In our last update on Safehaven on 2/17/11, “The Tragedy Point of the 2007 Bear“, we called for an imminent top targeting 1270/1244. This forecast was fulfilled for all good purposes and we advised our subscribers back into stock portfolios as the markets fell in March 2011. We used some of our objective and mathematical models to showcase the February 2011 top of an intermediate degree fourth wave. Fourth waves relate to fear, and there was plenty of fear to go around in the Japan earthquake aftermath. This time around, I want to show utilizing channeling what may be transpiring on Elliott Waves. It may please be noted that Elliott Wave analysis isn’t our primary market analysis method as we essentially believe in complete objective approach to markets and actually have an adaptive neural net called Smartpredictor, that projects TIME and PRICE at 3 degrees of waves – Monthly (12 months out), Daily (30 days out) and Intra-week (5 days out). This gives us the ability to predict change-in-trend (CIT) pivots at hourly, daily and monthly levels for our trading. But it was interesting to observe the way markets may have been channeling since 3/6/09.

On 3/13/09, in our article title “Irrational Exuberance – Wiping the Froth!” we showed that the next leg of the Grand Super Cycle (GSC) degree BULL was underway. This was during the pits of the dark days of “The Great Recession”, that we produced the following chart for our members.

Originally in March 2009, I decided to label it as the completion of GSC4. But my current Elliott Wave view is torn between SC4 and GSC4. Please see the below chart for an explanation. While an academic debate at best, the end results is same in both scenarios that we are currently at a 5th wave of a degree larger than Cycle degree wave. And by corollary, we just went through economic circumstances that the last 2 generations can’t fathom.

The simplest and most eloquent Elliott Wave analysis actually is done via channel analysis. Channeling is a key tenet of this theory and all too often it gets ignored. Channeling can also be roughly used to project TIME and PRICE especially in the context of third and fifth waves.

In the current $SPX scenario as above, we have drawn an outer channel for the larger degree wave and an inner channel for the 5th wave that is currently in progress since 7/1/10. Given the crash scenario, the 3rd wave didn’t manage to be the longest and it is the 5th wave that is going to be longest. There was a lot of “weight” of the crash for 3rd wave to extend.

So, if the channeling continues and assuming the following ascent angles based on experience:

• 1. third of third of fifth = 45 degree
• 2. fifth of fifth of fifth = 60 degrees

We should see a hit on topside of inner channel in May 2010 with a reading of 1400+.

If the 5th wave doesn’t end here, we “could” see a hit on topside of outer channel in June 2010 with a reading of 1562.30+ (1.618 gains from 3/6/9 compared to wave 3 gains). Of course, three degrees of fifth waves can blow off with a “throw over” in which case we may even see 1600+.

Is it time to party like it is 1999?

Good luck and happy trading!