No Comments Written by Anthony Truong on January 22, 2008 – 6:51 pm

After an extended hiatus between market updates, and some interesting developments in US stock markets, I have come to realise that the record highs achieved on 11 October 2007 was actually THE top in both the Dow Jones and the S&P500. Although the count is not the cleanest leading up to their respective all time highs, the wave count does satisfy Elliott’s rules and so is valid. As such, the 11 October 2007 all time high was the end of wave B (see ‘Daily’ chart), and the downward acceleration for the past few months signals the beginning of the biggest bear market in modern history.

As you can see in the ‘Hourly’ chart (below), the S&P500 topped on 11 October 2007, and proceeded to fall in a very choppy fashion into the low of 26 November 2007; the pattern formed is called a ‘Leading Diagonal Triangle’. This diagonal triangle is leading because it appears at the beginning of a new trend; oftentimes, leading diagonal triangles mark the starting point of large bear markets, as it most likely the case here.

Following the diagonal triangle, stocks rallied in a 3-wave move (note: corrective) into the highs of mid-December 2007, before falling in earnest in what appears to be a subdividing wave 3 (see ‘Daily’ chart).

The 5-min Chart above shows the smaller subdivisions within this drop; it appears as though wave 3 is complete and has found some support from which wave 4 will develop.

In the short term, I anticipate some strength as the markets work off the current oversold condition, but intermediate to long term, I must emphasise that the bear market has only just begun.