I analyze macroeconomic issues from a fundamental perspective, and I analyze market behavior from a technical perspective. Original macroeconomic analysis can be found here and both macro analysis and commentary can be found on my Caps blog. If you like or appreciate my analysis, please add yourself to my Following List

Tuesday, February 8, 2011

Impulsive vs. Corrective

Is the wave since July 2010 an impulse wave, or a correction?

Us Ewavers are trying to answer that question. And the answer is: it is not clear cut at all.

I have done quite a lot study regarding impulsive waveforms and how they manifest beyond the standard textbook definitions (see Not All Five-Wave Moves Are Impulses: A Short Treatise on Elliott Wave, Another Impulse Wave Study: A Look at the 1974-1975 Low and Rally, Historical Count: 2002-2007 and Five-Wave Structures Revisited: The Identification of an Impulse Wave)

I understand the impetus for wanting to count it as an impulse. People want to count it as a 5-3-5 zigzag for P2. Or even a 1-2, 1-2 up for a new bull market. But quite frankly, I think both of those counts are bogus as I discussed here.

Here are a few thoughts regarding the degree to which the July 2010 - now wave exhibits impulsive characteristics.

The July 2010 - now wave is a better fit for an impulse than the Mar 2009 - Apr 2010 wave is. .... And that is about as strong as the argument gets (i.e. not very).

- Two is a deep retrace wave. (Ideal)
- Alternation in both form and severity between 2 and 4 (Ideal)
- Minor 3 accelerates relative to Minor 1. Not overtly so however (Acceptable)
- The internal wave structures of both Minor 3 and Minor 5 are not clearly impulsive (Non-Ideal)
- If Minor 3 were "lazy" (which it is) then Minor 5 should be very strong and cleanly impulsive. That is not occurring (Non-Ideal)
- Clear deceleration as the Minute subwaves progress (Non-Ideal)
- In the Minute subwaves, there is clear overlap in the middle of the wave right where the 3rd waves should be extending, or at the very least the most impulsive (Non-ideal)
- First wave are the strongest Minute subwaves in both Minor 3 and 5 [see relevant observations here] (Non-ideal)

So how does this stack up as an impulse wave? I would give it maybe a 4 or 5 out of 10. .... Far from a ringing endorsement.

I was reserving judgement on the impulsive vs. corrective call because I wanted to see how Minor 5 played out. If Minor 5 turned out to be a clean impulse, then some of my observations above would have turned to support for an impulsive count. But Minor 5 has turned out to be very similar in character to Minor 3, with the same mid-wave deceleration and overlapping.

In short, I don't buy the wave as an impulse.

I think the corrective option is a much more compelling fit.

Either way, I don't much care. I still do not think that whenever this wave ends that it will be the 'top' before a major downleg / crash. I think there is still more in the tank of this cyclical bull (even though there will be increased volatility in the coming years) before the secular bear market resumes.

I continue to think that this secular bear market is far more complicated than most are assuming

See more thoughts here: Macro Thoughts and Observations. Is the Bear Market Dead? Is this the Start of a new Secular Bull Market? and here: Bear Market Momentum Internals: Examination of Moving Average 'Price Stretching'
blog comments powered by Disqus