And Then There Was Wave 5

The leg down has begun it appears. In technical wave parlance, this is wave 5, the last leg of a move down. I won't get into it all, but suffice it to say the waves move within bigger waves which are a part of bigger waves, etc. This one is part of a sizable wave structure. When this leg is done, the big rally I've been talking about is due.

How far down will we go? Hard to say. According to the rules of Elliott Waves, wave 5 only needs to exceed the low of wave 3. Wave 3 was the low set on Nov 21 which was 7449 on the Dow (approx 740 on the S&P). We're at 8000 as of yesterdays close. The estimates I'm seeing by the gurus are anywhere from 6500 -7400 on the Dow. I'm thinking this low will be mild. Time to scare a few people out, but not everyone. Yet.

So, what's new? Well the GDP number released on Friday was actually better than expected. So why no rally? Because it was quickly realized that the first release of GDP (there are 3 of them) didn't contain some crucial information and would have been much worse if it had.

What about the 825 billion dollar stimulus package? Well it's being picked apart finally and people are seeing that the bulk of the money won't be spent within the first 2 years... Huh? That's right, it will barely do any good right now. That and the fact that it's being filled up with so much pork that the reality is, there ain't much stimilus in the package, just the same as usual garbage.

But Scott, what about....???? There isn't much else to try to hang your hat on is there? 100,000 layoffs announced this week alone by companies big enough to make headlines when they announce layoffs. The December unemployment comes out Friday and I'm very afraid of that one. In the Triangle alone the rate hit 7% according to this mornings paper up from 6.1% the month before!!! That's the worst since the early 1970's!!! And it doesn't include the recent announcements by IBM and Nortel!!! If we're at 7% what to you figure the country will be at?????

I do hate that all I tend to report is bad news, but I'm trying to point out that wearing rose colored glasses right now is not the way to be looking at what is going on. I don't want to sound like a broken record of doom and gloom either. I'll be thrilled when things turn around. I want my retirement funds to grow too.

This upcoming rally is going to ease a lot of minds and make people feel much better overall, which I think is good in that we need a break. But... as I keep stating, it won't last and the next move down is going to be worse later this year. We'll continue tracking it here.

One last gloomy thought... January ended up being the worst January in history of the markets, down almost 9%. Remember how happy the talking heads on CNBC were to put 2008 behind us because 2009 was going to be so wonderful? Not a good start, huh?