Friday, September 19, 2008

Is The Panic Over?

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Yesterday, the DJIA hit a low below 10,500 and then reversed sharply higher closing above the psychologically important 11,000 mark. Currently market futures are indicating another 200 point rise at the open for a total gain of around 800 Dow points in a few trading hours. Meanwhile the Dow Jones Transports bounced back to close above the 5,000 mark. Notably, the Transports have yet to break below the July low in the index around 4,500.

Several measures of fear in the market have recently spiked to relative historical extremes. This, mixed with the Transports failing to confirm the current downtrend in the market, suggests that a significant bottom might have been reached and a sustained rally could be underway for weeks or even months to come. Such a conclusion would be the norm for technical analysis, except this might not be a normal occasion.

According to my current Elliott Wave count, the market should still be in the midst of an intermediate third wave down following a Grand Supercycle top a year ago:

Breaking below the psychologically important 11,000 mark signified the beginning of an acute panic in global markets that should constitute entering the Grand Supercycle crash. If this count is correct, then the current market bounce should be short-lived and this panic will soon become far more pronounced and severe.

On the other hand, my Elliott Wave count might be incorrect, in which case the panic may have already run its course and a new uptrend in mass mood is beginning.

The deciding factor here might be the Dow Transports. If there is a further breakdown in stock prices and the DJTA falls below its July low at 4500, then this would confirm a major bear market is underway. If, on the other hand, the Transports break to a new all-time high above 5500, then a significant, prolonged resumption of collective mania is likely occurring.

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