Market Update Email 12-28-2008

Unfortunately, I don't have the chart saved that this email refers to, so this may be pretty confusing looking back. I wrote this at a time before I saved my charts and instead just kept annotated ones on stockcharts with links in the email. I have since started saving all my charts so I don't have this issue.

To: A few friends

Email Subject: My Elliott Wave update

Fellas, I have spent the last month racking my brain on the current elliott counts. Up until mid October, they were pretty obvious, but the Thanksgiving bottom has really messed with my (and most everyone else's) interpretations of the waves. Most conclude that Thanksgiving was the bottom of the 3rd leg down (as I have labeled on the link below). I have yet to be fully convinced. There are many reasons why this could be the bottom of wave 3 and a few reasons that make it a stretch. Regardless, at this point, I think I have to give it the benefit of doubt and concede that Thanksgiving was the bottom of the 3rd wave down. This matters greatly in our near term picture, but not as much in the longer term picture. But, no matter if the 3rd wave ended the end of October or Thanksgiving, we are currently in a 4th wave correction, with a 5th wave move down to follow after this correction completes. After the 5th wave down (most likely to new lows) we will correct this entire 1.5 year down bear move (prolly 3-8 months) with another larger bear market rally, then the next (and possbily final) crushing bear market move down (new lows again) following in late 2009. Remember, the 2000 bear market was 2.5 years long (we are barely 1 year into this one). The question right now is, when will that more recent 5th wave down start? And, that is why labeling the end of wave 3 is so important. So, near term, finish 4th wave, then 5th down, then big B correction up for half a year, then a final C leg down to new lows thru at least 2010.

Besides price, the 2nd most important aspect to the markets is time. Right now, if the 3rd wave bottom did indeed occur on Thanksgiving, that means we are currently only 1 month into this bear market rally. For the size that that the count says we are in, this corrective wave four should last at least 2 months. So far we are only one month into it. To give you some perspective, the last move of this size was the correction from July to September of 2008 that lasted almost 3 months and corrected a much smaller 1st wave move down. I would expect this 4th wave that is correcting the brutal move from September 1 to Thanksgiving (556 $SPX points or 43%) to either correct at least 38% (to $1029+) or at least be as long as the previous correction of similar size (2.5 months). That is why I favor my current count in the attached with the black B ending this last week and a final decent move up into the first few weeks of Jan (labeled blue a?, b? and black C?) possibly to $SPX $1000 with a similar look to the move off the Thanksgiving low.

I must admit though, that there still is certainly the possibility of this correction having ended the week before xmas, even if it is only 1 month old. The waves allow it at this point. Also, many of the indicators are rolling over and becoming bearish. And, one other indicator, which I have come to follow a ton, the put/call ratio, is very bearish right now. The ratio is at its lowest point of the bear market (low amount of puts outstanding compared to calls). Bull markets are kicked off with everyone being bearish, not the other way around. It seems like I have been saying it to myself a lot lately, but this week is very important in the markets. Basically the market desides this week if we will have another bull leg up or the continuation of the 5th wave that should take us to new lows (which I have also labeled as blue 1?, 2?, 3?, 4?, black 1?)

I know I have said a lot, but hopefully the chart lays it out better. I am slightly short, but primarily in cash waiting for better confirmation from price. Just look at the chart and how weak the move since Thanksgiving has been. That is not a bull market move.

One final thought, I know I remember the bottom of 2002 and at its climax everyone was saying sell sell sell. We have never reached that point yet. Everyone is still saying "stick with your strategy"; "Don't sell now"; "Historically now is the time to buy". All the magazines have "top picks for 2009". I am even getting letters from USAA, my 401k account holder, saying to stick with the market and my long term goals. That as a contrarian indicator is not what a bull market is made of. The bottom of this bear will have everyone disgusted with the stock market and sold out, just like in 2002 (but in all likelihood probably even more so).

Ill be in Reno/Tahoe new years shredding it up. Hope you all get piss drunk and have a great night!

Good Luck
CK