2014 was the "B" wave ("Up") of that correction. That means that the new wave, now just getting underway, is the "C" wave of that three-wave correction; and it has a long way to go to the downside, before it will be done. (Being a "C" wave, it will also be a "third wave.")
We know that all corrections ultimately retrace, to the extent of 100% of the "B" wave - and then some. Therefore, this "C" wave ("Down") will come to an end FAR BELOW the bottom end of the "A" wave, which also marked the start of the "B" wave - that is, at 6470 on the Dow Industrials.
Yes, that is a prediction, namely: That before this new down move is over, the Dow will be FAR BELOW 6470. That may be years away, but it's coming.
I do not expect to see the Dow at 17000 again in my lifetime.
The opportunities for profit on the decline are very large. The risk of loss in unprotected Long positions is also very large.
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