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Nadeem
Veteran Investor
Joined: 11 Jul 2004
Posts: 639
Cash Points ££ 13955.74
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 Posted: Mon Jan 29, 2007 4:49 am Post subject: Stocks & Commodity Markets Elliott Wave Analysis - 28th |
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What a week! I'm going to do less writing than usual and focus more on technical analysis, which is, after all, how we trade. But, looking back over the last update, it's impressive that the market managed to make it all happen so quickly. The Jan 21st update said:
Friday's advance on the S&P will probably have early next week taking off to new highs, where we have the potential of creating a reversal pattern. Otherwise, the S&P's are looking to buy time into either the end of the month, or possibly around February 8. If so, we might trade sideways to down until we approach those dates. I'd rather have a pop to short as I patiently watch to see if my NYSE target mentioned months ago reaches perfection.
So, let's see, that's:
“probably have early next week taking off to new highs”: Check
“where we have the potential of creating a reversal pattern”: Check
“looking to buy time into the end of the month, or February 8th”: ?
Clearly, our “unbiased Elliott wave” works. The secret is that we leave our personal bias out of the charts and follow their lead. To see the difference in action, let's go to last week's charts. Monday started by extending the previous week's correction. Posted as the S&P dropped to its lows, this first chart captured the bottom of the move nicely.
After that proved to be the correct target for the decline, we turned to planning the next upside target, only to find that many methods of technical analysis had SPX targets clustered at 1440. Actually, we'd known about the targets for weeks, but it finally looked as if their time had arrived. The next chart was posted Wednesday morning as the SPX was taking out the previous day's highs. I wonder how many buyers at that level were wondering exactly how much further the rally could go!
Not surprisingly, 1440 was the high point of the move and, as it was reached, I expressed that it was time to short the market even though it didn't feel like the thing to do. It was the charts that were doing the talking. As the indices rallied into the close, there must have been some of chatroom members thinking I'd lost it. If they were, they were probably watching the financial info-tainment shows and getting caught up in the euphoria of the huge rally. It could happen to anybody. But, a disciplined trader knows this is exactly the time to shut off the TV and trade the charts.
You've heard the saying “A picture is worth a thousand words”, well, I sometimes feel the same way about charts. In fact, when Elliott wave is applied correctly, you can step in front of a moving train, which is exactly what we did on Wednesday afternoon when we shorted the top of the rally.
The OEX chart below was posted almost every weekend for months. Members watched the progression of this move as it got closer and closer to its target each week. I'm sure many margin calls were saved from this one chart out of the 20+ that are posted on Saturdays alone! The fact that the OEX reached its exact target on the same day as the S&P was even further impetus for us to stick with the original plan and go short.
Once you've got your shorts on at the top, then I guess it's OK to turn the TV back on watch the reporters scramble to explain the dramatic selloff. Just one day after it was originally posted, this next chart looked like this:
Full article - http://www.marketoracle.co.uk/Article274.html |
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