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Will The US Lead The Way To Recovery?

09/03/08 03:26:55 PM
by Koos van der Merwe

How much farther can the Standard & Poor's 500 fall?

Security:   SPX
Position:   Sell

Over the years, I have written articles on the Kondratieff wave and the Standard & Poor's 500. The K-wave is calling for an end to the present financial setback in the world by 2012. So will the US again lead the way and recover ahead of the K-wave forecast?

FIGURE 1: SPX, MONTHLY. Note the Gann lines.
Graphic provided by: AdvancedGET.
Figure 1 is a monthly chart of the S&P 500, with Gann chart lines superimposed. The chart shows the following:

a. The index fell and tested 1271.17, the 38.2% Fibonacci level before correcting upward. Should it break below this level, and it can, then its next support level is the 50% level at 1185.41.
b. The target date for testing this level is October 2008.
c. Should the 50% level be broken, the next support level is 1099.64, the 61.8% level.
d. The target date for testing this level is October 2009.
e. The chart shows a Gann date of October 2012, which coincides with the K-wave prediction.
f. The moving average convergence/divergence (MACD) is still very negative.

However, wave theory does say that a bear market is usually 38.2% the length of the bull market, which means that the bear market for the S&P 500 could end in May 2010. Whether this will be at the 1099.64 level or lower, below the 822.01 level — below the support level of wave A — is the question. However, a little-known rule of Elliott wave says:

- If wave 3 is less than wave 1, then wave 5 will be less than wave 3.
- The length of wave 1 of wave C is 273.58 (1530.58 - 1257)
- If the low of 1271.17 is the low of wave 3 of wave C, a drop of 134.71 (1405.88 - 1271.17), then wave 5 of wave C should be less than this — that is, not greater than 134.71. This means that the target of 1184.41 could well be the wave 5 of wave C target.

Unfortunately, the time factor does not agree with this count, so we can expect wave 3 of wave C to be either at the 61.8% level of 1099.64, the 72% level of 1025.51 (a level more conducive to a wave 2) or even lower.

One thing for sure is that wave 2 of wave C is a simple wave, and therefore we can expect wave 4 of wave C to be a complicated wave — which takes up time.

Forecasting the actual turning point for the bottom of the S&P 500 is very much in the air at the moment, and depends on the turning point of wave 3 of wave C currently in progress. The time for that turning point, however, could well be May 2010, which means that should the K-wave date be correct, then the US will lead the world in recovery.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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