04 September 2010

Restructuring the Dow

The market reacted to NFP by boosting both EUR/USD and USD/JPY. In the end the decision through the session was to revalue USD/JPY back to its valuation before the release and to revalue EUR/USD upwards. I have noted the very initial reaction is important in a manner which may connect with the deep logic of the forex markets.

That was a hard boost for USD/JPY. That to me is perhaps the reference valuation for the recovery. This valuation is disturbed by the technical fact of what this valuation for Yen means for intervention, but that seemed to have been cleared by the events of last Sunday.

However I must add my analysis does not imply a bull market will happen now. I am just possibly seeing the computational beginnings of one. If we take the reference of an Elliott Wave as the beginnings of a new bull market, we can note that there is a lot of movement up and down before the great surge begins.

In fact if we note the assertion that the 'Trading Chaos' method is based on the beginnings of an Elliott wave then we note the market can tick down to a point near the reference low and in practice can exceed this.

One can ask what is the reference low ?  It is hard to say it is the low from the crisis as this is based on such events as margin calls on an epic scale. But if we say that market was made like a forex market then we can say that was a reference itself, but not to an economic state but to an economic structure, one which was cleared essentially of those elements which made the past expansion. There has been an attempt to bring this back, with what I termed the conduit, but that encountered problems.

What I am saying is that low is not a reference low for the Dow. The reference low for the Dow is possibly more in the 8,500 - 9,500 range. That low itself is distorted by the gravity well of 10,000, a technical level which would probably be exerting influence even if there had been no crisis. Indeed it may be that technical level has overwritten many other support and resistance structures.

I made the very tentative suggestion that from a very long term perspective, that the return to 10,000 from the highs of 2007 is not entirely unexpected. the range of this movement is a bit more than might be expected, but that is possibly from distortions of asset inflation/deflation. But this suggests to me that the crisis is not as bad as it seems, if we view the market as a computational device of somewhat unknown structure and function.

Could we conjecture that the market is in a process of evolving. If the market is truly to grow which is what an Elliott Wave is probably all about, then it needs growing companies at the heart of a growing economy not conduits of money, which ebb and flow and sometimes come on like a tidal wave, in and out. This means lots of jobs cascading through the economy, because it needs service industries.

But evolving suggests a structural change. It may be those technical levels like 1,000 and 10,000 are associated with such evolution. They probably do something structural (this is based on observation of the behavior of the market at these levels).

The effort required to get over them suggest, as a program of some kind, the market cannot compute these values. It may be the market could only compute to 14,000 as it stood in 2007 and a radical restructuring was in order for a continuation. Well, this is happening, but a true restructuring to an extent depends on medium - long term political decisions.

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