Friday, November 12, 2010

Which Is More Likely?

Of late there seems to be a consensus that wave [C] up is underway, but is it more likely that wave [C] up is underway or that wave (X) of [B] has topped? The XLF did not get anywhere near the April high and the recent November high came after a very clear triangle that means it was likely the final impulse in wave Y of (X). Coming under the November 1 low will confirm that the financials are headed down in wave (Y) of [B] which projects to a low in mid-January.

It seems to me that we should expect the broader markets to be following the same theme. If that's true then the recent November top in the Wilshire should be wave (X), a double top. We will be looking for a retest of the July low. This will be wave (Y) down, equivalent to a C or 3rd wave in force, which may be surprisingly sharp. If we see a violent acceleration in the decline, it could shorten the end point for wave (Y) to mid to late December.

Given the moderated increase in bullishness associated with wave (X) up, the bearishness should become quite severe as the July low is approached creating the greatest buying opportunity since March 2009. Perhaps this is a hopeful interpretation, but while my timing of the count has been off since July, the form fits what I have expected from the beginning. We will just have to give it a little more time to see if it proves to be correct. Either way, an excellent buying opportunity should be here in just a few short weeks.

The Qs may diverge from the Wilshire and SP500 by correcting in a wave 2 of (3) of [C], but the overall outcome will be the same.

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