A Descent into the Abyss

It's been over a month since I last commented on the market. But wave 4 finally ended. Did it? Wave 4 is tricky. But it appears that we are really in a deepening wave. Is it wave 3 or wave 5? I think it is wave 5 but you may know that this may prove to be wrong. After all, it is all about probabilities. But it really doesn't make any difference because at the end of this wave there will be a great opportunity to go long and make huge profits. The task ahead for me is to determine the end of this wave so I can reverse my position from being short to being long. The signs that I look for are: a 20 to 1 ratio of declining stocks to advancing stocks; a change in the direction of stochastics and also in the MACD on the Daily stock market indexes. These signs are all pointing down at the present time indicating that we have a lot further to go. What can we expect at the end of wave 5? Elliotticians will expect a three wave corrective phase. This may cause an "end of the year rally"! Some will call it the "Santa Claus Rally". Traders will jump in and move the averages quite a bit higher. But beware because this is not the beginning of a new bull market. When the correction is over, the Bear market will surely resume.

A Fifth Wave

Well, I think the fourth wave is over and that we are in the fifth wave. It is unbelievable how complex the fourth wave can be. I thought it was over in August. It continued to zigzag until recently. I now think the fourth wave is over. However if you look at any of the daily charts, you will see that MACD has not yet confirmed that the market is in a downtrend. The shorter term charts do confirm that we are in a downtrend. So who do we believe? I am not a short term trader and wait for the daily, weekly, and monthly charts to confirm. When the daily confirms a new downtrend, I will get involved. Until that happens, I remain mostly in cash and short term bills.
Success to your trading.

Fifth Wave finally!

The fourth wave has been extremely frustrating. It has lasted longer than expected. Another reminder that patience is needed in trading. Has the trend changed from up to down beginning wave 5? Time will tell. Wave 5 will contain 5 minor waves. It appears that minor waves 1 and 2 have already been completed. We should now be in wave 3, always the longest wave. What is our strategy at this time? Most investors should be in cash awaiting the end of wave 5. More aggressive investors are short the market. As we approach the end of wave 5, short sellers should take profits and prepare for the corrective 3 waves. How low will the market go? You have to look at past support levels to answer that question. The S&P index indicates that around 1100 would be a good time to take profits. Interesting times.

Wave 3 is complete

Wave three appears to be complete and we are in the final stages of wave 4. During wave 3 we were short the market. We covered and went long for wave 4. Since wave 4 is complete or almost complete, we are prepared for the reversal. The next wave is wave 5 down. Wave 5 down may end with a selling panic. My strategy is to be short the market but we will cover our shorts before the end of wave 5. Wave 5 will be followed by a corrective A-B-C move. Go long for the corrective move. Robert Precter recently stated that this is the opportunity of a lifetime! I believe it. But only if you know how to follow the wave theory. Check out the chart to see if you can see the theory in action.

elliott wave three

It appears that we are indeed in wave three. Those who have studied EWT know that wave three is longer than wave 1. So we have further to go. On the SPX daily chart shown here we point out the end of wave 1 and wave 2. The question now is where does wave 3 end and reverse. The signs I look for is a reversal in the stochastics and in the MACD. Also the advance/decline ratio will expand. Right now it is about 2 stocks down for 1 stock up. Ultimately, the ratio will be about 20 down for 1 up. My strategy is to hold the indexes short and to prepare for the reversal. At that time I will go long for wave 4.

the alternative is Wave 3

The above chart is from www. stockcharts.com/

In the previous blog I said that we were in wave 5. However, I realize that upon looking at it again, I now think we are in wave 3. As noted in the previous blog wave 4 was definitely larger than wave 3. This is unacceptable to me. So, I am now stating that we are in wave 3 which makes more sense. Wave 3 will be longer than wave 1 and much more violent. I believe this wave is in the beginning phase and will be quite exciting. Best to your trading.

wave five underway

The above chart is from www.stockcharts.com/

I'm not an expert on Elliott Wave Theory but I have numbered the waves as I see them on the daily chart. 1370 represents the end of the supercycle correction. It is "C" of the end of an A-B-C correction which started in March, 2009. Currently we are in minor wave 5 of a larger wave I. My only problem with my count is that wave 4 is larger than wave 3. Wave 3 should be the largest wave. However, exceptions to the Elliott rules do happen. This places us in wave 5 which should bring us below 1258 which was the low of wave 3. My strategy is to remain short the indexes. A more prudent person would be in cash waiting for the end of wave 5. Best to your trading.