[S+P500] update - Avi vs EWI

The S+P500 model below is from the backlink and it is essentially the same as the one being championed by EWI.  The essence of it is that the big swoon into late August was a 3rd wave and since then we have seen a flat correction that is 0-2 days from completion.  The C wave of a flat finishes at or moderately above the A wave (which was the peak of September).  If this model is correct, the 5th of 1 down should be unfolding soon and it should mos def break the panic line below and probably very quickly in terms of move per unit time once it begins to move before Wed of next week.

Once 5 of 1 is complete, there should be a 3 wave retracement right back up to current levels as wave 2 plays out.  Then when wave 3 comes along, the bottom should drop out in a massive way leaving the markets truly in a state of shock and awe.



One potential issue with this count is that it makes wave 4 quite out-sized relative to 1 and 3.  That does not invalidate it under the EW rules by any means but it DOES mean that the prudent trader won't trust it blindly or get deep into options positions that rely on it which are difficult to get out of if something else plays out.

Keep in mind the big picture here:EWI thinks that the May 2015 peak was the B wave of a massive expanded flat whose C wave has now begun and whose target is certainly below the 2009 low.  EWI thinks the deflationary collapse of the C wave will swoon gold to $700 per oz.  I believe that gold cannot possibly go down that low without something as bad as a 1929 collapse happening.  While anything is possible, this would literally kill off a big chunk of the gold mining industry.

The primary challenger to this EWI view is Avi Gilbert at Elliottwavetrader.net.  Whereas Prechter's EWI takes an academic approach to the wave count which is backed by lots of data about debt accumulation and sentiment, Avi is a practicing trader and makes his living that way.  So this is a battle between a talented theoretical researcher and a talented real trader.  Other parallels apply.  Theoreticians and academics tend to believe their own bullshit long past the point where they should have opened their eyes to other alternatives.  Real traders have to be more paranoid, more flexible and less ego driven about their models.  At the same time, real traders can change the views often based on recent market views.  Avi is actually not nearly that volatile in his long term views but he carefully avoids making too direct of a statement whereas EWI's style is to clearly state a count and then stick with it.

If I understand it correctly, Avi thinks that the recent May 2015 peak was a massive 3rd wave and that the current market weakness is part of a 4th wave pullback.  Once this is complete he expects the 5th wave to take S+P to 2300+ into wave 5 after which he is prepared to get very bearish for at least a 38.2 fib retracement of what will then be a 5 wave move from the 2009 lows to whatever highs the 5th wave achieves.  That should be a serious bear market when it happens should Avi's model prevail.

But first we have to finish off wave 4 and Avi's model for this is below.  In short, Avi's B of 4 is EWI's C of 4 of 1.  Got it?  :  )

I must say that the size of this flat correction fits Avi's model better than EWI's IMO.  If what is in play is Avi's model then, like EWI, a massive sell off should begin by Wed of next week.  Avi's wave C should at least be the size of A and thus a target of S+P 1750-1770.  The EWI target should not be that low for 5 of 1.  In the EWI model, the bottom should be perhaps S+P 1850.

Now here is what I think will be an important indicator to watch: EWI thinks that while the markets plunge, that gold is on the way up in a significant rally, probably to around $1325-$1350 and certainly not a new low.  Avi on the other hand is looking for a new and final low in GLD and the other M+M.  Once the new low is in, he's looking for significant inflation that takes HUI (the gold bugs index) up to 400 by 2022 and eventually to 15000 over the next several decades.   Needless to say, those investing in GDX or in individual miners will do well under this model.  Of course, just getting gold over 2k would send the likes of GDXJ skyrocketing again.  I'm re-linking his MarketWatch article because I think it is a must read for any trader or investor.


We could easily see a move up to S+P 2040 under either EWI or Avi scenarios and we could also see more strength in M+M during this time.  If Avi is right it will be short lived and then it will suffer one final hard reversal.  If EWI is right then M+M should fairly hold their ground as the broader markets tank.

The common denominator is that the common markets tank as a next step and so that is where I am building a position in UVXY.  I entered the weekend having sold out of JNUG and holding a lot of cash plus my long term commodity holdings plus my market puts (which should all scream to life in Avi's C wave model).  I added slightly to UVXY on Friday's close with stops just below my buy point so if Monday adds to the bullish C of 4 (EWI) or C of B (Avi) then I'll stop out quickly and begin looking for re-entry very shortly.  It's possible that the final move to 2040 is a gap in order to trigger all such stops before reversing downward and if I see that this will be the case I'll remove my stops pre-market so that they don't get to play this game with me and then watch it closely for an AM reversal which I can add more UVXY into.   Then next wave down in S+P targets $100+ in UVXY.