| VALUE CHART - 18 MAY 2011 HOME | ||||
S&P v/s VIX and the coming breakout and the Kondratieff cycle The Kondratieff cycle has gotten too much battering because of failed calls of a Kf winter in the 90s. Does that mean it should be thrown out of the window. For the time being consider this that the Kf [Kondratieff] cycle is not a time its a cycle of events an Autumn is followed by a winter. But the Autumn can last 10 years longer. It should have ended in 1992 but it went on till 2008 so what? Consider the event, the cycle ends because money supply cannot expand as it would be inflationary. But thanks to steps towards globalization and outsourcing of jobs to cheaper resources it was possible until now. Now if Oil goes up inflation does not show up in the US first it will however show up in China and India. Who buys from China? So now inflation in China will drive up inflation in the US. The cycle was extended but the global arbitrage is over. Interest rates will rise everywhere eventually and the Kf winter will follow. Let put that in perspective First a look at the CBOE VIX since I have discussed it recently. The long term chart shows that in bull markets it stays below 16 for long periods of time and during bear markets above 16. More recently as the markets rise multiple attempts to go below 16 have so far failed and its again back above that mark. Visually its almost a head and shoulders like pattern with a failure to break the neckline which can indicate a rise in volatility or the onset of the bears.
Like the Kf cycle another topic that has gotten negative attention is Prechter bashing. But that does not mean Elliott waves dont work. I have disagreed with his wave counts at times but his long term readings are often right its the short term that you better master yourself. So while he counted the 2000-2003 bear market as an impulse I counted it as a W-X-Y-X-Z. But now if you see the chart below and stick to the classical Elliott rules from EWP, the bull market in the Dow from the 1970s was well channeled has an extended 3rd wave and interestingly as per the text book wave 5=1 despite its slower momentum. At 5+4 waves up its a qualified impulse on this quarterly chart. So I think the 5th of 5th of the post 1934 bull market ends in 2008 on the Dow and not 2000. Kf analysts are not accepting this but justifying that the bull market ended in 2000 by using the Dow/Gold ratio as an indicator. The object of Elliott's rules was to reject alternate counts by eliminating what is not possible, not by changing the rules of counting. The Dow/Gold ratio has merit for its own uses by cannot be used to change the wave counts as visible to the naked eye on this quarterly chart. So the 2008-09 fall is wave A like in many European charts and in India. Wave B around the world has seen different degrees of retracement either 38.2 in Belgium, 50% in Netherlands Spain and France, 78.6% in London and US, 61.8% in Hong Kong. Wave B in the US appears a 3 wave but has not yet confirmed completion but along with all the markets mentioned is at a key retracement level so the action here should be important in seeing if the said trend reversal is at hand. Overall it should then achieve its classic head and shoulder targets.
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