Friday, January 09, 2009

My Elliott Analysis

Three updated charts of the S&P 500 index as of Friday's close. In descending order, the Weekly, the Daily and a 60 minute chart.


The chart above is our main compass, a Weekly S&P 500 chart that is in the midst of a five wave sequence down from the 2007 highs. There are three clearly designated completed waves and by implication, a Wave 4 that has been sliding and slinking its way sideways to up against the major downtrend. A previously drawn wedge is placed earmarking this 4th Wave with the hope of isolating either an extended Wave 4 by a break upwards out of the wedge, or a completed Wave 4 by a breakdown below the wedge. As is obvious, neither an up or down breakout has yet occurred. By zeroing in on a couple shorter time frames, maybe we can glean some clues as to which way prices are headed.


Above is a Daily chart with a broader view of the 4th Wave. I've drawn in a channel that encompasses all price action since the November 21, 2008 low. Superimposed on that price action is a simple ABC sequence culminating with a Wave 4 top as of the close on Tuesday, January 6, 2009. What isn't clear on this chart is whether or not Friday's decline broke the bottom of that upward rising channel. For some clarity, let's look at the 60 minute chart below.

Sixty minute

Whoa, Nellie (not an orthodox Elliott observation), this chart shows a break of that lower trend line clear as a bell.

The phrase means simply "very clear." A bell is used as a model of clarity because the sound of a bell ringing is a clear tone. In the realm of sound, the opposite of clear is dull.
The smaller time frame provides a snapshot of all the price action for the first six trading days of the new year. A top of some significance is shown being made on Tuesday, January 6th. Beginning Wednesday and carrying into the close on Friday, prices moved down in what is being shown as a five wave sequence.

This is where my analysis deviates from more traditional Elliott Wave analysts. You will read elsewhere how this Wave 4 is tracing out a triangle or a flat or a double flat or a zig-zag or any number of traditional Elliott Wave corrective patterns. These are all well and good and I admire those who can figure that stuff out. But just as I avoid getting clogged up in the minutia of life, I also abhor getting involved with all the subtle, yet ambiguous minutia of the Elliott Wave Principle. If I can't trade it, what good is it? The analysis above is one I can trade.

I know that the elusive Wave 5 to new lows will start with a break of that trendline in all of the above charts. That doesn't mean all breaks of that trendline must result in a Wave 5, only that a break below support will provide the first tangible indication that Wave 4 is over and Wave 5 has begun. If prices correct back above the trendline, my analysis is probably wrong and I am exiting with a small loss. If prices continue lower, I clean up with my short positions.

In fact, if I short every break of that trendline I am certain to enter Wave 5 early enough to profit handsomely, including those small losses incurred, if any, upon those false breaks. Like it or not this is how I trade EW. Keep it simple, with an emphasis on clarity, while being true to the major tenants of the Elliott Wave Principle. It may not be perfect textbook Elliott, but it is profitable. I'll take profits over perfection, every time.



Anonymous said...


As always superior analysis.

The explanation of phrases that you are now doing regularly is good too.

You did NOT explain the phrase "Whoa, Nellie" and I cannot discern its meaning other than it is the name of Nellie Furtado's first album.

Is this like playing Beatles albums backwards to hear hidden things?

If so I have a problem here, as Furtado's work is ONLY on CD, I cannot do the backward spin thing with a CD.

So could you explain the n=meaning to us? I assume it is an exotic Elliott thing.

JK in NYC (leaving for LA tomorrow)

Anonymous said...

allan, do you see your EW analysis as an unavoidable prediction of things to come? i.e., the elusive 5th wave. Frankly, I don't think anyone can predict the future and any analysis should be used only as a guide.


Allan said...

MON: Good point. By now anyone who reads my blog should be well aware that everything I write about market direction is a probability based hypothesis. No one knows which way this beast is going and I don't claim any special insights in this area. But I do have this loosely cohesive theory about market structure and how certain price movements within this structure can provide defined handicapping of risk:reward equations that exploit probabilities and provide an objective basis for trading. Yes, it's one step removed from simply guessing, but it is one heck of a step and for me at least, it has been a very worthwhile endeavor.

aamustangs said...

JK, you should know by now that Allan is a sports fan. One of the greatest announcers of all time was Keith Jackson, whose specialty was college football.

Here's some of his Wikipedia entry:

In his many years covering college football, Jackson has been paired with a wide variety of color commentators, including former Arkansas coach and athletic director Frank Broyles (1978–1986) and pro football legend Bob Griese (1987–1999).

For many years, he was assigned by ABC to the primary national game of the week. His quirky expressions such as "Whoa, Nellie!", "Fum-BLE!" and "Hold the phonnnnne!" (following a penalty flag) are often the subject of comedic imitation. Though he greatly popularized it, Jackson notes that he learned the term "Whoa, Nellie" from earlier television announcer Dick Lane.[7] He has often referred to offensive and defensive line players as the Big Uglies. Jackson is also credited with coining the nickname for Michigan Stadium, The Big House.[13] In the season before his first retirement, during what was thought to be his final game at The Big House, the Michigan Marching Band's halftime show concluded by spelling out "Thanks Keith" across the field, the 111,019 fans turned toward the press box, stood up and cheered for the commentator, and as a part of the halftime event former Michigan coach Bo Schembechler presented Jackson with a jersey with "The Big House" across the front and a Michigan football helmet.

Anonymous said...


Thanks for the elaboration. I know nothing about sports, ESPECIALLY college football.

(How many point DO you get for a field goal, anyway?)

Again, I just keep running into people on this board who know so much more about EVERYTHING than I do. I guess that is why I refer to the eighth grade as "my senior year."


JK in NYC (LA by tomorrow evening)

Anonymous said...

Actually, "Whoa, Nellie" originates in the 1930s with Gene Autry's sidekick, Frog Millhouse (Smiley Burnette) who would utter cry while trying to control his horse, Ring-eyed Nellie.

There is a lot of misinformation on the Web that credits the expression to Roy Rogers's sidekick but, since Rogers appears in minor roles in the Autry movies, the expression was long in use before Rogers ever had a sidekick himself!

Announcer Dick Lane picked up the expression, possibly recalling it from childhood visits to the movie house on Saturday afternoon to see an Autry picture.