One never really knows if a wave count is actually correct. EW is not particularly good at timing , primarily because all other factors are ignored, quite deliberately, and consequently it is not uncommon that when errors are made they are only recognized years later and after the fact. Also, because there is no road map for the future but there is one for the past, EW has a built in tendency to be “conservative” to put it politely. Another problem is that a minute wriggle somewhere at the bottom can be magnified disproportionately at the top years later.

  But there are rules etc. so despite the above you still might get it right. This is , of course, the TSX on a semi-log scale which works better over long periods as equal vertical distances are perfectly proportioned to each other. Apart from EW we also look for symmetry, harmony, consistency, elegance and so on and so forth to increase the probability of being correct. Here is what we have;

   As with most charts we assume the start of the 5th wave is in 1974 ( with the Dow there is the argument that it started in 1982, that does not apply to the TSX).The relatively large “diagonal” preceding (always a 5th wave) it supports this assumption. Looking at all the wiggles there is only one that stands out as an absolute sure thing, and that is the triangle from 1986 to 1992. I started in retail during this time and I distinctly remember the existing confusion; there were as many bulls as there were bears. Triangles have to be 4th waves! As it cannot be a 4th of the entire 5 wave sequence (we know now with hindsight) it must be 4 of 3. That fits nicely because it makes 5 of 3 the “extended” wave and, this is very common, makes waves 1 and 5 equal (proportionately). Furthermore the chart can be divided in two parts exactly where the apex is. Time wise that does not work quite as well but if you view a B-wave as a failed 5th, it fits perfectly again. Superficially there does not appear to be alternation between waves 2 and 4, both look like zig-zags, but this can be remedied easily by making wave 2 irregular, which it probable is anyway. During the entire 40 or so year period the index stays (roughly) within the channel. Each time it crosses from the left bank to the right bank (4X) it immediately returns to the other side except this last time! We are now hugging the lower side and we have not yet returned to the 4th wave of previous degree. If 10000 holds the Central Bankers will win and we move on to 25000 + (like Zimbabwe), if not there is a free fall below. At least be prepared.

If you look closely (by all means enlarge the charts-click on it), you will notice that the TSX is not all that much higher now than in 2000. On a year-over-year basis, the year is not over yet, the gain is a mere 3+%. That is very disappointing as the last few years supposedly had the commodity boom and/or the China factor working on overtime for us. What happens when that stops? Moreover interest rates have never been so low for so long. Using the discounted cash-flow pricing model stocks (and everything else) should be worth 2 to 3 times what they were 10+ years ago. Real estate is, stocks are definitely not! Looking at the short-term chart a fairly clear triangle appears to exist for the past year and a bit. This is a “consolidation” pattern that is normally resolved in the same direction as it started, down in this case. The problem with that is that the big picture cannot have a triangle in this position (wave 2), therefore we may be looking at either a very protracted wave 2 (of 3), or a series of 1-2s. The best possible outcome is for another 300 points up and then down hard, not very likely. In the extremely remote event that a huge 10 year triangle is forming starting at the 2008 top, a drop to about 9000 is still plausible. In short, we remain bearish.

All though I do not know who you are, I do know that there are about 100 different people looking at this blog every day. I appreciate that. In the future I hope to be more actionable in the recommendations, perhaps by using the green, red and amber categories. The challenge there is that what is a good trade for one , may not be a good trade for the other. Success, in my opinion, is based on a combination of insight and discipline. A trade may work well when both are applied and not at all if only one is. Furthermore the “philosophy” used is fairly simple, like a cat on a tree branch we wait for the prey to pass below us, then we pounce on it, very opportunistic if you wish. If it works we are happy with 25/30%, if it does not we are out with a 10% loss. There is absolutely no need to be fully invested! A recommendation positive or negative has nothing whatsoever to do with the quality of the company or it’s management, all stocks have their seasons. The main input will continue to be Elliott Wave but not necessarily in a pure form. The sole purpose of all this is for me to be right on a call and for you to make money on it. Once I have everybody completely dependent on this blog and fully aware of the gains that can be derived from it – this is still further in the future – I am contemplating charging a modest fee to cover costs. Also I am not presently licensed to give advice to the public, so none of this blog should be misconstrued as advice. You are completely on your own.

See you in the new year.

So far at least the TSX also has not negated the anticipated pattern. Provided e does not trade above the top of c (but it may go above the line!), things are still on track. We are now 3 trading days away from year-end, maybe that is what the market is aiming for. Time will tell.

More than a year ago we contemplated the possibility of a triangle, as shown in this chart from Dec. 22 2011. Today we can update that notion again as follows;

That triangle turned out to be just the midpoint of a wave a of a triangle that has been going on all this time and appears to need another week or two to complete. The typical characteristics of a triangle are comparable to a rope pull across a moat at fraternity or other juvenile games. As either party gets closer to the water it becomes more focused and stronger, causing a to and fro between the parties until one side gets dragged through the moat. The midpoint here is about 12000 and the index coils around that level making lower highs and higher lows on decreasing volume. As these are consolidation patterns the normal thing to happen is that the stock or index continues in the same direction as it entered the pattern, in this case down. Each leg within the triangle should be sub dividable in 3 waves and the legs often relate to each other by a ratio of 0.5 to 0.618, either to the preceding leg or the one before that. Using that we get 12421 as a guesstimate for the top of e. Should C equal A, we are looking at 8940, but often C is substantially longer. This is what the big picture could look like;

Notice that the 8940 would obtain simple by regression to the lower mean. The 4th wave of previous degree is at 6000 plus. The only fly in the ointment is that C waves should always consist of 5 separate and distinct waves which the suggested pattern would not have. We will cross that bridge at a later date ( a series of 1-2s maybe?).