Equities and bonds review; with Chartsedge 12/15 week cycle chart and other comments

Above are Chartsedge's weekly cycle charts for the SPX and Nasdaq.

Those who have been reading on this site (or that browse using the labels for prior posts here) know that I've tried to correlate whether the mid-December time frame identified by the Bradley model cycle chart would be a cycle low or high ... and not sure I have a satisfactory answer yet!

Generally, I believe that equities either made their intermediate low in October, or may have one more low (either a new low, or an intermediate low) soon ... in any case, expecting a significant rally in equities into early to mid-2009. In Elliott Wave terms, expecting the rally to be either a large "B" wave or a large "X" wave.

However, anyone who's read my posts for a while also knows that I'm toying with another alternative - the idea that while the S&P 500 traces out a "B" or "X" wave, the Dow Jones Industrial Average could actually make new highs. The theoretical premise for this comes from an appendix in the Elliott Wave Principle book by Frost & Prechter, the idea that the S&P 500 Elliott Wave count is five years "ahead" of the DJIA EW count. This idea would allow the DJIA, so long as it remains above the 2002/2003 lows, to play out something like this: the Oct. 2007 highs would be wave 1 of a large ending diagonal, the lows down around here would be its wave 2, and ahead of us would like waves 3, 4, and 5. These would trace out as large zigzag ABC movements. The DJIA wave 3 up could correspond to a wave A up in SPX; and DJIA waves 4 down and 5 up could correspond to SPX waves B down and C up (in the latter case, completing the X wave). However .... with the normal Fibonacci time relationships of ending diagonal triangle waves, I doubt that all this could play out in the expected time frame.

Another idea that would come closer to "fitting" the time frame expected, would be if the Oct. 2007 highs were an ending diagonal wave 3 in the DJIA, with the remaining A up, B down, and C up for its wave 5 to new highs, corresponding to an ABC=X in the S&P 500.

Well - just theories for now! Meantime, I'm treading carefully in equities. The swing trade vehicles I typically use are SSO (double-long ETF) and SDS (double-short ETF for the S&P 500; QLD (double-long ETF) and QID (double-short ETF) for the Nasdaq-based QQQQ; and of course, DDM (double-long ETF) and DXD (double-short ETF) for the Dow Jones Industrial Average.

For bonds - I currently use either TLT to be long (tracks the 20-year Treasury bonds), or TBT (inverse TLT) to be short. [Using options is tempting but with the possibility that a trend reversal still needs to finish playing out, I'm concerned about the loss of premium unless using options with much longer-term expiration dates).] I'm expecting bonds to move generally inversely to gold, although obviously the timing of bonds is not as directly correlated to gold as is the dollar (as shown in my prior post today).

(There are, of course, plenty of other ETF's for sectors within the equities markets, such as the financials, semi-conductors, bio-technology, materials, internets, and on and on. There are plenty of sites that cover these, and I know that Bob Carver usually updates most or all of these in his Market Clues daily updates as just one place to get a good list of them.)