One of the most reliable Elliott Wave "guidelines" (there are also a few "rules" but this isn't one of them) is of particular importance today, on at least two levels or degrees:
1) Short term implication - insight into the depth and duration of our current bear market rally
2) Long term implication - insight into the initial bottom of the macro bear market that began in Y2000, and continues to unfold
So what is it?
The guideline pertains to the termination point of C wave corrections, and it is one of the more reliable guidelines that exists in EW theory, perhaps second only in importance to the guideline of alternation. This guideline states that whenever an ABC correction is unfolding, its total retracement will often backtrack to the previous Wave 4 termination point, then reverse to continue the main trend.
More specifically, the guideline states that one can expect any intermediate C wave (by "intermediate" I mean any C wave that precedes an expected resumption of the macro trend) to terminate somewhere between the previous Wave 4 of the same degree, and the Wave 2 of 5 of one lesser degree.
The following illustration comes from elliottwave.com; I added the red markup:
My transparent red box shows the generic EW waveform was drawn about right, at least with respect to common expectations, because the C wave terminates in the zone bounded by the points forming the guideline outlined above. At this point, we would expect the C Wave's correction to stop, and the bull market, depicted above in generic terms, to continue.
Bull market behavior is generally more predictable than bear market behavior, but in a bear market, the guideline still generally holds. Here is the diagram, inverted, to illustrate the a similar bear market expectation:
I hope the applicability of this guideline to (1), the short term implication, is clear:
The applicability to (2), or the long term implication, is not as pressing but certainly more interesting. Let's save that discussion for next time.
