Bovine Thinking

Permabulls, obviously, believe this to be a correction in a bull market; were they not to, they would cease to be permabulls.  I respectfully disagree, but in the interest of fairness I will show what I think to be the most probable large-scale bull count.

REMINDER:  I AM STILL MEDIUM- TO LONG-TERM BEARISH AND DO NOT THINK THIS COUNT VERY LIKELY TO BE VALID AT ALL.  IT IS NOT MY PRIMARY, NOR SECONDARY, NOR TERTIARY COUNT.

The fundamental premise of this count is that Prechter's count, and by extension every large-scale count based off Prechter's, is off by one Cycle degree impulse - that the late 1930s was not in fact Cycle I and II but rather either a Primary wave of the Cycle bull or part of the Supercycle correction (Great Depression) itself.  In such a case, the secular bear of the '70s was Cycle II rather than Cycle IV, and the secular bull of the '80s-'90s was Cycle III rather than Cycle V.

If so, it is reasonable to think of the 2002 downturn, 2007 high, and 2008-9 crash as Primary [A], [B], and [C] of Cycle IV, with us now in the early stages of Cycle V.  The May high was either Intermediate (1) of Primary [1], or Primary [1] itself.  In such a case we are either in or just finished either Intermediate (2) or Primary [2].

If the former, it is likely we are done by now; we have had 3 waves down from the 1370 high (which I think must be the operative high in a bull-market scenario), and are now probably working on a leading-diagonal Minor 1, which will look a lot like a bearish Minor 4 (or Minute [iv]), though unlike the bear counts it has no limit on how high it can thrust above the diagonal channel in its [e] wave.

If the latter, which I think is the more likely of the superbull cases, the correction from 1370 is absurdly small for a P[2] wave down.  We did stop almost perfectly at the linear 38.2% retracement, but why would the market be thinking in terms of linear scales when we're talking about the impulse wave doubling the market?  Subtract 1370÷2 from 666 and you get a negative number (-19, to be exact).  Far more likely be it that it stop at 1040 - but if it goes down to 1040, it's 5 waves down.  In fact, it's effectively Hochberg's count, except Intermediate (A) of a bull-correction P[2] rather than Intermediate (1) of a bearish P[3].  Intermediate (C) could easily get down under 900 (.618 correction at 877.96 on log scale).

On the other hand, wouldn't it be just like a large-scale wave 2 to do that - then with all the permabears not taking profits under the expectation of downside to 665 or below, skyrocket in P[3] up?

Mind you, I don't subscribe to either of these two counts; I think the 1370 May 2 high was P[B] at best, P[2] at worst.  And if the "we're in Int. (A) of P[2] down" is true, it's going to look bearish for another few months to a year at least (actually, now that I think about it, this could be a viable wave count for a hyperinflationary scenario).  The trick is that technically, there is still a viable bull count until the 2009 low breaks, and there is still a viable bull count until 1370 (and probably 1576) breaks.

For one thing, the June '09 high of 956.23 - Minor 1 of (A) of [B/2/X] in the bear count and Minor 1 of (1) (or Intermediate (1) of P[1]) in the bull count gets close to the 233-day EMA, while the 1044.50 Feb. '10 low (insignificant in these bull counts, but Minor 4 of (A) in the bear counts) touches it from the other side.  Similarly, we touched the 233-EMA from the top side this past June, whereas we are just a little bit away from touching it from the bottom right now (it's currently at 1244.68 and probably will decrease slightly tomorrow).  And again, a target in the 1240s...

For another thing, daily RSI, MACD, and CCI as well as weekly CCI have yet to make a higher low with the index at a lower low.  To make matters worse, monthly CCI still has yet to make a higher low with the index at a lower low than the March 2009 low.