Some Scenarios

One thing that I find very troubling is when Elliott Wave analysts persist in one-sided views of the market. Consistently viewing the market through the same lens, often times forcing analysis to conform to certain views, lessens the craft and gives it a bad name. I saw a lot of this over the weekend.

I'd rather keep things simple and flexible. I try to find the best case scenario to the upside and the worst case scenario to the downside. Yes, I do lean to the bearish side, but my job is to make money from what the market gives me. Not from what I think.

I posted this chart back on September 11th. It was wrong. But if the S&P gets below 1425.53, it may end up having the right idea.

What I'm interested in here is the form. The S&P went higher than I suspected but it did not break what is known as the "127 Rule" in Fibonacci terms. This means that lower levels may still be in play.

I also like labeling the "rally" from the June lows a "b" wave because, well, it's just such an ugly wave. Also, I realize these wave labels are probably incorrect, but who cares. Primary, cycle, intermediate, subminuette . . .?  Zzzzzzzz.

Waves are either corrective or impulsive, and that's that.  I label corrective waves with letters and impulse waves with numbers. Done.

If the market chooses to cave in, I see two targets, a 1:1 target at 1318.87 and a 1:1.618 target at 1222.68.

What if the market chooses to rally from current levels? Then the all-time highs of 1576 could get tested and even exceeded.

Lately I've only seen one Elliott Wave scenario that dared to venture into this possibility and how it could play out. Credit for this goes to Robert McHugh at Main Line Investors, Inc.

This is more of a classical chart pattern than an Elliott Wave form. Megaphone patterns suggest a market "out of control" with larger and larger swings until the market finally breaks down. The eventual target, not able to be shown on this chart, would be far below the 2009 lows, possibly testing 1995 levels or worse.

Yes, this may be an outlandish scenario, but I like this chart because it explains the angst of the last 12 years in visual terms. If the market has indeed been going through a long topping process, it would explain why social mood is so polarized. A topping process frustrates everyone, bulls and bears.

This chart would also put a new high into context, because a new high will not make me bullish; it would make me want to get short in a big way.  However, it remains on the back burner for now.