On October 22nd we posted this analysis of Major B waves, during Primary II, once the 61.8% retracement level was exceeded: http://caldaro.wordpress.com/2011/10/22/weekend-update-315/. It is at the beginning of the report.
As we continued our analysis, covering 1932-present, we reviewed all Primary waves for the entire period. What we found is quite interesting. Every rising Primary wave I or III, lasting from 5 months to 18 years in the study, was followed by a declining Primary wave II or IV of 1 year to 6 years. The shortest declining Primary wave, (July33-July34), followed the shorter rising Primary wave (Feb33-July33). Since our current Primary wave I lasted 26 months, we’re looking at a Primary wave II of at least 12 months. There’s more. No less than 80% of the time, the Primary wave bull market high was retested, (within -3.5% to +1%), at some point during the B wave portion of the declining Primary wave. This would suggest the current B wave rally could rise to within 3.5% (SPX 1323) of the SPX 1371 bull market high, or even surpass it by 1% (SPX 1385). Then the C wave of the bear market would take over, returning the market to the A wave low or lower. Most of the time, 60%, the final bear market wave structure is a flat. As a result of this study we have added two additional retracement ratios to the SPX daily chart. It appears, however, should this B wave exceed the 61.8% retracement level at SPX 1258 by 1% or 2%, the market is likely going to make a run at the bull market high. There is one caveat. Even though this study covers nearly 80 years of market data the actual Primary wave sample was small, only twelve waves. In summary, our recent 26 month (Mar09-May11) Primary wave I bull market could be followed by a Primary wave II bear market lasting 1 to 6 years. Since bear markets are ABC wave structures, and the A wave ended in five months at SPX 1075, the current B wave could rally all the way back to the bull market high before the C wave takes over, and ends this bear market. This pattern can still fit within our scenario of the bear market ending in the spring 2012. It all depends on how long this B wave lasts.
Unfortunately, thinking the SPX would follow the DOW, which it has not, I posted the B wave price levels using the SPX. But the entire analysis was done on the bellwether DOW. The 61.8% retracement level for the DOW was 11,932, and the 1%-2% range above this level was DOW 12,170. This cleared just before the October uptrend high at DOW 12,284. If we now plug in the historical Major B wave numbers for the DOW, (-3.5% to +1.0%) we have this range: DOW 12,425-13,005. The DOW entered this range on tuesday. The DOW has now reached the minimum level necessary to fit within all historical B wave rallies during a Primary wave II bear market.