Sand Spring Advisors LLC
Hourly Dow Rhythms
April 11, 2002
by, Barclay T. Leib
I will not, at least for the moment, attempt to put a definitive Elliott wave label on the hourly chart of the DJIA above. In terms of time scale, good Elliott wave analysis starts from the top-down, not from the bottom-up. And since the top-down picture of the DJIA shows an index meandering through the 8,800-11,700 range for many months now, it is a low probability bet to make too many definitive prognostications there.
That said, the hourly chart above does show a clear impulsive proclivity (5-wave Elliott price action) on the recent downmoves, while the upmoves have clearly been non-impulsive a-b-c formations. We thus must assume that the immediate trend remains lower, with at least the possibility that the recent price behavior has been a I-II-1-2 set-up now slouching toward some Wave 3 downside ugliness. Only a move back above 10,750 at this time would make us change this interpretation.
In addition, on an hourly Fibonacci band basis, we spy a nice extrapolated target for recent weakness to reach with time near 9,950. If and when prices do gravitate to that level, we might cover a few shorts (particularly if this transpires in the month of June when we have cycle targets due), but we will watch carefully before going long.
The level of complacency in the markets is so high at the moment that we can only expect a much greater level of fear when 9,950 is reached on the next occasion. In the short-term, a continuously accomodative Fed may be able to temporarily save the day at that point (likely by mouthing platitudes on no immediate interest rate rises) and create yet another bounce period for the market into November. But will we be brave or foolish enough to play that anticipated move? Likely not.
Your see, regardless of how 2002 exactly plays itself out, it's the 2003-2004 period that we worry about more. People are currently debating whether the recent recession has a double-dip bottom in it or not, "before the economy eventually turns higher." We believe that the very premise of this statement -- that the recession has or is about to end -- will prove wrong with time. Instead, a last burst of economic strength between a June low and a November high is more likely to become a "hook" move that catches the average investor completely flat-footed for the true erosion of U.S. corporate profitability (together with serious debt deflation) that still lies in our future.
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