It’s time for an important update so here we go.

In the August report, the view was that a fourth wave contracting triangle was being manufactured in the DJIA. Here is the Elliott Wave Theory projection presented at that time:

Here is what happened:

So far so good. (What other methodology could have so accurately projected the actual outcome?)
The fourth wave contracting triangle assessment in August was possible because of what preceded the wave pattern to that point. Let’s do a quick recap of the August ’07 report and then move forward.

We are looking for a fifth wave to complete the pattern that began in 2002. Because Elliott Wave Theory is fractal in nature, a completed five wave advance from 2002 has the strong potential of also finishing the pattern from 1974 and possibly from 1932! We had determined that a fourth wave contracting triangle (another one) had ended in October 2005. That W.(4) labeling is shown on the bottom left hand side of the above chart. All that is needed from that point is five waves to end the swing(s). Well, we just ended green W.4 in that final five wave sequence leaving us with only one more impulsive rally to go, green W.5. We are getting very close to the real fireworks!

So what’s next?

The market rarely makes it easy and we do have to discuss a few options.
Option 1 has been discussed and is shown above with green W.4 having just ended. All that is required is five waves from here and it’s over.

Option 2 follows with another weekly chart and another valid Elliott interpretation.

Another variety of triangle is called a diagonal triangle and they show up as fifth waves. The formation is a five wave pattern, however, it has a few unique distinctions that set it apart from a normal five wave advance – namely, the subwaves divide into ‘threes’ and not ‘fives’(see blue w.1 above labeled alphabetically); the fourth wave overlaps wave one; and the pattern is bound by converging trend lines. Notice that in this interpretation green W.4 is acceptably moved to the left, thus allowing for the first and second waves of the triangle to have been formed already. Option 2 displays how the Dow could be developing the final peak via a diagonal triangle.

Option 3 is yet another variation using the weekly close chart.
This chart shows a completed ‘flat’ correction for green W.4 (a ‘flat’ correction is another Elliott nomenclature comprised of three waves where W.c ends slightly below W.a). See the chart below.

In this view the first and second waves of green W.5 are already done!

No matter which bar chart pattern above is correct, the line chart will also end with a completed green W.5. That is a critical piece of information because the line chart has been the clearest read to date.

Wave Pattern Characteristics
If Option 1 is correct, then we can expect a very strong rally in the coming weeks. Elliott claimed that following a W.4 corrective triangle, prices would swiftly “thrust” to new highs in a final five wave run. Alternately in Option 2, a diagonal triangle subdivides into three wave swings which are more choppy and less explosive than a “thrust.” The nature of the rise over the next few weeks should provide an early clue as to the preferred wave form with which to anticipate the final top.

Price Targets
Option 1: the most common relationship when the third wave extends, as it did here, is that w.5 = w.1. For Option 1, green W.5 = green W.1 at 14,606,
Option 2: another characteristic of diagonal triangles is that w.1 is longer than w.3 which is longer than w.5. In other words, the up swings (w.1, w.3, w.5) get shorter in the developing sequence. We know that blue w.1 traveled 1680 points. Adding that total to the end of blue w.2 yields 14,404, or the maximum allowable distance blue w.3 can travel. A move above that level in the current swing voids the diagonal triangle interpretation. If blue w.3 does rally to a level slightly below 14,404 and then turns down in blue w.4, we must wait for blue w.4 to finish before projecting the final length of blue w.5 (and the end of the entire pattern). A projection that can be determined right now utilizes, again, the relationship of green W.5 to green W.1. Equality is 14,031. Since we have already surpassed that level, the next most common relationship is where fifth waves = 162% of first waves. In that case, green W.5 = 162% of green W.1 at 14,967.

Time Targets
(Time calculations applied to a working wave count are similarly derived as price calculations.)
Option 1: Starting with 100% equality in time, green W.5 = green W.1 during the week ending July 19, 2008. Since green W.5 will be a swift thrust from a corrective triangle, it will probably be less than a 100% time relationship to green W.1. Lesser Fibonacci percentages yield June 7 (79%), May 3 (62%), or March 8 (38%).

Option 2: green W.5 = green W.1 during the week ending March 15. The 79% relationship projects February 2. The 62% relationship points to December 29, 2007, but that isn’t enough time to finish the pattern and must be discarded. Another time relationship in triangles is between the first two waves and the last three waves. In this case, blue w.1-w.2 = blue w.3-w.5 during the week of March 15; 79% points to the week ending February 23; and 62% equates to the week ending February 2.

Price Summary
14606 & 14967 are identified above. Additional Fibonacci projections follow:
W.V = 127% W.I% at 14,493 (W.I ran from December 1974 to September 1976)
W.V = 138% W.I% at 15,125
W.V = 150% W.I% at 15,803
W.V = 162% W.I% at 16,482
W.(5) equals 127% W.(1)-(3) at 14,679
W.(5) equals 138% W.(1)-(3) at 15,071
W.(5) equals 150% W.(1)-(3) at 15,491
W.(5) equals 162% W.(1)-(3) at 15,910
Widest part (extended lines) of Option 1 triangle added to its endpoint = 15,442
Widest part of Option 1 triangle added to its endpoint = 14,773

Out of all these projections, two zones standout:
14,606 – 14,679 and 14,967 – 15,125
Of course as the pattern develops, the internal subdivisions of green W.5 will tighten the final price zone. If Option 2 is the final outcome, so will its upper trend line.

Time Summary
The weeks ending February 2, 2008 and March 15, 2008 are determined by more than one timing technique and thus are the strongest candidates for the final peak.

Caveat
The given interpretations require the DJIA to continue moving higher now. An unexpected decline below the November 26 bottom (12,724.09) would void the near term bullish outlook and define the final top as already being in place!

Conclusion
The market is poised to soon finish an advance that will have lasted anywhere from 5, 34, or 75 years. The final fifth wave will probably terminate before the first quarter of 2008 ends. As the wave progression unfolds, both price and time relationships will be tightened. But the main criterion is always the pattern. We must see the wave form fulfill the requirement of finalizing this last sequence, regardless of price or time, before the top will be cemented in place. Once that happens, there will be an amazing, relentless decline which could very well start with a crash. We’ll know soon!

Rob A. is a private stock index option and futures trader from S. Florida. At tradingfives we consider Rob to be one of the best Elliott Waves guys on the planet.

How would you like to learn a winning trading system for stocks in just 90 seconds?

Sound impossible doesn’t it?

But, what if it is possible? Imagine how you could benefit from this knowledge. This is the same knowledge and understanding that took me years to learn and figure out, trading in the pits of Chicago.

So how can years of learning how to trade the right way, be boiled down, and presented in just 90 seconds?

Well the simple answer comes in the form of two geometric triangles. I call them my “Trade Triangles” and that’s exactly what they do, they spot, and alert you to potentially winning trades.

It is all in my new video, “90 Second Stocks”

Watch it here. No registration required.

I could go on and tell you a lot more about our “Trade Triangle”
technology, but I thought I would let a few of our users tell our story for us.

After you read their stories you can try a 30 day risk free trial to our service.

It comes with my personal guarantee:

OK, as promised here are just a few “Trade Triangle” testimonials
______________________

After learning your “Trade Triangle” system, my profits exploded – one little change helped me to increase my profits by as much as 100%. That’s a huge improvement for me in only 8 short days!

Joseph Innamorato
New Haven, Connecticut
______________________

MarketClub’s “Trade Triangles” are valuable even to an old pro like me. They are a tremendous aid to keeping profits and minimizing losses. I urge all traders and would-be traders to take advantage of this wonderful technology.

Manning Stoller
Bedford, MA
______________________

Just had to let you know how great “MarketClub” and the trade triangles are. I haven’t been a member long but you saved me from near disaster more than once. Your signals told me where to get out (when I normally would have just held on).

As a matter of fact, your (Trade Triangles) helped me more than double part of my portfolio. I’m still working on the other part, but feel confident as the signals are very easy to follow. It’s quick and easy to learn. Well worth the cost – even if you just use it to place stops.

Thanks!
Sandi in Ohio
______________________

I appreciate the wonderful tools you have with MarketClub! Ever since applying your principles my profits have increased 200% within 3 weeks!

Thanks for your excellent support and service that you provide.

Thanks Again!!
George
______________________

Dear MarketClub,
Your system is fabulous! The “Trade Triangles” enhance a buy choice and each month the cost of your subscription is covered by the profits I make by following your system daily. I use MarketClub for both the futures market and the stock market – with equal success in making profits.

Thank you for helping me in my retirement years. I could not do it without you.

Teresa Robinson
Michigan
______________________

After subscribing to your MarketClub/Trade Triangle service, I immediately saw positive results. Of the 4 information services that I utilize, MarketClub has delivered the most accurate and reliable information, the result of which has been a 52% increase in revenue-generating trades.

A.J. Perillo
Las Vegas, Nevada
______________________

MarketClub is amazing! It only took a few minutes to learn and start profiting from it. Other similar subscription products don’t offer half as much as MarketClub and have worked out half was well.

Thank you for a quality product.

Regards,
William Mok
Hong Kong/China

There are even more testimonials on the MarketClub website

With MarketClub and our “Trade Triangle” technology on your side you will never miss another major move in stocks, futures, precious metals or foreign exchange.

Thanks for taking the time to read this email. I hope you benefit from watching “90 Second Stocks” and I look forward to welcoming you to the MarketClub family.

Adam Hewison
President, INO.com.parent of MarketClub.com

Back in Wykoff and Livermore days you did not need a stock brokerage account to trade stocks. In fact you never had to buy or own a single share of stock – ever.

Some of the major Wall Street firms started out as bucket shops. When you hear the term bucket shop today it means a stock broker that sells pump and dump stocks in a high pressure operation. The term meant something different in the old days. If you walked into a bucket shop in the early 1900s it would look like a mini stock exchange. Blackboards with stock symbols and prices covered the walls, and clerks, usually teenagers looking to get into the business, scurried around reading a clankity-clank ticker tape and updating the prices on the boards.

You could walk into a bucket shop off the street and after making a deposit or otherwise establishing your bona fides you could spend the next several minutes or hours betting on the price movement of Union Pacific, and dozens of other NYSE stocks. You could buy or sell or sell short anytime you wanted. At the end of the day you collected your money or kissed it goodbye and received a hearty invitation from the shop owner to come back tomorrow, as the case may be.

You never saw a stock certificate and the shop owner didn’t either. You were trading on the price movement only.

Bucket shops were eventually outlawed. I suspect more from the growing political influence of the Wall Street firms than anything else. You can still find them in England where the practice is called spread-betting.

Livermore was a trend follower. He only took positions in the direction of the trend, and he added new positions whenever his system told him to do so.”We know that prices move up and down. They always have and they always will. My theory is that behind these major movements is an irresistible force. That is all one needs to know…Just recognize that the movement is there and take advantage of it by steering your speculative ship along with the tide.”

The basic rule to the Livermore System, therefore, is to take positions only in the direction of the trend. In or out. Long or short. No matter how many grams of silicon you want to throw at a modern, computer-based trading system it all comes down to those two choices. Livermore did not obligate himself to trade every day nor did he try to catch every countertrend jiggle. What did he do?

A friend of mine once said: “Joe and I used to trade in ten share lots together. He was an ordinary trader, just like me. We used to hang over the same ticker.” The speaker was, at the time he made the remark, still trading in ten-share lots, while I happened to know that Joe’s bank balance — his active working capital — amounted to $100,000, and that this represented but a part of the fortune built on his ability to understand the tapes’ secrets and interpret the language of the tape. Why was one of these men able to generate a fortune, while the other never acquired more than a few thousand dollars day trading?

Their chances were equal at the start of their pursuit as far as capital and opportunity. The profits were there, waiting to be won by either or both. The answer seems to be in the peculiar qualifications of the mind, highly potent in the successful trader, but not possessed by the other. There is, of course, an element of luck in every case, but pure luck could not be so sustained in Manning’s case as to carry him through day trading operations covering a term of years. Richard D. Wykoff – Day Trader’s Bible

We have the Wykoff book online.

A video learning platform featuring trading techniques from presenters whose names you will recognize as the industry heavyweights.

Video is a great way to learn and be exposed to new ideas.

Other than we are somewhat partial to the number “9″ there is no particular reason that Beethoven should appear on a trading blog – unless maybe the mere act of reaching out and touching timeless genius can help to instill in ourselves even a little bit of the order and insight that only a genius can enjoy.

Perhaps the most enduring musical composition ever written – or ever to be written?

You can download Beethoven’s Ninth Symphony here. Put it on your iPod or your smartphone.

The golden mean, geometrically incorporated in the pentagram, the symbol of life, health and love was the sign of bonding between the disciples of Pythagoras. Fibonacci ratios and numbers trace directly back to Pythagoras. One of his female students wrote a treatise on the golden ratio, the first known.

The square of nine is unique and not like any other method of technical analysis or stock trading tool you’ve ever seen before. This is a contemporary chart of the S&P 500. We can say from the extra information on this chart that the magnitude of the March 14 to July 13 swing squared with the time in the swing that ended at the August 16 low. To understand that and appreciate how this could change your swing trading strategy you have to make the same intellectual journey that Gann did, and that journey started 2500 years ago in ancient Greece.

To understand Gann you have to understand Pythagoras and the tremendous influence he had on how the ancients and the moderns understand the nature of things. Pythagoras believed that everything in the universe was related to mathematics, and that numbers were the ultimate reality. Through mathematics everything, including human behavior, could be measured in rhythmic patterns or cycles and predicted. You can understand the allure of Pythagoras to somebody embarking on a 10 year quest to understand everything known and unknown about trading stocks and commodities. Pythagoras also believed in something called the harmony of the spheres. He believed that the planets and stars moved according to mathematical equations which correspond to musical notes, and thus produce a symphony that he called the harmony of the spheres. Many believe that Gann’s work has an astrological basis but I think you will find that even that conviction is really based on mathematics. I believe the more original Gann you read, the more Pythagoras you will hear. In addition, much of what comes to us as Gann’s writing is intentionally obscure and sometimes even misleading. Here too Gann follows an ancient tradition that knowledge must be earned and not come too easily lest it not be appreciated.

People of the ancient world were well-traveled and Pythagoras drew heavily from ancient Egyptian, Hebrew, and Indian tradition as much as he contributed to them. Gann, in turn, draws from Biblical numerology which places special importance on certain numbers. One of the derivatives off Pythagoras’ work is what we know today as sacred geometry. The underlying belief of the sacred geometry is that geometry and mathematical ratios, harmonics, and proportionality are the basis of music, light, cosmology and all other observable features of the universe. To understand the square of nine, and I think to understand all of Gann’s other work, you have to appreciate his appreciation of the ancient philosophy of harmony through numbers.

Gann is reputed to have had a model of the Great Pyramid of Giza on his desktop and if you go through this visualization I think you may understand why. This is a two dimensional version of the Square of Nine, what you know as a Gann Wheel. It’s a rectangle with four corners. If you could put your fingers on the number one in the center, pinch the number one and pull the screen out toward you, you would eventually end up with this shape, a pyramid, with the number one, unity, at the top and all the other numbers winding around the pyramid in increasing dimension. With this visualization, you can easily understand how a number on the South face of the pyramid would have a very definite spatial relationship with a number on the North face, and in the same way a number on the West face would have a very definite spatial relationship with a number on the East face, and so on. So we believe, that the key concept of the Square of Nine is the spatial relationship between the numbers on the square even though we only can see them in a two-dimensional form.

And, we’re back to the chart of the S&P 500. This has been a quick journey through time and hopefully you’ve seen how an ancient mathematician, an ancient mystic mathematician who believed that everything in nature could be predicted and measured in rhythmic patterns and cycles led to a more modern mystic mathematician who devised this thing called the Square of Nine so that by looking at a price chart we can see how the past relates to the present and the future.

The square of nine is intriguing. It’s a mysterious adventure in perception if nothing else – and it is not for everybody.

Watch the Square of Nine Concepts Video

Dear Steve (Hochberg) and Pete (Kendall),

I have been a subscriber to your service for quite some time, and have always found it informative. Your analysis of the markets, interest rate movements, etc. are much appreciated. However, I have to tell you that your December 2007 issue was absolutely the best you have written in a long time.

The December issue of the “pictures of a bear market” and your work on the dollar sentiment clarified emphatically what I have been telling my clients for some time. But the best, in my opinion, was the little chart and associated write up on the bond market. Showing how 1.) the credit spread in High Yield U.S. Corp bonds over Investment Grade U.S. Corporate bonds is greater now than in 2005, at the height of the housing mania, and 2.) how ineffective the Fed’s much ballyhooed rate cuts are was just inspiring. Now that people have seen what a little taste of the credit crunch is like (late summer ’07 to now), and knowing that “somebody” knew something in 2005 to keep the spread high to compensate them for risk, this chart is just awesome in its implications.

No, the market will not move down in a straight line, but smart investors better “batten down the hatches” as there are rough seas ahead … much worse than we’ve seen so far.

I am a market technician and know how much work it takes to produce your service. I also appreciate how you are willing to say what you believe is going to happen to give your readers advance warnings unlike the worthless talking heads on TV. You are so correct … having the media declare a “10% correction” recently was useless to anybody who believed them. Where was the media in October at Dow 14,200? They were feeding at the bullish hog trough as much as possible. That pretty much displays my disgust for these people who will forever put “lipstick on this pig” as the classic commercial went.

Anyway, keep up the fine work.

Richard L., CFP, CPA
Dayton, Ohio
Los Angeles, Ca

A powerful, year-ending Financial Forecast puts the markets you follow into focus.