Thursday, April 21, 2011

Blow-off Top Update

This is an update to the earlier post concerning the blow-off top that is in progress in the bear market rally. As indicated before, we are in the final stages of a Primary degree bear market rally that has been unfolding for the past 2 years.

Enough of Minor wave 5 has unfolded that an attempt can now be made to estimate the target for the peak of the bear market rally and when the peak could occur. Yesterday, markets went up in a massive breakaway gap up. This is significant since breakaway gaps are associated with the center of third waves. In addition, Minute wave [i] of Minor wave 5 appears to be an extended first wave as the 1-2's are closely grouped near the start of the minute degree advance, and the 3-4's are closely grouped near the end of the minute degree advance. This is significant because there is a tendency for waves 2 - 5 to have a net length of 0.618 times the length of wave 1 when wave 1 is extended.

Within Minor wave 5:

1 - Minute wave [i] has a length of 895 points, taking the DJIA from 11555 to 12450.
2 - With waves 2 - 5 having 0.618 times the length of wave 1, we expect a net length of 553 points, which gives a target of around 13005 for the peak of Minor wave 5.
3 - The size of the breakaway gap up that occurred yesterday indicates that Minute wave [iii] is in progress, and that the center of Minor wave 5 has already occurred.
4 - The peak of Minute wave [iii] should be reached around April 25, 2011 with a target of around 12800. This allows the trend channels associated with Minor wave 5 to be deduced, which gives an estimate for the peak of Minor wave 5, and therefore Primary wave [2].

Here's the chart of the DJIA, which shows the projected wave path for the rest of Minor wave 5:

Notice that Minor wave 5 stays entirely within the trend channels associated with Intermediate wave (C). We are looking at May 2011 as when the bear market rally peaks and when Primary wave [3] down starts. The larger picture is still the same, with Supercycle wave (a) (and "The Great Deflation") expected to continue until 2021. There isn't much time left before the next leg down starts. Minor wave 1 of Intermediate wave (1) of Primary wave [3] is expected to last 3 months and take the DJIA down to around 9500.

Another indication of "The Great Deflation" unfolding with increasing momentum over time is in the U.S. Dollar Index, which will be examined in the next post. It is more than a coincidence that the U.S. Dollar Index is at a critical juncture at the same time that the stock market is. There is reason to be bullish on the dollar.

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