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Monday, December 2, 2013

Sunday, 12/1/13 update

 EDIT 12/2: At the end of the post, re: short term count, Minute W3 traveled 72.75 points, not 34.75, so that would be the max for Minute W5 in that count 

Since the 2008 economic troubles the printing press at the Fed has been running to the point of overheating, and the result is a river of US $'s far in excess of what is needed to support economic growth.  One would expect that funny money to show up in consumer price inflation, but the CPI has been relatively tame.  Of course, that's assuming that the government reports are not doctored, which could well be a bad assumption.
But using that assumption, where's the cash going?  I've been researching that question, and the answer is complicated.  For one thing, the international reserve currency status of the greenback muddies the picture - it's clear that some of this gusher is coursing overseas and causing higher prices elsewhere.  That appears to be the new primary export commodity for the US : inflation.  Other parts of the answer get into an esoteric discussion about bank reserves and so on.  But part of the answer is most probably a fairly obvious one:  US equities.
So we cranked up the printing presses to solve the problems created when the housing bubble burst, and in the process are pumping up the stock market.  So is a bubble in equity prices developing?  Quite possibly the answer is yes.  If so, is there an EW count of the action that evidences a developing bubble?  There certainly is.

In this count the real difference from other bullish counts being tracked on this site is the count from the Minor W2 low in Nov 2012, which has the ES only completing Minor W3 & W4 since that time with W5 in progress.  This would mean that to complete the entire move since the Mar '09 lows there needs to be an Intermediate W4 & W5 to complete Major W3, which in turn will be followed by a Major W4 & W5 to complete Primary W III, which will be followed by a Primary W IV & W V before a significant long term top occurs.  So quite a bit of room yet to run.

On the short term, there is a way to count the pattern since the Oct 9 low that shows 5 waves complete into this last week's highs.  However, that count (in the ES at least) is a little awkward in spots.  The count in the hourly chart above is another possibility, with an extended 1st wave for the pattern followed by a much shorter 3rd wave with a wave 4 in progress and forming a flat.  This makes a certain amount of sense as the whole structure is itself a 5th wave - so selling pressure is possibly compressing the structure as a top is approached.  Two things need to occur for this count to adhere to EW rules and thus be accurate:  Minute W4 cannot drop below (and thus overlap) the Minute W1 high of 1774.50, and since Minute W1 is longer than Minute W3, then Minute W5 cannot exceed the 34.75 point distance of Minute W3.
EDIT 12/2: Minute W3 traveled 72.75 points, not 34.75, so that would be the max for Minute W5 in this count 


  1. Hi Al,
    Great stuff as always. Should 34.75 be 72.75 which is 1736.5 to 1809.25?

  2. By golly you're correct, don't know what I was thinking.