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Sunday, March 21, 2010

Update on My P2 Projection

There are many options out there regarding the count at the Primary and Cycle Degree.

As I pointed out here Examination of the Large Technical Landscape / Possible Paths, we might be nowhere near done with this rally and be in the middle of a Cycle Degree X Wave.

But my preferred count (based on the logic from this post [The Long View] and many similar posts I have written) is that we are in P2. And there are many viable ways to count P2. For example, I think creepy has a very compelling P2 count: para acabar o dia... não podia deixar de mandar um abraço ao meu Pai pois hoje é o dia dele!!!!

But my preferred P2 count is that this thing will continue to wind up for the next several months, eventually reaching the 62% retrace of P1.

I believe we are in the middle of an Intermediate Wave up. I don’t believe this current Minor degree wave marks the end of P2. I do believe we will get a pullback next (maybe to 1100-1120 on the SPX), but it mostly likely will not be an impulse. Which means that it cannot be the start of P3 down if it is not an impulse.

Wave structures have meaningful Fibonacci relationships in both price and time. And the end of this wave has only trivial relationships with respect to P1. From my post: O Mandelbrot, O Mandelbrot

P2 might not be done. It might rally up to the 62% level (1240) and take us out to July (100% of time as P1). That is another scenario where P2 would still be a viable proportion to P1.

This (IMO) is the most likely terminus of the next big move. The 62% retrace level.

Right now the rally is tired. Both volume and breadth are decreasing on the way up. Tired rallies are a good sign that we are entering into the capitulation phase of P2. Bulls are in charge only because the bears are not putting up a fight. This is just a pathetic winding up of the tape. That said, I think we have a few more months of it after a pullback. I think P2 wants to head to the 62% retrace (~1230) in April/May/June/July. And I think it will be an even more tired winding rally than this one.

It won't even be a bear killer, the bears are already dead. This one will be a bull killer. Euphoria will peak. It is like the "Vomit Comet" (the plane NASA uses to acclimate astronauts to weightless conditions) at the height of its parabolic trajectory. At the top, the euphoria of weightlessness is exhilarating ... until your lunch starts sliding around in you. The bulls will have a similar "euphoric-yet-something's-not-quite-right" feeling around then.

Once the wall of worry is climbed and the bears offer no more resistance, only then will we have *the possibility* of crashing. And not before.

Updated charts from A P2 Alternate Projection (which has become my preferred count about a week ago)

And here is an update from Dow Theory / Elliott Wave Projection for P2:

I have a pet theory that I have been noodling around with for awhile. One of the major tenets of Dow Theory is the idea of confirmations [that the continuation of uptrends and downtrends need to be confirmed by both the Industrials and the Transports (both making higher highs or lower lows together)] and non-confirmations [when divergence between the Industrials and the Transports take place (one makes a higher high / lower low while the other does not) it often signals or foreshadows a major trend change]

I have been watching the Transports start to make much different wave patterns than the Industrials at the Intermediate Degree for months. But I was confused because I thought the January top was likely the top of Primary 2.

But as of a couple of weeks ago I abandoned that idea and I now have a projection of how P2 can work out from an Elliott Wave perspective and still fit with the non-confirmation idea from Dow Theory.

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