Well, the current situation is again lending itself to a market peak and in recognition of this back in mid May I began taking the monthly paid subscription to Elliott wave International's financial forecast and short term updates just to see if we are in synch. Turns out that we are very much in synch. They admitted they had made some premature calls as well. But their research (which is far from free to perform both in terms of other subscriptions and in terms of man hours for analysis and communication) is far deeper than mine, especially with things like investor sentiment. What these things show is that pretty much everyone is clustered over on the "chasing yield" side of the boat with a historically low number of holdouts on the "I'm more concerned about return of my capital than return on my capital" side of the ship.
Everyone thinks the banks are too big to fail. Everyone thinks that the federal reserve not only wants to but has the power to prop things up indefinitely. Truth is, there is no such thing as too big to fail. There is such as thing as big enough to want to protect with all of your energy but that does not guarantee success. A debt Ponzi must always collapse in the end no matter how many people are counting on it to feed themselves or to prop up their failing business. If this were not true there would never be any case of country collapse or mass starvation in the world and of course we know there have been many cases throughout history. What people want is not what they will get. They cannot get anything more than is POSSIBLE. And with 1/3 of the population sitting around hoping for government support, the remainder of the working people are finding it harder and harder to pay the bills.
And so now to the current chart. We are now very close to a large even number psychological barrier and the herd has approached it as wildebeests would approach a river that they need to consider crossing. The approach has been sideways more than up. Despite all the bullish talk, the DJIA is only up 300 points on the year. That is not what I would call a great return on investment for having to take all the risk of holding stocks at this late stage in the rally.
If this is indeed THE ending diagonal then I would not expect it to go up past 17000. If it starts doing much more than that then the shape will be wrong. In other words, if a down turn has not started by Monday or Tuesday then it's time to get skeptical about this model (well, even more skeptical than you might already be...).
As with any ending diagonal, the first confirmation is the 5th rail breakout. The second is the subsequent break down back into the channel. The 3rd and final is the break below the lower rail.
Here are zoom ins of the very last part of the above chart. A triangle has clearly formed at the top which suggests that the next wave up will be the last of this series. The height of that 5th wave should be about the same as blue 1 (same color coding is used for blue in both pictures). I'll take the fun one step further and suggest that it could end with a failed 5th that plays out as a small double top as shown lower right. Remember, these are just possible models based on experience. The point of even presenting them here is simply for the entertainment value and also so that if people see it play out this way they will be put on their guard for what is likely to follow. That 4th wave choppiness is how the market expresses nervousness. Right now the herd is looking forward and seeing river 17k and it is getting nervous for fear that monster crocks lie just under the surface waiting to strike.
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