Monday, October 4, 2010

Elliott Wave Update - October 4th

The short trend reversal is now confirmed as long as we don't get any more closes over 1140. The intermediate trend (multi-week trend) was confirmed bearish on Friday so the change of trend in the short term (multi-day) is a good sign for shorts like myself. What remains to be seen is what percentage of the rally from 1040 will this new Minute wave retrace to. If we get a retrace without much impulse that holds in the 1090's area, my guess is that we'll see a rally to 1250.

I am personally bearish on the economy as there is nothing fundamental that will increase profits for companies, which is the core driver of stock prices. However, if we get clear inflationary signals or policies then we might get a big market rally. My reasoning is that the market will keep pace with inflation, so even if we got a "real" earnings growth of say 2-3% in the S&P 500 but a 6-7% inflation then we would get a nominal increase of 9-10% in the index. It's really just a matter of time before this happens, question is really when. The fact that commodities, gold or most of anything priced at the international level have been going up does not really mean that these things have "gone up". What's really happening is that the US dollar is losing purchasing power and thus these perceived gains in prices are really a reflection of the devaluation of the US Dollar. Most Americans have not seen hyper inflation before so purchasing power is mostly a concept. But anyone who has been to Brazil, Russia or even Mexico will understand what I am talking about. Case in point, Zimbabwe in 2007. The country's economy essentially collapsed yet in nominal terms was the best performing stock market in 2007.. and this is the very reason the DOW will never go to 400 and why Elliott Wave International bearish count will never come to fruition.

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