The following information will be appreciated most by Elliotticians but those of you who know nothing about Elliott should not ignore this information. From time to time, we have to deal with "rogue" patterns like the expanded flat correction. Don't get the wrong idea, it's not really a rogue wave because it is in the catalogue of regular Elliott wave patterns. It's just that when one develops, it confirms about 30% of the time (according to a couple of well known Elliotticians). Of course, the only way to confirm this pattern is in the rear view mirror. I'm sure you can appreciate the fact that this fact doesn't do any of us much good right about now.
Nevertheless, for those of you who are not trained at Elliott, here is what an expanded flat is. A bearish E.F is where you have a bull market which tops (like the January 2000 high in the Dow). You have an A wave down (like the bear market in the Dow from 2000-2002). Then you have a TREMENDOUS rally which takes out the OLD HIGH. It's really a B wave (MAYBE LIKE THE WAVE WE'VE HAD IN THE DOW FROM THE 02 LOW UNTIL NOW). Those of you who don't know Elliott, the B wave makes a new price high even though it is a correction and NOT part of the 5 wave impulse of the main trend (1982-2000). Old school Elliotticians would still call January 2000 the "orthodox top." The B wave in normal expanded flats usually either measures 1.27 or 1.38 times the price length of the A wave down. Thus my bullish rant two weeks ago. The Dow bear market was 4553 points. As I already told you a 1.27 extension of the bear market would have been 5782 points and taken us to 12979. As you know, we came awfully close. The print high I have on my own Prophet charts is 12795.85. We came within 184 points of a 1.27 extension of the bear market.
Now here's where this gets interesting. It's fairly obvious we are not going back to the high tomorrow. Part of my analysis in covering these markets is to set new standards and enhancements in the study of Elliott and Fibonacci. If we didn't have a 1.27 extension, what did we have? Well, let's see. Punching a few numbers, when we take 4553 points and do a 1.23 extension (A LUCAS RATIO EXTENSION) we come up with 5600 points. When we take the new all time high in the Dow of 12795 and subtract the bear market low of 7197 we come up with (DRUMROLL>>>>>>>>>>>) 5598 points!
So I may be excused for following common Fibonacci extension points and retracements just a couple of weeks ago. Common relationships are the higher probability. As you know, the markets don't roll things out for us neatly nor do they ring a bell at the top. Finally, I know you realize we are dealing with the tooth fairy. It seems that the Dow has given us a different technical relationships other than what most Fibonacci analysts expected. Instead of a common Fibonacci extension, IT HAS GIVEN US A LUCAS RATIO EXTENSION!
None of us has any idea if the rally of the past 5 years is a B wave to new all time highs that is about to be totally retraced. In terms of extension ratios, the 1.23 is compelling. IF we didn't understand Lucas relationships in this column, we'd ignore it off as another piece of evidence that these common FBI relationships are not reliable and therefore should be ignored. But that's not the case. Its important. That's why I've written the articles as well as the book.
So while we have fallen short of larger time and price targets (we also came really close to the 38% retracement in the NASDAQ) we do have a couple of compelling pieces of technical evidence at the Dow high. The other of course is we topped on the 1597th calendar off the old bear market bottom. But since we topped in the 229th trading week off the October 2002 low, it remains to be seen if the 233-236 weekly window is going to produce a low. If it does NOT, we may be falling for many, many weeks. The next major time window is at 250 weeks and then at 261 weeks. That's in the fall.
About that expanded flat, if we are dealing with one, it would be a C wave for the Dow which implies a new bear market. Unfortunately, we won't know that until the fullness of time.
-Fibonacci Forecaster by Jeff Greenblatt