Monday, January 26, 2009

Wave 5 - Update


The Elliott Wave Principle differentiates between, "Impulsive" and "Corrective" Waves, the former is in the direction of the main trend, the latter is generally against the main trend or sideways. Below is a 30-minute line chart of the SPX, showing the closing prices of 30 minute intervals.

SPX - 30 minutes



Note that under this chart, the market is in a smaller time frame Wave 4 Corrective phase. As you can see, all the action from the January 16th High has been sideways, thus Corrective, in nature. We saw the same pattern earlier this month on a larger time frame, the Daily chart, a pattern that was resolved to the downside.

Most of my charts, including this one, include an indicator named, "False Bar Stochastic." I prefer not to use many indicators (they are one step removed from price action), but in the case of the FBS, it is too effective not to have on every chart in every time frame.

In the above chart, I've noted "BUY" or "SELL" every time the FBS reached overbought/oversold status and reversed. Please pay close attention to the direction of the SPX immediately after each designation. (It is only the Overbought/Oversold areas without a black horizontal line that we care about, those lines designate trends and we don't trade against the trend.)

Accordingly, the market is set up to fall out of the drawn wedge on the chart, probably in another impulsive wave down to new lows for the move. No guarantee, just a probability that the next major move is DOWN.


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10 comments:

Michael Lomker said...

I had gotten bearish a few days early (Friday) but the price action proved that I was mistaken--a few more ABC moves.

Today was a very different animal, though. We had a clearly impulsive move down from 850 on ES. We closed half-way through a wave 2 ABC. I'm expecting a decisive move down right from the open, the target for wave 3 alone is 800. If resistance isn't stiff there (if we have some bad news tomorrow) then this is the move that we've been expecting.

Anonymous said...

Allan:

I have been reading this blog for years and every trading day I awake I think just one thing:

"Thank God for Allan P. Harris"

I'm a blue collar worker laid off over a year ago with no prospects for getting a new job and a severance package equal to 1.5 year's pay. I used that to fund trading your blog.

Your trading help/advice has saved my savings,saved my Michigan house in which we have lived for 31 years, saved my family and saved my life.

I now work less, make more money, have more time with my family and paid off the mortgage.

Thank you Mr. Harris, thank God for you. May God bless you and your family.

Stan

Anonymous said...

I believe we are in a implusive wave down of some sort, and this is an correction, but I think it has more to go on the upside.

The SPX is at 844.64.

The drop was from 943 to 804 in SPX. Minimum we should retrace to 857 (38.2%). We could go has high as 889/ 896 (61.8%/ 66.6%) retracement.

This isn't that strong of a decline, so the retracement up could be long. I'd look to sell it at higher levels.

Alex

David said...

This must be the corrective '2 wave' I've been patiently waiting for in order to complete my short allocations.

If Allan's analysis is correct then we can be assured that wave 3 is lying in wait... lurking just around the corner... ready to pounce on unsuspecting bulls.

Michael Lomker said...

I was correct about the morning sell-off but it was much briefer than I thought it would be. No biggie...profit is profit.

@Alex, there's no question that the buyers haven't grown tired yet. 857 would be nice. I wonder if they'll give up before 900.

@David, I'm 1/4 short just in case. The market has been remarkably tiresome to trade lately.

Anonymous said...

I think you (David and Michael) are both right. We started big 5 at the 943 peak. SPX Cash did a (1) of wave 5 from 943 to 804. We are now in (2) of 5. Wave (2) of 5 should be a deeper upward retracement than this has been.

I think the market is heading lower, I just think this upward correction has more to go, like a few days and points up.

I'm a seller, but would hope for higher levels.

Alex

David said...

Guys, look at a weekly chart of the SPX.

The upwards action from mid-Nov through the end of Dec looks to me like a bearish flag pattern.

"A flag is a small rectangle pattern that slopes against the previous trend. If the previous move was up, then the flag would slope down. If the move was down, then the flag would slope up. Because flags are usually too short in duration to actually have reaction highs and lows, the price action just needs to be contained within two parallel trend lines."

These flags are continuation patterns that break in the direction of the previous move. By the looks of things this one broke to the downside a couple of weeks ago.

Tapan said...

Allan,
In the analysis of SPX I do not see SELLs for some buys (eg. 12/29). Also when is the exact buy and sell dates in the chart? They seem to be approx? thanks

Michael Lomker said...

I'm looking for 864 on Wednesday.

We had a 10 point gap up in the after-hours futures (someone must have short covered), so the stops at 850 have been popped.

Anonymous said...

Allan,

i have been watching CTIC for a few weeks now.

Very positive news today:

http://biz.yahoo.com/prnews/090128/aqw031.html?.v=76

dk