Is The Market Following A Script?
If you ask Elliott it is.
From Our Recent Blog:
“There is also a good possibility that the whole move down off the January highs traces out ABCDE (5 Waves down before all said and done). But we’ll take it a step at a time.”
The S&P 500 chart below has more of a 3 waves (abc) look to it just like we talked about in advance to be on the lookout for. The only problem was it’s prime entry took place in the form of a gap and within minutes traced out the bulk of Thursday’s move. But still it’s all about trends and it’s locked in a downtrend channel.
One look at last week’s action in the OTC Composite below (remember this area of the market always leads) has us seeing that of a potential 5 waves down that have taken place. Typically after a 5-waves down affair the next is a 3-waves up affair.
With Elliott Wave that 5 waves down (abcde) is a wave in itself. Hence 5 waves down of Wave 1. The next part of that theory calls for 3 waves up (abc) of Wave 2. I’ve tried to lay out visually in the chart above what that looks like off to the left. After that? In Elliott’s world they call it the “Wonder To Behold” WAVE 3 . Folks wave 3’s are the biggest and badest waves out there (to the upside and downside).
To give you a clue as to what they look like on the downside we don’t have to go back in time too far or did everyone forget what we went through. If we would have said 2 months ago that this is just a bear market rally which we have eluded to on numerous occasions everyone would have said hogwash, folks that’s what MAJOR Bear market rallies do, they suck you in, make you feel good, make you forget the past, then they BURY YOU! Below is the S&P 500 chart from the 2007 highs.
In Summary Big Picture:
We could be very close if not already there for a counter trend rally (that means short term ABC up) then the “Wonder To Behold” to the downside. This could take place in the span of a few days to a few weeks or even a month or two. But the bottom line is the overall trend is down and all rallies are shortable (but wait for proper low risk entries though first) and to be used to lighten up the long side of portfolios — this includes cookie cutter indexing 401K plan mutual funds.
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