A very interesting question from a reader named Sam:

Tom,

You are predicting a relief rally followed by another, more severe, down-turn. Could you please provide your opinion as to the timeframe you expect to see this happen. Will it be sometime Q 1, 2, 3, 4 in 2009, or are you thinking, 2010?

Thanks

Sam, I am not sure to which projection of mine you are referring. Not that I do more forecasts than I have breakfasts but I do quite a few. But, regardless, the question you ask is on the minds of millions of Investors, Instos, analysts, economists, Fund Managers, politicians – you name it – throughout the world.

No one has the answer Sam, although some pretend. And that is dangerous.

The other reason why it is a great question is because I hear many predictions – but the key is always: when will this prognosis come to pass?

What I will attempt to do is consider some possible scenarios and offer some probabilities.

Let’s go straight to the charts:

Firstly, a 30-week chart:

Chart 1

 

click here to enlarge

And now to a 90-week chart:

Chart 2

 

click here to enlarge

To the uninitiated what we see here is an Elliott Wave count. Both the time and price projections are based on ‘statistical probability’ as opposed to Fibonacci time projections. I don’t want to debate the respective merits as they both are extraordinarily reliable. It just so happens I use the former.

The first chart suggests we may see a wave four tally to say 4400 Q1 2009 followed by another leg down Q2.

The 90-week chart suggests a higher wave four to about 4800 completing Q2 and a final leg down Q4.

You might say, "Tom thanks for nothing. You have pretty much covered all quarters in my question so what you have said is not worth a crumpet." But steady on, Sam, markets are not so precise as all that. As by definition if we all had perfect knowledge there would be no market as we know it. But I am not going to sit on the fence.

I am inclined to the earlier view even though most of the charts point to the longer dated projection. I have used Elliott predictions for 15 years now and know that bull market characteristics can be different to a bear market set. The reason I am favouring Q1 is that as I have played with these projections over the last year I have found targets to be reached earlier than statistically projected. And there is one simple reason for this and that is that sellers are taking every rally as an opportunity to sell.

And whilst that happens the market cannot follow through with a sustained rally.

This is really copy book stuff. Yes, for many it is almost ‘death by a thousand cuts.’

One last word, Sam. There is no rush to get back into this market. And I am doing what Noah did by sending out doves and waiting for them to come back. If they don’t come back, I stay put. When the first one comes back I will put my toe in the water.

Enjoy the ride

Tom Scollon
Chief Analyst
Trading Tutors Team