[DJIA] update

Here's the backlink to DJIA.  It's model remains essentially intact in that wave 4 just ended and we are working on wave 5 down right now, but the labels have changed slightly based on new data coming in.

I wanted to go into more detail from the DJIA side why I bought heavy into UVXY in the extended trade on Friday and am holding over the weekend.  While I could turn out to be wrong on this since EW is about odds and not certainties, there is method behind every seeming madness.  Nothing I do here is random or based on gut feel or water cooler talk from people who might be highly intelligent and well spoken but nonetheless know less about what really drives stock chart movement than the average rock.  Neither is it based on the "news".  It is all based on the Elliott wave principle, at least my interpretation thereof.

The current data (below) tells me that wave 1 of 5 down is certainly complete and that wave 2 of 5 is likely complete.  Yes, red 2 could turn out to be A of 2 and that is always a risk.  But the Elliotician will know this very quickly on Monday if it occurs and the confirmation that it is happening would be a move above red 2 which is not a very big loss in terms of UVXY.  But I would likely not wait for that confirmation to sell.  In fact, if we don't get a strong move down from the opening bell on Monday, perhaps even to include a gap down as shown then I will be on high alert that something is amiss because the wave model suggests that 3 of 3 should be playing out and these do not habitually play around.  They get 'er done.

So the character of the wave movement from Monday's opening will be critical to the validation of this model.  Additionally, the move that I show as cyan 1 could in fact be an A wave, cyan 2 could be B and then we get a 120 point move down to form cyan C which would also be B of the real red 2, thus making red 2 as currently marked really just A of 2.  In this case we should be looking for the real red 2 (i.e. C of red 2) to retrace to the 61.8 fib instead of the 50 fib which I have it at right now.  If I get stopped out by this movement I will be looking to re-enter at that point.  Thus you can see that there is methodology here as in science and not gut reaction to emotion which is herding.

The model below shows blue [5] eventually creating a lower low than blue [3] with support found at the strong psych number of 15k.   The entire move down from the all time high of the DJIA to 15k would be [[1]] at the same price level of blue [5] even though [[1]] is not annotated in this model.

If this happens then know in advance that we should be looking for a very strong 2k DJIA move back up to 17k during October.  I would expect the miners and the oil services to do very, very well during this time.  Those are the sectors I would concentrate on while DJIA forms wave [[2]].  Do not hold short during [[2]]!!!!  2nd waves can be very deep vees.  2nd waves are the buy the dip fail waves.  The buyers step in wondering if buy the dip is going to work again to new highs.  Initially the wave moves up quickly and there is optimism that the Ponzi pump still has more stroke left in it.   As it picks up speed, everyone jumps back in b/c of FOMO (Fear Of Missing Out) but the wave cannot make a new high.  By now the bears have regrouped and people like Bill Fleckenstein are saying "now is finally the time to go short again".  Suddenly momentum collapses and the downward reversal is on but this time the buy the dippers and the bears are all selling at once.  This is what creates the powerful 3rd wave down and UVXY will be your very great friend during this time.

The expanding wedge, which I have been warning people about for many years in these writings (even if early sometimes), has entered the collapse phase.  5 rail bumps have completed with a 5th wave throwover.  Now wave 3 of 1 has broken the top rail, and of course it would take the power of a 3rd to do this.  Subsequently, wave 4 back tested from below and was found without enough support from the emotional state of the herd to break back up through.  Note that I do not attribute any of the movement to "valuations".  Who can value anything fairly when the money supply is faith based?

One more wave lower, to a lower low than the massive 3rd wave that we see on this chart will give us 5 down which will tell us that the big collapse has most likely been scheduled by the herd, no different than social patterns than are noted in other large migratory mammals right before migration south begins.  Once this journey begins, it will likely continue mindlessly until destination is reached and that destination is down to at least DJIA 6k.  This migratory move should be 5 waves in nature.  So it cannot be assumed to be complete simply because we might have hit DJIA 6k.  It will only be done after 5 waves down have completely deflated the ridiculously overvalued stock markets.  For future whiners who want to blame someone other than themselves for being ignorant of why stocks move and how EW can be very predictive in that regard, the leveraged longs did this.  It would be ignorance in extremis to blame the shorts!

Shorts are like mushrooms.  They feed on the decomposing mass of fallen giants which have grown too tall and thus tempted the wind to blow them over or the lightening to strike them down.  Trees, after all, do not grow to reach the sky and shorts cannot bring down a healthy market!  These markets are not healthy at all because they have been artificially pumped using debt and nothing artificial can last forever.  Rising interest rates will kill the leveraged longs because rising margin debt interest payments coupled with loss in value of purchased stocks will bankrupt them and leave some of the biggest players on the planet exposed as skinny dippers when, as Buffett puts it, the tide (of cheap and easy credit) goes out.

Well folks, the wave model strongly suggests that the bay is emptying right freaking now.

The Peony flower is fine for spring; it symbolizes richness and opulence in Chinese culture.
But my rose blooms in winter; it is the mushroom flower.

In other words, false/temporary prosperity driven by absurdly/unsustainably low cost labor from Chinese coastal cities and US debt used to purchase it will cyclically change direction as the mood of the herd goes from proverbial summer to winter.