Mirror mirror on the wall

Mirror mirror on the wall,
Is the stock market going to fall ?

Larry Kudlow (31st July), NRO Economics Editor - It's a new bull market, this bull should run well into next spring.

Simon Maierhofer (7th October), ETF Profit Strategy Newsletter - the biggest sucker rally since the Great Depression.

Robert Prechter (7th November), Founder of Elliott Wave Foundation - It is toppish, the bear market rally is over, stay away.

Warren Buffett (11th November), "The financial panic is behind us." - He is paying $26 billions buying Birlington Rail.

Ed Yardeni (14th Nov), President of Yardeni Research - He sees lots of 'fully invested bear' -- investors who don't believe that investing in stocks makes sense right now because of the state of the economy, but they are buying any way because they worry they might miss out on a bull run.

So, what to do now ?

My strategy - monitor for (IV) and watch out for the Big C (Robert Prichter's case). I think wave 9 has been completed. Dow will hover around the top for a few days before moving slowly towards (IV). The drop will accelerate on cutting through the first lower support line. Then, let's see whether it will stop at (IV).

Volume pattern is bearish, volume for each peak was getting lower as shown above with high volume for wave 8 sell-down.



For Nasdaq, if it fails to move higher from the current level, there is a potential head and shoulders formation. Volume pattern is a typical head and shoulders pattern with the volume being highest at left shoulder, lower on head and lowest on right shoulder. Top of wave (I) provides strong support.

S&P if unable to move higher from the current level, it may form a double tops pattern with typical volume behaviour as shown above.

What will happen if Dow breaks the upper resistance line ?

If that happened with low volume, say less than 5 billions, it can be a sucker wave.

However if it breaks with high volume of 7 to 8 or 9 billions, the most likely wave count is as shown below.


It could be the sub-wave iii of wave 7 of major (III). This is very very fantastic as wave 7 can assume the magnitude of wave 1 to 5, i.e. from march's low of 6547 to last Wednesday's height of 10291. That is 3744 points. Theoretically wave 7 can reach 13,456. (Add wave 6's low of 9712 (30th October) to 3744).

This scenario can mean only one thing, world economy is going to turn around very very fast, employment is going to improve, property value is going to move higher in US and UK just like what is happening now in Singapore, Australia and Shanghai. What to buy? Fannie Mae, Freddie Mac, BAC, Citigroups...... I say,"this scenario is unlikely."