Weekend Update Part 2

Yesterday I presented a possible bullish resolution that more closely resembles the 1987 correction (see comparison below);

today, I present one that unfortunately more closely resembles 1928 and the aftermath of the great depression.

But these aren’t the only times the major indexes have sold off more than 30%. Below are the instances in which the Dow had drawdowns of 30% or more and a view of the recovery over the next several years to decades. The horizontal dashed line is the 30% level. Obviously, the great depression was the deepest drawdown in history. Every circumstance is unique, but you can see how devastating the great depression was on the financial markets.

Needless to say the Alphahorn Swing System remains on sell/short Signals for every index. When we have a liquidity event, people sell everything, gold and silver are no exception for the time being.

We might have seen the bottom of [A], but I suspect we’ll have a lower low this week before a [B] wave bounce. However, the bounce appears to be near at hand with the level of positive divergence that has built on the 30 minute chart.

Below are the daily and weekly SPX charts with the bearish wave count. I have depicted a pretty standard zig zag corrective wave for Cycle 2 that could retrace around 61.8% of the bull market gains. I have marked on both the daily and weekly charts the positive divergence that built between the indicators and price leading to the bottom back in 2009. We have yet to see that type of divergence on either chart. So, it is highly likely we’ll see lower lows either in the coming days – per yesterday’s bullish count, or months during the wave [C] down (or both).

Below is the more popular count for Gold. This does fit well with the liquidity / dollar crisis theme I presented yesterday. You can see if the increasingly strong dollar prediction is correct, then gold could sell off hard initially, but as the fear of hyperinflation mounts, gold will be what everyone seeks for safety. Sub 900 gold would be the buying opportunity of a lifetime.

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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