On Tuesday, October 7, the Dow was down more than 500 points, and the S&P 500 Index dropped below 1,000 for the first time since 2003. Mid-afternoon the day before, the Dow spiked down 800 points, and it looked as if it had fallen off the cliff on its way to the largest down day in terms of points. That didn't happen, but something else is beginning to happen – people are reaching the "point of recognition" when they can see that the stock market is moving strongly in one direction.
Bob Prechter describes this point of recognition as that point when people who don't even know Elliott wave analysis begin to understand the awesome capabilities of a third-of-a-third wave.
Let me explain. Elliott waves repeat themselves in patterns of five waves in one direction, followed by three waves in the opposite direction, followed by another five waves and three waves, etc., etc. What you see below is a schematic picture of a bear market, where the point of recognition hits in the middle of a third wave that is part of a third wave.
Think about the Dow's behavior over the past week: It had its largest point drop on September 29. It moved up in anticipation of the signing of the $700-billion bailout bill on October 3, and then dropped 800 points in intraday trading today, October 6. That's a real-life bear market that is tracing out a third-of-a-third wave decline.
Our analysts predicted the near certainty of a large drop in the Dow, based on its Elliott wave pattern that was calling for a third wave down. Here's how our chief analyst, Steve Hochberg, described it in his Short Term Update on September 17, 2008:
Excerpted from Short Term Update, 9/17/08
"The stock market remains in a third wave down at several degrees of trend. Third waves are most often the strongest waves in an impulse sequence. With both presidential candidates espousing 'change' as one of their main campaign themes, once again it’s the financial markets that are leading the way. We cannot stress strongly enough how truly historic the current shift is from extreme optimism to a movement toward extreme pessimism and the attendant 'change' that it is causing.
"Imagine, the U.S. government (i.e., taxpayers) take an equity stake in a private global insurance company (AIG), the single oldest money market fund breaks the sacred $1-per-share threshold (Reserve Money Fund), three-month US T-bills fall to their lowest level since World War II, Russia suspends trading on its stock exchange 'indefinitely,' a former Secretary of the US Treasury says the market’s almost 'frozen,' the largest bond fund manager in the world has one of his biggest up days ever (Sept. 8) and then just six days later (Sept. 16) has one of his biggest down days (Pimco), Gold soars the most in nearly 10 years in a matter of days, while Platinum falls 50% in a matter of weeks. All the while the U.S. Senate majority leader says 'no one knows what to do.' This latter statement may be the most honest one from a politician that we’ve ever seen.
"In a bull market, the psychology attending these events would represent a tremendous buying opportunity. In a bear market, they represent the recognition phase of a third wave down. As we’ve been discussing, this third wave is far from complete. . . . The intensity of the selling keeps ratcheting higher, which suggests that the point of recognition, the 'third of the third' wave is nearing."
Our chief analyst went on to list the price levels that the Dow would reach in this downward phase of the wave pattern. This information is critical in times like these, because you don't want to be among the last to arrive at the "point of recognition." Right now, there are still two more waves to play out before the larger trend is completed. So there's still time to maneuver. Wouldn't you like to get the kind of information that only Elliott wave analysis can supply to keep you from getting that panicky feeling that hundreds of thousands of people are getting right now?