I think I see why there has been no fear (yet). Important post.

We had a pretty good market sell off that began on Sept 19th.  EWI flagged it as the peak and they provided free access to their paid subscription for a short time to commemorate the occasion.  So I'm not giving away anything that they already haven't said publicly.  But the wave count since then has not been clear and they have had to change their count a few times already.  After a great deal of thinking and cross correlation of data,  I think I know why: the peak price might have already been printed but the wave count for the markets had not really completed 5 waves up yet.

I know that EWI would argue with me on this but I have been noticing something in the charts that I have never heard any other EW practitioner talk about before and the case for this being a new and valid discovery continues to strengthen IMO.  I'm referring to my observation that wedges (rising or falling) are 3rds or Cs.  We all know that triangles are penultimate waves.  This is not listed in the rules as optional; they are supposed to always be 4ths or Bs (thank R.N. Elliott for this observation).  Well, if there is such a thing as "always" then could there be more than one type of "always"?  What if wedges are always 3rds or Cs?  While I have not come to a firm conclusion yet, the more I look, the more the data seems to confirm this.  I am now in the habit of scanning charts for triangles and wedges in order to clue me in on the count.

Now, I know that stocks or even whole indices can be out of phase with each other but if we are at the cusp of a massive market collapse, the phases of everything should be aligning somehow; everything should be entering some kind of downward phase whether it be a 1st a 3rd or a 5th wave. 

For example, there is no argument about small caps: they are in a clear bear market and it started back in July.  Here is the count for the Russell 2000 small cap index.  In determining the count, I see that there is a rising wedge and so I mark that as a 3rd.  Then I see an expanded flat into red 4 and then 5 clear waves (1-2-1-2-3-4-5-3-4-5) into red 5.  Then down into green 1, up into green 2 and then a new subwave, purple 1 and most recently purple 2.  The next wave down should be like stepping into an open elevator shaft according to this model since it will be a 3rd of 3rd.  But the key is that there was a rising wedge into red 3.  This foretold a clearly corrective set of waves down into red 4 followed by 5 clear waves into the peak of red 5.

So, the small caps are the weakest as we expect since the marginal players are hit first and worst.  No surprise there as the herd makes the flight to quality (without even knowing that there is no such thing as quality in a Ponzi scheme). 

EWI also pointed out that the NYSE composite index (below) had traced out 5 clear waves down.  But what they did not say (because it is not part of the official EW rules) is that immediately preceding these admittedly clear 5 waves down was a rising wedge into a 3rd, three crystal clear waves down into red 4 (with a triangle in the B wave position...) and then five small waves up into red 5.  Again, the rising wedge is in the 3rd wave position. 

Following those first dramatic 5 blue waves down into black 1, NYA then did an a-b-c into black 2 as shown by the count at below, right.  How did this finish (at least so far...)???  Yes, that's right, with a rising wedge.  That tells me it is either the 3rd of 5 of 2 or the C wave indicator to tell us that 2 is done.

While EWI is clear that Sept 19th was the end of a valid ending diagonal, and while we could rightfully expect the 2nd wave of a new trend to be a deep vee, they have not been providing detailed counts of the bounce and the reason (at least in my view) is because it does not look like a corrective wave to them (or to me).   In fact, it looks pretty damned motive!!!  And furthermore, if you want to see something that looks corrective, that initial big swoon has a pretty clear a-b-c vibe to it (count shown in red, below, left).  So while I do think that there are high odds that that we will not see higher prices (for reasons I will explain in a second), I do not think that the wave count actually finished on September 19th.

This accounts for a lot of things beyond EWI's inability to apply a credible corrective count to the current wave up (or even a good motive count to the first sell off from Sept 19th for that matter).  That's because the bounce has not been corrective, it was motive!  On above, right I have a 5 wave count of the bounce which does not have any leaps of faith in it.  Red 3 subdivides nicely into 5 waves (I did not number them because they are so obvious) with the 3rd of 3 being a big leap upward per unit time.  That is characteristic 3rd of 3rd action.

Over the past few days the action is looking like a wedge and so I think we traced out 3 of 5 of 5 with that (green 3).  Perhaps we get a dip and one more small thrust as shown to get a small double top but then we should see real selling begin.

So if you recall, I have mentioned several times since Sept 19th that I don't see any fear in the markets, even during the initial move down.  I was going by the EWI call that the top of the ending diagonal was the top of the markets and thus we should see some fear.  Where was the wild eyed herd?  Where was the panic?  How many times during that period did I write that we ain't seen bad but its coming?   Well, now it makes sense!  The wave count had not completed even though the max price had likely already been printed.  The ending diagonal, which is supposed to be a high quality indicator that a peak has been reached is still a wedge and thus still a 3rd.  The fact that it meets the specific qualifications of an ending diagonal (something that EWI says is rare) as opposed to just an ordinary wedge could simply foretell a short stoke 5th (failed 5th).  But the count is not complete until the 5th occurs.

Now, harken back to the GE post where I said it was a 4th wave and I feared that a 5th wave up could still happen.  I wrote this even though I have posted that as GE goes, so go the markets. 
But look what has happened since.  The chart played out as expected because R.N. Elliott was right: triangles are ALWAYs penultimate!  Note again how it was a rising wedge 3rd wave that then broke down into a text book triangle 4th...  Maybe GE will kiss the top rail of the 4th from below but then it should reverse with gusto.  GE will begin plummeting soon.

And then there was the post on AAPL that indicated it had just finished a 4th wave as well and was now working on its 5th.  But AAPL is less marginal (by a long shot) than GE and so APPL shares were able to print a higher high during the 5th and final wave.  Look at that 3rd wave gap in blue 5.  This is so textbook.  But what it also means is that AAPL was not in a bear market yet.  How can the senior index (the DJIA) be in a bear while a single stock is still in a bull?  I don't buy that!  The reason AAPL went higher was because, while prices have likely peaked for the overarching markets, the 2009 bull had not actually finished from a wave count perspective.  Technically, the bull is still alive even though practically the ending diagonal peak on Sept 19 will likely be the top index value seen.  Again, we have that telltale marker of the rising wedge sitting in the 3rd wave position.

Well it all makes sense now, doesn't it?  AAPL might have one more little move higher, perhaps $1.  That is where the size of black 5 would equal that of black 1. This does not have to happen but neither should it surprise anyone.  So, perhaps a partial day rally on Monday and then intraday reversal would be a typical way to do something like this.  In any case, we should see big selling by Tuesday folks.  Since I believe in my own bullshit, I plan to loosen up my stops a bit more than normal.  I will move them down to $3.10.   Trust but verify even applies to my own logic...