I don't mean right as in predicting the direction of the market over the next two months and beyond, because one of them is going to be wrong. I mean right as in drawing the correct conclusions based on what his particular field of study is telling him. We seldom see such a wide conflict in signals as what we're seeing today. When was the last time had to deal with such confusing messages? You're going to find out below. But this is a conflict that won't last long. The markets are going to resolve one way or the other and very shortly thereafter both schools of TA will quickly come back into sync with each other and line up perfectly in total agreement.
First of all, I don't really think there are all that many old timers from the old school of technical analysis who are not fairly well versed in EWT. But for the sake of discussion, we're going to pretend. What I'm going to present here is a look at both areas of practice and illustrate why the weekly charts are in such conflict at the present moment, that it would appear we are at an inflection point of epic proportions. It's decision time.
We start off with a look at a weekly chart of one market which has produced such a beautiful wave count that it's far superior to any of the American indices for this purpose... the $DAX. Keep in mind that I have never professed to be particularly good at EW counting. But for this exercise that doesn't really matter because what we're going to examine is a generality... simply to illustrate the current conflict between both schools of study. In the first chart below, we take a look at the weekly $DAX and apply a wave count that seems so clean that it's almost too good to be true. If only all waves were this textbook. Admitting that this count could be wrong, I simply ask you to just assume for a moment that it is correct and that the $DAX is currently in a cyclical correction higher within a secular bear market. Use your imagination if necessary... we're going somewhere with this:
|BEARISH - Left click on either chart to bring up the Lightbox. From there you can toggle back and forth between the two. Click here for a live, updated and much larger version of the chart above.|
At this point, I need to interject that for those who believe that a global deflationary collapse is the only logical outcome after decades of the largest degrees of credit creation in history, and that it has already begun, the labeling on this chart is the only choice. Or I should say that regardless of whether or not my own labeling is perfect, the general bearish conclusion is the only choice. There is no other option if the deflationary genie is in fact already out of the bottle. A bottle which has been kept safely under lock and key for the past 80 years or so, carefully guarded by KHRYSOS as he, among all other gods, fears this king of
all badass genies above all others. He stands ever on guard, mallet in hand, ready to slam the cork back into the the old bunghole yet again as the monster genie within awakens. Unknown to mortal man, this epic battle takes place in a hidden cave far from prying eyes, deep beneath the mountains on the island of Makronisi, GREECE.
Here's the problem... the genie prefers the chart above. KHRYSOS prefers the chart below. The chart above strongly suggests that the genie is about to explode out of his containment vessel, grab that mallet and give old KHRYSOS a taste of his own medicine. The chart below says otherwise.
|BULLISH - Left click on either chart to bring up the Lightbox. From there you can toggle back and forth between the two. Click here for a live, updated and much larger version of the chart above.|
Every fibre of my being says the chart above is labeled incorrectly. It's flat out goofy looking to begin with. And unless past history of monetary expansion can no longer be used as a guide, unless there exists some form of orc-style banking black magic that the world has never yet seen, the implications of the chart above are dead wrong. But the technical indicators say it is right. What? Yes... the momentum indicators on the weekly chart make no bones about it, the above bullish count is far more likely to be correct than a bearish outcome. Or perhaps more accurately, regardless of whether or not my own labels are perfect, the bullish implications are correct... KHRYSOS wins yet again. The genie remains in the bottle for the foreseeable future. Inflation it shall be, at least for the stock markets. And to make matters worse, BullTart's 10/80 weekly cross just went bullish, big time.
THE ONLY OTHER OPTION, one which resolves this conflict perfectly, is that the markets are currently in (or extremely near) POSITION 'A' as seen on the chart above. Back in the week of May 19th, 2008, after a stunning sustained rally that generated a gain of 17.25% in 8 short weeks, the $DAX immediately reversed lower and the route was on. The collapse that followed was fast. It was sharp. It had Lehman written all over it. And in spite of the fact that the weekly charts were exhibiting nothing but bullish signals immediately prior to the reversal, signals almost identical to those being exhibited today, no warning was given. The momentum indicators reversed just as sharply as the $DAX itself did, without ever producing any negative divergences as they usually do... divergences that appear as long as we're in a bull market. BUT, if we're currently in a bear market, there will be no such warnings in the form of negative divergences. It's agony dealing with neg. divergences in a bull market if you're trying to pick a top, whether one is short or long. Not so in a bear market because there won't be any neg. divergences. The reverse would occur... there would be pos. divergences at the bottoms. Bear market rules would apply.
CONCLUSION: It is my belief that Elliott Wave Theory is going to win this one. Many of you who know me are aware that I have occasionally said that when there is a conflict between EWT and the other basic methods of measuring a market, I will usually defer the the old school methods. This is one instance where I can see numerous reasons why the old school methods will likely have to take a back seat. I believe that although on the weekly charts above the momentum indicators and oscillators will be late (as they always are), they will produce no negative divergences whatsoever. No warning. The deflationary arguments are just too strong to deny that the bearish EW count probably have this one in the bag, as frustrating as it has been for EW practitioners as of late. On the other hand, if the orcs do indeed pull this off, we're likely headed for another bull market the likes of which the world has never seen before. If there is any saving grace for all of us it is this: the current conflict between both schools of study is going to be resolved one way or the other very soon. My best guess? Within 4 weeks if not almost immediately.