Taking Elliott Wave for a stroll off the beaten path and into a RUT - or out of a rut? Alternative possibilities that could matter now

This post is to suggest a different way of looking at the Elliott Wave picture now - not trying to impose this as "the right way" but a possible alternative to be aware of now, for its very bearish possibilities. And I'll borrow from the Russell 2000 (RUT) for this. Looking at more than one index often helps to interpret what's happening with the equities indices in general. Yesterday I posted up a number of charts with the point that one can too often read into them what one wants to see, based on preexisting ideas about whether the market "should" go up or down (my little joke about the Rohrschach tests!). If you really look at them, you can see clues in the indicators that suggest answers; and you can also bring Elliott Wave or other analytic methods to bear. Today I'd like to take a quick look at Elliott Wave by cross-comparing the Russell 2000 (RUT) with the S&P 500 (SPX), notably for the time frame of August 2008. The SPX did not make a higher high in that month but the RUT did. Here's another fact: The RUT has retraced slightly over 50% of the way back to its August 2008 swing high - as did the SPX when it reached the 990 level. (Yes, the 1014/1018 level is still important from a Fibonacci retrace perspective - but I just want to make a point here.)

(PS - there's obviously chart resistance for the RUT at 647-650, by the way, based on the triple bottom lows during 2008.)

The conventional way that Elliott Wave analysts perceive the SPX is that it completed either a wave 2 or (intermediate) "b" wave at its May 2008 swing high (that significant test of the 1440 level and Bollinger Band midline). And the August 2008 swing high is little regarded, normally interpreted as an internal second wave of the bigger move down into the November lows. But ... what if that August 2008 swing high was more significant? What if, coincident with the RUT's timing of a significant swing high in August 2008, that was either a wave 2 or (intermediate) "b" wave? That might leave open the possibility that the current rally high is either a wave 4 or larger-scale (primary) B wave. Why would that be important now? Because as either a wave 4 or larger-scale (primary) B wave, it can have finished its Fibonacci retrace work after having achieved 50% of the way back to the August 2008 swing high level.

I know it looks unusual for the SPX, but I marked onto the SPX monthly chart below a way to see that initial movement from October 2007 through to the June/July 2008 lows as a leading diagonal, which can be either a wave 1 or "a" wave. That would bring it into timing consistency with the RUT, in terms of making the August 2008 swing high the important one to be measuring from now.

This can mean that these levels where the rally has stalled out (either temporarily, or perhaps worse) could be a wave 4 of the entire drop for the RUT and SPX ... or - if there's a possibility that the August 2008 swing high was the rebound after the equities indices completed an ABC flat or expanded flat - perhaps the "A" wave of a large zigzag downward was initiated from the August 2008 high. With the "B" wave of such a large zigzag completing at this 50% retracement back to the August 2008 high. This idea that I'm suggesting, to see the August 2008 peak as a point that completed an initial corrective movement (like an Elliott Wave flat), and then initiated a new, zigzag component of a complex correction - this is really the part of my ideas that would be "off the beaten path" in Elliott Wave terms.

It would be this idea that attaches greater importance to these indices having retraced 50% back to the August 2008 highs. Because a 50% retracement is the classic level of a "B" wave correction. The implication would be that the "C" wave of such a zigzag movement would be initiating now, and could have a price range equal to the "A" wave. For the SPX, that could mean completing at 371. For the RUT, it would mean completing at 155.78.

Is this my preferred count? No! Besides, the indicators are looking strong enough that even if and when this rally does give out (either from here, or after getting to the higher Fibonacci retrace at SPX 1053-ish that would also be consistent with Tony's primary count) - I tend to favor the view that a retest of the lows would get the SPX to around 600. (Based partly on the idea discusssed with one of my readers of retesting to the wave 2 level of an extended fifth wave from the 1990's advance; and partly on still favoring the idea of a large EW expanded flat in the SPX, regarding the 2007 highs as its B wave.)

Then again - there are other equities indices that still measure off differently. The Dow Jones Industrial Average, for example, might be on a slightly different big-picture count, which I've addressed in posts about half a year ago here and especially at my UBTNB3 blogspot.

And there's the Nasdaq ... clearly with its own unique big picture wave pattern going on because it made its screaming peak in 2000 and barely retraced .382 of that during the 2007 highs. (Actually the Nasdaq Composite managed that but the $NDX fell just short of that accomplishment). I've added my weekly chart of the QQQQ's below, which shows that - interestingly - the level it's been stalling out at now, is the test level (i.e., made it just above but now resonating around) of $39.82 which is 50% back to the 2007 highs, and the .618 retrace (at around $39.52) back to its own August 2008 swing high. (And notice it also has chart resistance now, from its own 2008 lows.)

Always fun and games in Elliott Wave land! I've attached my default label for Elliott Wave to this post, although I've got it set to refer to Tony Caldaro's OEW which I usually reference and rely on, but my alternative EW suggestions such as the ones in this post are definitely my own ideas and not his. For actual trading purposes, I'm happy with using his, as he's obviously expert in it ... so I only want to point out my ideas, either to suggest new ways of thinking about things. And, to remind my readers why it's typically a good idea to position along the side of how the wave count is most probably going at the moment. Because, if it turns into something that's somewhat different, the change can have big consequences.