Markets: Mechanics of the Bounce

After a 767 point Dow decline yesterday, it looks like the futures are turning around and we may see a bounce today.  But the truth is, we may not be out of the woods and I will show you one THEORY as to why.

Too early to trust happy-talk stories like Futures rebound after Wall Street’s worst day of 2019.

Let’s take a look at Ralph N. Elliott’s Wave ideas.  There are several practitioners of Elliott who have expanded on this theory a good bit.  Bob Prechter’s work at is one.

But for simplicity in understanding the news and market gyrations, here’s a thumbnail sketch of how this all works.

Emotions Move Markets – in Cycles

When a major trend is in place and the market is moving in the direction of the trend, the market is said to be impulsive.  If the market is running counter to the Big trend, then the move is corrective.

Three Waves or Five?

Markets can move either direction in steps of three or five waves.  As a ballparking tool, three wave movements may be first thought of as potentially corrective.  Five waves moves are usually in the direction of the larger trend.

Approximate Relationships

  • Wave 1 is often the smallest wave.
  • Wave 5 cannot normally be smaller than wave 1
  • Wave 3 is generally the largest wave.
  • But wave 3 must be bigger than wave 1.
  • In commodities, wave 5 may be larger than 3 and this has been happening more in stocks and ETF’s too.
  • Magnitudes of wave movements tell us a great deal about future price expectations.

The Art of Wave Counting

Financial (and social as well as political) waves have definite structure.  Here’s how a two and a half waves might look and I will explain as we go.

I colored the movements so you can follow easily.  We begin with the black trace on the left:

One possibility is that we are in a Wave 1 down from the all-time-highs.  As you can see, our expectation is that the waves are “nested.”   We MAY have hit a bottom for a Wave 1 down.

Thus, with futures going positive (Dow futures +274 at writing time) there are two possibilities.

IF we are still in a Wave 1 down, then this may be a Wave 4.  If that is the case, we can rally a bit, but will then decline to finish the first leg down as 5 down waves.

After this should come a three (or five) wave correction.  Remember that in Elliott, the corrective move can be UP.

This is the purple line a, b, c move.  As it completes, it would become the Wave II bounce after a Wave I decline.

Should this be the case, Wave I and two cannot be “orphans.”  There must be a Wave III and since (see rules) the third wave is often the largest move, then we would expect that Wave 3 down will be at least as large as Wave 1 down.

More vexing, though, is that the III can complete over a wide range.  Typically, Wave III is 1.5-times larger than Wave I but it can be as much as 2.5 to even 3.5 and 4.5 times the size of Wave 1 down.

At last, we will finish, but we cannot speak with certainty about where any of this will lead.

But We CAN Model

Which is why there is a spreadsheet tool in the subscriber Master Index page that allows you to plug in the first move and estimate how far a three wave or a five wave decline would take us.

I’m going to share some numbers that you won’t find anywhere else.  Because they constitute an Aggregate Index.  This is something I developed in the wake of the 2000 Tech Wreck because brokerage firms were disingenuously telling people stocks were a good deal.  They pointed at Dow and S&P indices and many just forgot to mention the $5-7-trillion  of valuation lost in the Tech Collapse.  The Aggregate, being a wider net, is more honest in its longer-term perspectives, at least so I believe.  You’re welcome to drink whichever Kool-Aid you want, however.

Basis this way of tracking the totality of the market, 25,719.65 was the recent high for a possible fifth wave advance from the Christmas washout.  That advance MAY have ended iots run on July 24.  With the lows at the close yesterday – 24,092. 29 – one possibility is a Wave 1 down ids complete.  Given the usual ranges and relationships between wave structures, then, we can model a POSSIBLE outcome.  The green cells are some of the most common ranges to appear.

NO!  This does not says we ARE going 11 percent lower.  It’s just that it MIGHT happen.

When the market broke out of an expected trend channel last week, we did the only conservative thing possible:  We went to a cash position.

How Bad Could 2020 Be?

When the hypothetical five waves end (down around 21,240) that’s when the question is becomes whether this first major five-wave sequence down will be “all there is to the circus?”

It might now be. However!  If it is part of a larger wave structure, that larger wave count would call the whole decline to the end of Wave 5 down from the initial high only a larger Wave 1 Down.

That would mean a bounce and lower, lower still…

Which might be modeled as:

Again, not saying this WILL happen, only that a global war is in some of our timing models for five-years out and this kind of decline (America losing over half its savings – yee gads!) would certainly fill-in the term Second Depression.  Beggaring American would be a real impetus for whatever government’s sitting to get a war rolling to keep people accepting the highwayman tax burden of government.

Just like the Cold War, we need an external energy to be great or to hornswoggle us into tax servitude.  So sayeth history.

Three Positions, Not Two

A key thing to remember when markets are acting oddly?  There are two “conventional” investment modes:  “Long” – betting the market will go up.  And “short” betting it will go down.

The third position doesn’t get enough creds:  Being in cash – assuming the brokerage house doesn’t fail (like MF Global did and BTW why is Jon Corzine back in the business? No one has given us an acceptable answer to that one, yet. ) –  cash is a position that removes some risk.  Sure, you lose “opportunity” but you can avoid (or minimize) “calamity.”

All according to how you want to manage your money.

Our long-term advice to anyone who will listen simply goes like this:

You can play Life for Maximum Gains, OR you can play for Minimum Losses/Downside Potential.”

We don’t know how this will all work out in the end, but in abnormal time there’s no point losing that which you can’t make back.  A studious coward is better than a brave dead person in finance.   Unless you have political connections, but that isd cheating. The Recession Watch Is Back On: CEO Daily.

We now return to what passes as Reality but are you sure?  LOL.

Global Cooling Ahead?

Latest data on an emergent Solar Minimum is out from NOAA:

One possible reason for confusion?  NASA and NOAA show different endings to this cycle.  NASA has a happy-talk version showing a recovery sooner than NOAA.  Who’s right?

Headlines Wandering By

Trump administration freezes Venezuela government assets”  Why did it take ’em so long?

Odd tech: An artificial tongue with gold and aluminum ‘taste buds’ could aid the fight against fake alcohol.

Blockade Runners?Defying U.S. Sanctions, China and
Others Take Oil From 12 Iranian Tankers” says the NY Times.

Bye-bye TV: Cord Cutting Is Canceling Television Subscriptions at a Record Rate in 2019—and Cable Company Stocks Are Loving It.

OK, off to work on Peoplenomics...write when you get rich,

21 thoughts on “Markets: Mechanics of the Bounce”

  1. Master G –

    How would U noddle out removing the The Federal Reserves’ yoke of oppression on the “Peeps” ?
    Obviously the Fed is central to the “Deep State” and needs to be Destroyed.

    What steps, actions would U employ as President of USA to facilitate such an audacious endevour?
    Jawbone the Fed to the point of being the sole reason/blame for Economy crashing.
    Once the Economy is Crushed, thereby crushing the “Peeps” in the process – demanding an AUDIT of the Fed will be easypeasy..Got GOLD?

    Speaking of Audits, idiots and morons, try to follow along with the aforementioned’s new laws regards Tax Returns and running for office..can U see the pieces in play? Not U Mark – its not going to explained on the Lamestream..

    When we have new Audit Laws on the books for all Con- gress critters and Senators – Audits for immediate family members as well – every 2 years ..then and only then will POTUS release his returns. Bumbling clowns in congress so busy grabbing ankles and stuffing money/penises/& their own heads as well up there as well, they still dont realize what exactly is at the end of the Investigative/Audit Trail.

    Precious Metal Miners & Streamers, SPY Puts, BTC’s = Recipe for MOAR CASHISH!

    I know disgusting right ..profiting off others misery – hey is not that EXACTLY what the “DEEP STATE” does to the “Peeps”? profit off our misery.. Goose/Gander?

    • You Have hit the ‘nail on the head’…but in this case….YOU ALSO HAVE EXPOSED THE
      BOHICA………CROWD…… the former Fed chairs (deep state stars)……call out to protect the slimy filthy Federal Reserve and its over site co conspirators CON gress…..MAYBE………Trump can END THE FED,,,,,,,and save this Republic….from the ‘banksters’…….who ARE the biggest threat to this country and the world….as History as shown…if one ‘ looks behind the curtain’……

      • Actually, JFK was likely the victim of a military silent coup. Recall that WE were able to have won WW III for a brief window between when we discovered EMP with the Starfish Prime shot. Reportedly, LeMay and others were very hawkish about taking the Russians on before we got to the Cuban Missile crisis – it was EMP that drove the Ruskies to move arms forward.

        Just so we’re clear: Don’t piss off BOTH the military and the bankster class.

      • I miss those “United States Note” dollahs, issued by the TREASURY, not the Fed, myself, but have never bought into the conspiracy theory.

        Still, Qadhafi… ;-)

  2. I’m really getting as tired of the knee jerk Mark bashing as I am of the trump bashing.

    Is trump responsible for anything?!?

    Media seems to think so, if it feeds their world view… conservatives don’t think so, it just may reflect on them…

    (Trump never claimed to be conservative… tho lately he has aligned himself with them)

    Which is why I believe Mark finds it so hard to understand why they do unthinkingly defend him.

    Has trump done some things right? Sure. Wrong? Sure.

    Is his rhetoric responsible for the attitudes in this country?

    I won’t answer that…. Was Obama responsible for the attitudes in this country? I seem to remember when he was… black lives matter…. Cop killings… but he didn’t pull the trigger… it seems to me we ARE responsible for what WE put out into the universe… our leaders, more so

    • The partisan bashing seems to be pretty evenly matched at UrbanSurvival. Can you name any partisan who ever takes responsibility for anything other than their own and the opposition’s successes? It’s a genetic predisposition, I think.

  3. Ure,

    After a skirmish some months back you were indicating a bigger fight between India and Pakistan arriving around the middle of Summer.

    On schedule, we are seeing your forecast apparently coming true.

    What’s your latest thinking?

  4. The Oct 1 – Dec 24, 2018 correction lasted 3 months with the biggest 1 day drop being on 10-10-18, a mere 300 points. There were 3 bounces during the 3 month period. So there maybe an even bigger down day next week as the tariff/currency war continues, unless Trump relents like he has in the past. Is this tariff war real or a scam to manipulate markets? I feel there is something sinister brewing, but my feelings are usually wrong, so I rely on the charts which are the markets tea leaves. As Clint Eastwood said, “A man gots to know his limitations”.

  5. George

    “cash is a position that removes some risk.”

    For those who fear that cash will vaporize in future times you can take an energy rich position. If you are technically inclined then putting in infrastructure to generate your own power is the way to go. With your own electrical energy generation you can grow more food, have well water, and some of the amenities of life as we now enjoy.

    Buy the training and hardware now that will put you ahead of the hungry masses that will arise if SHTF!

  6. A pretty informative video of the solar minimum and its impact on global temperatures (spoiler, tiny percentages), with many links to the scientific papers.

    This doesn’t take into account any impact to plant growth or harvests, but focused energy received from the sun and the affect on warming or cooling. With tiny percentages changed from varying sunspot activity you wouldn’t expect much impact on plant growth.

  7. Those new voters want to see gun control, Mr. Trump:

    Stoke that Fear Mongering, 2000 Trump facebook ads about ‘Invasion’ (it worked for Hitler)

    Trump send us a tweet, not a lump of coal:

    We’ve already got a lump of coal in our lungs (McConnell refuses to help, and he’s up for election in 2020):

    Attempt at Healthcare reform costly to the Republicans in 2018 elections:

  8. Do you think that the difference between the NASA and the NOAA sunspot projections might be the same as the difference between fly-boy project guys looking for a new booster and meteorologists with a steady gig? I’m just saying that one party might know something that the other party might not want publicized before the second week of November in 2020, ’cause there might be funding issues. Hell G____, you’re a journalist (of sorts), why don’t you call both of ’em and ask if they have a position on that chart differential? Is the opportunity for the scoop of a lifetime going to outweigh the biological imperative for self-preservation? Do you feel lucky, G____? At the very least, I would like to see their competing projections extended out to say 2045, not that any of us will be around to see the end of the chart, even if the happy chart wins the contest. I would also suggest making the first call to NOAA, then you can reassess the walk on the dark side. I don’t think you have to be a climate expert to see that the NOAA chart above is not projecting sunspot nirvana through 2023. I would also like to see average mean surface temperature projections, say at five year intervals out through 2045, with the effect of the sunspots figured into the projection. What you want to bet that neither of those charts would predict spontaneous polar bear ignition? Have I motivated you to throw caution to the wind and pick up that phone? Carry-out pizza doesn’t count.

  9. As to cable cutting and the service provider making more money on the internet because of higher charges. There is someting coming called 5g. That will destroy the cable company because the speed will be higher at the same charges the cable company now charge for internet. Next three years will cause big shakeout in cable stocks.

    • 5G however is a higher-density modulation technique. And thus, average radiated power is high over a large spectrum The US/FCC has been corporate lackeys of the telecorps. Telecorps and web giants own congress, too. They simply buy politicos who endorse their vision of comms control.

      This has been evident to me since 1985 when the late Don Stoner (W6TNS, sk) filed a proposal for a National Digital Network that would allow everyone good messaging-level comms with only their social or some unique identifier for their nodes. The idea was low power radio modems (like what wireless routers are) that would self-link. A technology similar to what’s used back country to link cell phones now without cell towers for messaging.

      The reason the FCC didn’t go for the idea? Money. Since this was a virtually one-time cost idea, with no exploitable recurring revenue streams, the FCC knocked it down.

      Under the scheme, when there were no local links available for traffic, it would fall-back to rural and intercity AX.25 networks… it was a cool system to have been peripherally involved in when we did the first-ever broadcast )open air( of transmitting software via radio on both the main channel of AM and FM radio stations when I headed up sales of something called Sofcast in 1986 with a $5 radio modem. So I do have long skin in this game….

  10. The Federal Reserve was created by the Congress in 1913 (Dec. 23) in defiance of the Constitutional Principle of ‘Non-Delegation meaning all who voted in favor were in violation of their Oaths of Office committing the class 1 felony of perjury by doing so.
    It should also be noted that the amendments 16 and 17 passed within a year of the Fed were never constitutionally ratified and are null and void (these were ‘the income tax and the ‘direct election of State Senators’).
    The last paragraph (expunged from the internet) authorized the Congress to dissolve the fed and convert all interest bearing Federal Reserve Notes (debt) to non interest bearing Treasury Notes (Lincoln Greenbacks) i.e. real money. FRN’s loaned to the treasury would remain a Treasury obligation.
    The only reason to “Audit the Fed” would be to ascertain all which was stolen from the U.S. Treasury so it could be clawed-back.
    Estimates of the amount stolen range from 50 to 150 Trillion over the past 106+ years.

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