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Friday, September 30, 2011
Elliott Wave Update ~ 30 September [Update 6:40PM]
[Update 6:40PM: Followers (me) of Robert Prechter of Elliott Wave International call this "Primary wave  down" - or P for short - but I do strongly consider another primary long-term count: that of the double three combination pattern of flat-zigzag-zigzag.
Let me make clear that in the long run it does not much matter as I agree completely with both Prechter's minimum target - Dow 1000 - and the time involved to get there (approx June 2016). Precter's cycle time work is amazing and if you cannot agree with his wave counts, its certainly hard to argue with his time counts.
Having prices fall back to the long-running DOW 1000 support that spanned from the 1960's to early 1980's certainly seems reasonable. How it gets there is up to debate and for EW technicians to argue over. But in the end I don't think even Prechter would care if its charted as a combination Supercycle wave or a simple expanded Supercycle flat (in which P is a part of). They both lead to the same destination - severe contraction and deflation and collapse of the credit cycle that pumped this sucker up to begin with.
[Update 4:55PM: This is for those that insist "the Dow can never go to _____" (pick a number lower). Greece's stock market kind of reminds one that markets can get cut in half and then get cut in half yet again and again.
Readers sometimes ask if I am serious about the Dow eventually falling below 1000. People can understand that the Dow can fall in terms of gold, but they are so convinced about coming hyperinflation that they consider the idea of the nominal Dow in triple digits to be simply out of touch with reality.
The primary reason I believe the Dow is going to fall that far is its Elliott wave structure, which calls for it. But I can also see a monetary reason for this event. The tremendous inflation of the past 76 years has occurred primarily by way of instruments of credit, not banknotes. Credit can implode.
The only monetary outcome that will make sense of the Elliott wave structure is for the market value of dollar-denominated credit to shrink by over 90 percent. Given the eroded state of capital goods in the U.S. and the depletion of manufacturing capacity, it is not hard to see why all these IOUs have a deteriorating basis of repayment. The future has already been fully mortgaged; it's time to pay. But there is no money to pay, only more IOUs, which cannot be paid, either. So the credit supply (after a brief respite) will continue to shrink, which means that wealth, and therefore purchasing power, will disappear along with it. In the broadest sense, this change will constitute a collapse in the "money supply."
Such a monetary background would be consistent with the Dow falling below 1000 in nominal terms. ...