Sunday, October 12, 2008

Iceland Cometh?

This article in today's Washington Post might very well portend what is coming next in the market's road to a Wave C low. Warning - it isn't pretty.

The Next World War? It Could Be Financial.

"The global financial outlook grows more dire by the day: The United States has been forced to shore up Wall Street, and European governments are bailing out numerous commercial banks. Even more alarmingly, the government of Iceland is presiding over a massive default by all the country's major banks. This troubling development points not only to an even more painful recession than anticipated, but also to the urgent need for international coordination to avoid something worse: all-out financial warfare."

Wave C Personality - Page 78 of Elliott Wave Principle

"Declining C Waves are usually devastating in their destruction. They are third waves and have most of the properties of third waves. It is during these declines that there is virtually no place to hide except cash. The illusions held throughout waves A and B tend to evaporate and fear takes over. C waves are persistent and broad. 1930-32 was a C wave. 1962 was a C wave. 1969-70 and 1973-74 can be classified as C waves."

Remember that this C wave is one fractal higher then any of the C waves described above. Meaning that my all standards of measurement, it will be a degree higher, i.e. worse point decline, worse percentage decline, worse log scale decline, it fact, it should be the worse decline in the lifetime of any market participant, since the last decline of this magnitude was in the 19th Century. Keep in mind that the stock market races ahead of the underlying fundamentals by at least six months. Thus the worse news stories, much worst then what is linked above appearing in today's Washington Post, are still down the road. Also down the road, sadly, is something that accompanies virtually all bear market bottoms: Another war.

The market does not travel in a straight line. There will be rallies within the confines of the wave C structure. They will be sharp (like the 1000 point rally in the DJI last Friday), but fleeting. All of them, every one, to be followed by new lows.

All probabilities favor the downside, until further notice.



Anonymous said...


I'm having some difficulty understanding why this C wave is taken as necessary (cannot be otherwise). I do not understand these issues well, but from an oversimplified perspective are there not so many variables at play that we cannot assume the necessity of wave theory or any construct? And if we can assume necessity, on what grounds are we doing that?

Thanks for the clarification.


Anonymous said...

at its worst case where should we see dow? at 7500, 5000 ... less?

Anonymous said...

So, what's the best plan other than QQQQ Puts or shorting the major indices? Any ideas?

A said...

Matthew: Wave C corrects the excesses of a previous 5 wave advance, it is necessary for the survival of civilization, growth followed by rest and recuperation, then growth again. Prechter is the chief proponent of this theory, any of his books are highly recommended as introductions to new perspective on society and markets.

Worst case: DJI falls below 1000.

Shorting vehicle: There are ETF's that short the market, for a complete menu of bear market ideas.

Anonymous said...

'Worst case: DJI falls below 1000.'

in my book....that would fall under the category of 'CRASH'!!!

Anonymous said...

Allan - I am guessing todays action does not change your thoughts on the 3rd wave. Although you did say at the end of the 3rd wave would be an extremely fast rebound..

My opinion is that the fundamentals are getting worse not better...

A said...

Today was some sort of 4th Wave, or part of it. Minimum downside is a retest of last week's lows, way way down there, then a rally, if it holds, if not, Armageddon.