The Last Bear Hangs In There

Contrarians are waiting for capitulation by the final few bearish analysts before picking a top. Most have gone silent after the market broke the April highs this week. The WSJ trumpeted today that the Dow has now recovered all the loss since the Lehman debacle two years ago (see chart, courtesy Bespoke):

A number of traders like to fade the most popular bear, Bob Prechter, and thus are waiting to see how his monthly service, the EWFF, explains the new highs. Rather than turn into a latter-day bull, the EWFF remains firmly bearish, but had to jump through an analytical contortion to get there. They now see the Hope Rally as a large ABC zigzag with the first leg running all the way to the April highs. In a zigzag, waves A and C break as impulsive five-wave structures. In order to get there, they had to concede that that wave A was a five-wave move even though they admit it lacks a clear five-wave structure in its impulsive waves (1-3-5) and lacks alternation in its two corrective waves (2-4). Tony Caldaro should be smiling, since he was the first major wave analyst to call it that way. The mea culpa from the EWFF is "there are times when lower probability outcomes occur, and this was one of them." Somehow this is very unsatisfying from what normally are tough analysts.

In contrast, the third major wave analyst, Glenn Neely, has stayed true to his methodology. He has a different wave structure for the Hope Rally, where he ends the first wave up a year ago amidst that choppy Sept-Nov action, calls the Nov-Feb period last year a corrective X wave, and counts the action since as a large corrective pattern where wave A went to April highs, wave B is the flash crash and its aftermath, and we are now in the final wave C. He thinks odds favor a short right now. No ewaverer he. 

Interesting is that both major pundits are coming to a similar near-term outlook. Neely expects a down wave 4 and a final up wave 5 to complete his C wave. Prechter sees wave A ending in April, wave B ending at the July low of Sp1011, and wave C has breaking so far as a 1-2-3 pattern where we are in 3. He too thus is looking for a wave 4 down and a wave 5 up to complete the pattern. He leaves open an alt count where the July low is but wave (a) of B, and we are in wave (b) of B with a (c) to go. This might get confusing with all the waves but it implies that after the little waves 4 and 5, we have a correction to Dow9500 and then a final rally.

Martin Armstrong, still in jail, has restarted his own market numerology, which pegs a major turn point to June 13, 2011. So far all the wave prognostication has prematurely called tops. Perhaps Martin's date will be closer to when the Hope Rally truly fades. 

How should contrarians play this? Turns out the net bullish sentiment (bulls less bears) is at its highest of the whole Hope Rally - indeed a three year high (ie since the 2007 top). Futures traders are 94% bullish, the highest since January 2007. How much upside is there when bullish sentiment is higher than at all prior tops, including the all-time high in 2007?

My take: continue to watch the Dollar. It broke below the three-year support level yesterday, but has come back above. The bullish case in stocks is based on a bearish Dollar. A Dollar bottom reverses all the recent trends driven by belief in QE and the Bernanke Put. If it remains above it may have put in the bottom. 

Comments

[Roger D.]

We are closer than anybody thinks to a "top" here in November. The historic crash of Supercycle "A" wave down is days away, November 10-15.

The Great Irregular bull market in the Valueline Index

http://www.screencast.com/users/fast996/folders/Default/media/b4eec43a-6ccb-499a-97d8-018935cbb9af

Roger D.

[CarlFutia]

I am not a major wave analyst, but I do know a little about the subject:

http://carlfutia.blogspot.com/2010/07/elliott.html

[Account Deleted]

Yelnick, it seems in 2007 the market rallied strongly for several months after January 2007, while the Daily Sentiment Index made lower highs. That is what I deduce from your statements. This makes sense as often times sentiment diverges from price near reversals.

If we really follow the 2007 script, the market can still go up substantially before it hits a major top.

[yelnick]

Jing, good comment. We might run into Jun 2011. If 5 = 1 it might get to 1010 + 280 = 1290

[Wags]

Carl,

You are without a doubt, the only blogger out there that actually has "skin" in the game and who trades for a living. It is most refreshing to see such an honest approach to the markets, by someone who also happens to blog.

Congratulations to you Sir for respecting what the charts were telling you and trading the tape!

[Edwin]

give the man (Carl) credit for being right.

[Account Deleted]

Yelnick:

I am slowly gaining more confidence in the ECRI methodology. I think it easily beats EWI in timing stock markets.

BTW, ECRI has already ruled out double dip in the next 6 months. That means stock market may have corrections in this period, but no bear markets.

Jing

http://www.businesscycle.com/news/press/2006/

U.S. FIG Slips

Bond Buyer
November 05, 2010

(BondBuyer) - U.S. inflationary pressures were lower in October, as the U.S. future inflation gauge fell to 97.4 from a downwardly revised 97.5 in September, originally reported as 98.0, according to data released this morning by the Economic Cycle Research Institute.

The smoothed annualized growth rate, a comparison of the latest figures to the preceding year's average level, slipped to negative 1.0% from a downwardly revised 0.3% in September, originally reported as 1.0%.

“Thus, U.S. inflation pressures remain restrained, but do not indicate any risk of deflation,” ECRI said in a release.

[yelnick]

Jing, go read Pierre du Plessis blog and go back a month or so where he dissects ECRI methodology. It tracks the S&P closely, indicating that is a major component. As they quip, the S&P predicted 6 of the last 3 recessions. Not a very good predictor at all.

[esTrader]

Great post Yelnick. The problem is with all these major players is that they continually get it wrong! I have been following a few E-wavers and the only one who seems to get it consistently right on almost a weekly basis is Trade Your Way Out. On the other hand, Neely, well he went with the flow and has still been taking hits. Pretcher, no need explaining it. I'd say Tony C is also doing well. I remember the day he turned bullish and look how far he has come!

[JT]

The bottomline is that there is NO EASY WAY to making money in the financial markets. You cannot simply listen or follow others. That is a most FOOLISH endeavor.

Nothing can replace the value of developing your OWN methodology and doing your own homework!

[Hug]

Pretcher/Hochberg have finished their zigzag slots.. since the 09 March bottom they have gone zigzag, to double zigzag, to a triple zigzag at the April 2010 highs (actually there has been an early tentative in calling a completed simple zz P2 correction at the jun 09 highs if i am not wrong, so they exceeded their 3 slots even before this week new highs)

now, they are restaring with a fresh new zigzag, and will continue to adjust their counts in this fashion till new all times SPX highs will eventually be reached (i absolutely don't believe in P3).. but what amazes me the most, is that they will always induce the least independent and experienced of their subscribers to believe that they where ultimately right, wrong call, after wrong, call after wrong call, after wrong call...

[Mr. Mercury]

And ANOTHER zig-zag, and ANOTHER zig-zag . . . ANOTHER zig-zag bites the dust!

[yelnick]

Hug, JT - forget the multiple zigzgas. That us where EWI got of track. Actually, the EWI count is now making more sense, especially if we have a correction around this level and then a final move up that takes into June 2011: the april/oct highs would form a double top with a triple to follow.  One would count the post April action as a large flat (or it might become a triangle) and the final wave up as a truncated fifth, if that is what happens. 

It take a couple of small changes to fix their whole model. I use what I call Fractal Finance for guidance. FF is less concerned with the minutae of waves as the larger picture. An impulse is a thrust out of a trading range. Follow this looking at any map of Mar 2009 to now:
the thrust off mar09 ended in mid-may, and then we had overlapping waves into the july bottom. that marks it as the first fractal (thrust and plateau) out of the bottom. that thrust counts as a "5"; it is only the move to the June high that changes a five wave move into a double ZZ.the correction from may to july is a double pattern: flat-x-zigzagthe whole move from the July bottom to the April top is the next wave. it goes very close to 1.6x the first wave.  it counts as a "5" pattern with the initial thrust out of July to early Aug a clear impulse (remember Prechter once called that the top ), as is the final wave (Feb-Apr).  

Hence you can count the whole move as an ABC zigzag. The C wave (jul 2009 to April 2010) went 1.6x the A wave. 

Now the issue is where it ends. At 1229 it hits the 62% retrace in the SP but went closer to 66% in the Dow. If it is a wave 2 that is about the limit. Hence the test now is whether we get a pullback (a pretty good one) followed by a rally into Amy/June 2011 to get back t the 1229-1250 range. 

[Wave Rust]

spx just passed a sign 'next gas 100 miles'

have to go back to 1195. it may have enough to get back there, or it can just coast downhill.

wave rust

looks more and more like an A from April high, and this a B up and may end up by 1275, and maybe next week.

if it does, then C will get spx 980/1000 before it gets 1300.

[Dsquare]

Gold. Not a lot of room in this count, wave e needs to stay smaller than c which I believe began at 670. Yesterday's chart.
http://img607.imageshack.us/img607/8859/goldnov410.png

[Dsquare]

HUI: Don't have a lot of room in B as a contracting triangle (reverse alternation). Did we finish a diametric? Wave-g as a zigzag? Pretty big wave.
http://img138.imageshack.us/img138/1983/huinov510c.png

[Dsquare]

Alternate for the HUI is a triangle for e of B which could go 5 more months.
http://img217.imageshack.us/img217/3901/huioct2910x.png

[Dsquare]

Last chart, gold
Could have an ending expanding triangle on 5 (triple combination) of terminal c. Wave e shouldn't take longer than b-d, so only have about a day's room.
http://img513.imageshack.us/img513/6409/goldnov510e.png

[Account Deleted]

Yelnick:

What is the url for the Pierre du Plessis blog site? Somehow I could not find it on Google.

Thanks

Jing

[KRG]

With all due respects to Carl, the S&P price structure since Mar 09 doesnot appear to break into a :5. Doesn't mean that it cannot go up.
Does it matter? Perhaps yes.. Particularly if one looks at post-pattern implications.

On Indian equity OTOH, may be there is a case that it is a :5 starting Mar 09. If so, the upside targets can be mind-boggling. If not, a flat or irregular since 2008 might fit the bill

Cheers

[yelnick]

Jing, http://www.investmentpostcards.com/

[Manav]

Sorry to sound like a broken chord but yet again a 5 became a 3...EWI seriously needs to rethink this to avoid a structural error-prone approach...at least Neely has some cast-iron rules about this

[molecool]

Manav - no reason to be sorry. EWI has now been on the wrong side of the tape for 15 months. That's a lot of theta burn and I don't think that Prechter and his crew has much credibility left. Do they have any idea the type of damage they have inflicted on their subscribers? Not only did their subs lose their asses holding losing short positions until they finally conceded that their count was horsewash - they also missed out on one of the most violent and profitable long opportunities in history.

EWT on its own is completely useless for predicting future price action. It needs to be paired with constantly evolving momentum/sentiment measures. EWI has attempted to do that but their big fault in my mind is that they continue to ignore measures that do not serve their bearish views - to the very detriment of their subscribers.

[Manav]

Agree Mole....I am sure EWI analysts try and do their best but their proclivity to see a bearish tinge to every move due to the expectation of a market accident dead ahead has costed them too many market calls

[Vipul garg]

Mole,
Ewt on its own is completely useless!?!
In whose hands?
Logically if something is worthless on its own,it aint worth much even if you couple it with fancy indicators.
Just what do your ewt+indicators say

[MT]

Yelnick, good stuff and input.

[MT]

Look at Europe, all indices like DAX and the French CAC have a corrective shape from the mid summer bottom. Also VIX shows a ending patern. This is a clear B wave and C of W2 starts next week.

http://i366.photobucket.com/albums/oo106/mtcharts/CACf.png

http://i366.photobucket.com/albums/oo106/mtcharts/vix.png

http://i366.photobucket.com/albums/oo106/mtcharts/spx1.png

[Sherman "double long" McCoy]

This site is detrimental to your wealth. Elliott Wave only works if you don't have a preconceived directional bias that you're trying to "fit". Even if this is "the top", somebody who followed this site for more than a few of your calls was broke long ago.

I do admire how you disavow Elliott Wave after the call has proven to be silly, and how you magically find an alt count when the original count is wrong. If only those of us who actually trade with real money had the luxury of unlimited "do-over's".

[Wave Rust]

I don't know when R. N. Elliott's wave principle was elevated to a theory, but I'm pretty sure it wasn't a scientific promotion. Prechter and Frost called R. N. Elliot's work as "concepts reflect(ing) a principle you can readily prove to yourself and evermore see the stock market in a new light." (Elliot Wave Principle: Key to Stock Market Profits, 3rd Edition, 1983)

So how and why did Ellliott's concepts move to become principles and then elevated to theoretical status. Certainly, there have been no rigorous scientific studies done that would elevate it to a grandeur of theory. Ask yourself why there are no studies.

That is why I don't hold with the hard and fast "rules" that have grown in number and rigidity over the almost 80 years since Elliott first started sharing what he called discoveries, in the 1930's. It's my guess that 'Theory' had a better ring to it and sounded more majestic for marketing purposes.

EW has always seemed to be the fundamental process of eliminating certain things that "can" happen in the future by knowing what has happened in the past. At various times, it does become quite easy to forecast the next wave or two without too many problems. And maybe that's about 20% of the time if you use only daily and weekly charts.

It's that 20% that sucks people into a level of confidence that a principle must surely be a valid scientific theory.

After all is said and done, EW is a reflection of human beings behaving madly at times, and sanely at other times.

If EW was a woman you were in love with, the question is, "Would you marry her?" She'd be a great date, for sure. But, marry? Not so much ,,,, unless your name was Job.

Why would anybody marry an Elliott Wave woman who always went home to the wrong house 4 out of 5 days each week? Even if that 1 night a week was heavenly? :))

To most EW practitioners, "the EW woman" is alot like Clapton's "Layla". :)) http://www.eric-clapton.co.uk/ecla/lyrics/layla.html

The study of Mass Psychology hasn't helped much either, in between the extremes. And, EW is a game of psychology which itself, has ethereal boundaries.

If kept in its simplest form, 5 impulses and 3 corrective waves, EW will keep somebody out of big trouble and help to keep them on the right side of any trending market.

The only real problem with Elliott Wave is its practitioners. They(we) are human beings too. At various times and for extended periods of time, the practitioners of EW behave madly, and, at other times, behave sanely.

The answer is figure out your own flexible Wave principles and adjust as needed. I think DG is probably a good example of taking what works for his trading style from Neely's work. I like to think my EW works for me, and I have gotten better at knowing when it isn't working for me over the years.

Market structure is there and obvious most of the time in just about any time frame. Use it like you would a clothes iron ,,,, press here and there to get the wrinkles out ,,,, just don't leave the EW count iron on the market, or it too will scorch your shirt and your capital.

wave rust

[yelnick]

Shermna, this site is not about yet another wave count. it is about scanning the putative analysts and commenting. I occasionally offer a view that may have been missed by the punditry, such as a way to repair the simple count of the Hope Rally. I wouldn't recommend anyone trade off this site; it is not that sort of site. Folk who follow other pundits may find it adds perspective.

My primary theoretical exploration is about fractal finance, applying the concepts of chaotic noninear systems to markets. if any breakthrough comes in wave theory, I think it comes there. Neely has done an admirable job of creating more precise rules to the theory, trying to remove the discretion that bedevils almost all analysts, but besides touting fairly odd wave patterns (eg., the great rise of America as a global economic power in the late 1800s as a corrective wave), he ends up with new and evolving wave forms that seem more like Ptolemaic epicycles than a solid foundation for precision. Tony Caldaro has also tried to make wave theory more rules-based than pattern-matching. Yet despite their efforts, they have not seemed to have risen that far above EWI.

[DG]

Let me throw my hat into the ring with a long post as well.

Even if this is "the top", somebody who followed this site for more than a few of your calls was broke long ago.

One thing I would like to see is more pundits (wave-based or otherwise) publishing more specific results from their trades and what those results indicate in the way of expected return per dollar risked. One of the signs of the huckster in trading is the focus on "one big call", rather than the results over hundreds of calls. If you're looking for one big win, I suggest Vegas, although if everything looks like it's in your favor, by all means bet what you are comfortable with. I agree that if a methodology simply makes you broke over time, there's obviously no point in following it, but very few, if any, have the courage to be specific enough about this. There is a direct mathematical relationship between your historical results and the mathematically-correct amount of money to put at-risk on your next trade (leaving "black swans" aside for the moment). If the number is below zero, you should not be trading using that method. Period. It's a simple thing to find out the number for your trading method based on your historical results. The lack of money management discussion among wave pundits is appalling and indicative of a complete lack of professionalism in their approach to trading. Yes, it is true that everyone has a different risk tolerance and even two people trading the same method, but with different risk tolerances, will have different returns. But, the obvious way around that is to have a model portfolio which tracks your theoretical results based on a given money management formula. But, you can't force people to admit that their methods are flawed and can't work over time, which is what negative expectancy would indicate. There is absolutely no way EWI's results have positive expectancy. I know for a fact that Neely's do, especially at the Weekly level. Math doesn't lie.

There simply is no way to "trade" and not be wrong, though. The more frequently you trade, the higher the likelihood you will be wrong something approaching 50% of the time. There are numerous ways to be profitable with 40% winning trades. Writing posts which imply that, if only people would give up using wave theory, they'd magically become better traders is nonsense. Also, the bulls on this site would be more credible as traders if they would post more data about their win-loss rates, rather than implying that simply being bullish means you're right on 100% of your trades. Ever notice that there are times when the bulls don't post at all? Think it might just be because their methods aren't working and they're taking losses? Yes, some of the resident bulls are longer-term holders, but that's not trading and I'm talking about the trading bulls. But admitting they're getting "crushed" if they are trading bullishly would be beneath them, which is one of the reasons I hardly post here any more. It's tough to debate methods with people who can't admit they aren't perfect, so what's the point?

EWT on its own is completely useless for predicting future price action. It needs to be paired with constantly evolving momentum/sentiment measures.

I don't think that "evolving" anything is the way to go in trading. The way to go is by understanding principles and what is unchanging about the market's fluctuations. The sizes of those fluctuations vary, but the principles and logic underlying them do not. Trading is a tremendous test of your ability to abstract invariant price evolution processes from the market's data flow. I have extracted 2 profitable invariants in the course of my time watching markets, one short-term and one longer-term. Then, you have to come to grips with the fact that even those invariants are themselves subject to probability and are not infallible. The point I have come to is that I can predict, with over 90% accuracy, one specific configuration of 3 events which signal what won't happen in the market. Not "what will happen", but "what won't happen". Let that sink in because I will bet you an amount equal to the US national debt that 99.9% of traders are focused on "what will happen", which is actually the basis of their entire problem. Understanding that the possible key to trading success is knowing what won't happen is so foreign to people's trading paradigm that I doubt even a small fraction of traders would even consider the possibility. Also, it's harder, right, because it means you have to come up with counterfactuals to what the market actually did do in the past to develop your insights into what it didn't do. That takes real work and creativity because, obviously, there are a lot of things the market didn't do, but could have done, in the past. But, knowing that was only step 1. Step 2 was figuring out how to exploit that knowledge because the knowledge in and of itself was only of what the market wouldn't do, not how to profit from what it might do while it wasn't doing what it wouldn't do. If that sounds convoluted, it is, but it's also unique and non-random (nothing which can be predicted with 90% accuracy, even if the prediction is along the lines of "there's a 90% chance it won't rain in San Diego today" can be random), i.e. it's an "edge".

Once you reach the point where you understand the principles and logic, all extant indicators are superfluous. I did develop a custom indicator to tell me which trades I should not take, but that's all I use outside of price action and logic.

It took me a long time to get to understanding, but now that I do, I would never use an indicator to make a trading decision again. Doing so would be a stop backwards, not forward, because it would introduce subjectivity into the trading decision. Nor do I need anyone's advice on when and in what direction to trade. If anything, the best next step for my trading will be to take me out of the equation by fully automating it. The strategy I've developed is better than my ability to implement it (for a variety of reasons, but mostly because I'm just a human being), but with a computer executing my logic and the right money management strategy, I could easily become the market within a matter of a year, such that any trade I executed in the size dictated by the historical outcomes would move price against me. And this is a strategy for the SPY or ES, not some rinky-dink penny stock. It's that good. The reason it's that good? Because it is in tune with mass psychology and its behavioral biases. As long as "the market will fluctuate" is true, it has to fluctuate according to one of these two logical paradigms. Obviously, I don't mean "logical" in the sense that the market can't seem "irrational" or "overvalued", I mean logical in a much deeper sense. That's the ultimate promise of wave theory right there, to achieve complete detachment from traditional methods of evaluating market action in a way that keeps you on the right side of future price movements.

Nothing can replace the value of developing your OWN methodology and doing your own homework!

There's a paradox in here, though, in the sense that to make money, eventually (however "eventually" is defined for your trading timeframe) the crowd HAS to follow you or you won't make money. If you have a bullish trade trigger, it has to fire before the rest of the world piles in to the trade and vice versa.

Roger D has developed his own methodology and I wouldn't trade it with my worst enemy's money because none of the conclusions his "unique" methods actually predict future crowd behavior at anything near a profitable rate.

Anyway, long post but obviously with this week's new highs confounding many (fortunately, my wave count left open this possibility, so I don't have any wailing and gnashing of teeth over seeing new highs), it's a good time to take stock of what your methods are and are not accomplishing in helping you reach your trading goals.

[vipul garg]

wave rust,

good one there

"Why would anybody marry an Elliott Wave woman who always went home to the wrong house 4 out of 5 days each week? Even if that 1 night a week was heavenly? :))"'

[vipul garg]

DG,
havent been posting on your blog?

[DG]

I think DG is probably a good example of taking what works for his trading style from Neely's work.

Yes, once I found out what was driving the flaws I found in Neely's results, building a strategy to avoid them was the logical next step. When I started off on the attempt to find one, I wasn't sure if one existed or not. It could easily have been a dead end.

[DG]

Hey vipul,

Yes, given the relative lack of clarity in the wave count (for me, anyway), I just haven't had much to say on that level. Also, I think that with the tools I've posted on the new logic and trading strategy, anyone could be implementing them to make trades. But, I don't want to be responsible for others' trades, so I'm actually avoiding posting them in real-time as I was before, when I was just testing out the methods. I'll put it this way, if you were trading that strategy this year, you'd be a very, very happy person right now. I know you get good results, so you're probably happy anyway! :)

I'm also heavy into research on how to automate the dang thing, so that I can focus on some other things. The logic itself works great and the flaws that I bring to the table (e.g. not taking trades that trigger, missing signals because I'm not at the computer or not fully focused on the set-up developing, forgetting to check one of the logic rules and entering or exiting a trade without a logical rationale and not exiting on every exit signal) are hurting returns unnecessarily. Thursday I exited a trade at break-even because I thought an exit had been triggered but it hadn't and I ended up missing Friday's early run as a result. Little things like that that a computer would never do, if programmed correctly. But I don't know how to make a computer do what I know should be done, so I need to figure that out or get someone who knows how to do that to do it for me.

[Joe Russo]

Nightmare on Main

At the Crest of Hyper-Inflation
This is where participants should most likely focus their attention - not on an outlier primary wave three down. It is abundantly clear who is running the show here; it is the Central banks of the world.

If you subscribed to the rather convincing arguments of mainstream Elliott wave authorities for the past 15-years, we were supposedly at the crest of a bearish tidal wave in 1995.

Well, the exact opposite happened. Equities TRIPLED in nominal value from 1995 through 2007.

Governments remain impotent / Central Banks Rule the World
The US central bank in particular, which....

http://elliottwavetechnology.blogspot.com/2010/11/nightmare-on-main_05.html

PS.
We have coded historically profitable, unbiased, non-discretionary algorithms to trade wave structures (win, lose, or draw) at Primary, Intermediate, and Minor degrees of trend.

The puzzle pieces comprising classic Elliott Wave formations are THE best set of tools (if used properly) by which to frame viable, forward looking market structures. Elliott Wave as a standalone trading tool fails miserably.

Everything else under the sun surrounding Elliott Wave as a means by which to engage markets at ones subjective discretion is a complete exercise in futility. Success in such, measured by occasional bouts of luck followed by ownership claims to the prescience of seeing the future before it unfolds is about all one can expect from such endeavors.

Get with the program

[Jacques DeMolay]

There are rumors circulating the blogoshere that Prechter and EWI have changed their outlook from the P2-P3 scenario to a multi-year bull market one. Is this true or just a spurious rumor? On a side note, the movie Red contained a blatant P3 reference, so the insiders seem to weigh on the side of the P3 scenario.

[Impeach Ben Bernanke]

Impeach Ben Bernanke now!

http://www.youtube.com/watch?v=igJEYBAd7Go&feature=player_embedded

[upstart]

I'm not getting how Futia thinks bull market wave 1 was from the 3/09 low to the 4/10 high, a very long wave 1, and that we're in wave 3 now and yet he looks to get close to the all-time high but not exceed it. Waves 3 and 5 would have to be rather short to stop below 2007's high wouldn't they? He also looks for the top as early as April 2011. Waves 3, 4, and 5 aren't going to play out in that compressed period. The proportions are all wrong. We've all seen the market take very long paths to where it's going. Most likely the drop from April to July is NOT enough correction in time for a rally that came that far that fast, and its likely we're still in a sideways period such as a triangle as I proposed months ago. Obviously we would be near the end of "b" now. This fits perfectly with three different timings calling for at least a short term top - one calling for it this quarter, and two others pointing more specifically to November.

[Account Deleted]

Yelnick:

As I reviewed my recent writings, I noticed some elements of capitulation. In other words, I was giving up on my bearish views. That had to be a topping signal, as I went through the same emotional journey just before the Flash Crash.

As the stock market made a new high, a number of breadth and momentum indicators are now showing bearish divergences. For example, daily Nasdaq McClellan oscillator has been showing lower highs for weeks, just like before Flash Crash. Nasdaq weekly MACD and RSI are also showing bearish divergences.

Similarly, NYSE new highs were diverging lower as the rally continued.

Separately, US Dollar daily MACD showed a bullish divergence despite the new low, while Copper and Gold daily MACD and RSI are showing a series of bearish divergences.

The only missing piece of the puzzle is Nasdaq daily MACD and RSI are still confirming. Noting Nasdaq had a large gap up on Thursday, I think the following is probably the most logical setup:

The stock market will likely correct next week and after to fill the gap, then rally again to make a slight new high, creating bearish daily MACD and RSI divergences. That will probably be a major top. (This sounds eerily similar to EWI views).

Thanks

Jing

[yelnick]

Jing, first, a methodological point: using youself as the bellweather is interesting, but what if you were too bearish during the rise, and your capitulation feeling is just finally joining the trend? In other words, not a braod enough sampel to draw any objective conclusion from.

This is one of the reasons why a machine-based wave tool would be indispensible to remove analyst-bias. There have been attempts to create sucha tool looking just at the waves themselves, but as far as I know all such attempts have come up short. (Or, the ones that succeeded went dark and reaped the rewards.) Perhaps the answer requires a multidimenional approach, ie. adding in additional indicatros than price/time from the ewaves, such as momentum, sentiment, volume, breadth as most technical analysts do.

[Patrick]

If the markets maintain over the April highs, .618 correction from the all time high, we are going to new highs where we will probably fail just as we did in 1976-77. The 1966-82 plateau continues. When in doubt the fibs have a much better record than ewaves.

[DG]

When in doubt the fibs have a much better record than ewaves.

Maybe before the advent of software which could alert every Tom, Dick and Harry to the presence of a Fib price or time point.

From Neely's "Question of the Week" archive:

You rarely mention Fibonacci relationships in your work. Do you use them, but just don't mention it? Or, do you simply not use them?
Answer:

Fibonacci relationships have important application when applied to most, standard (orthodox) Elliott Wave patterns. But, around 1990, when Mastering Elliott Wave was released, new forms of price behavior began to emerge. That new price behavior, I suspect, was the market's way of counteracting growing interest in pattern recognition and the popularity of orthodox Elliott Wave concepts.

It was around this time, out of necessity, that NEoWave concepts and formations were born. NEoWave added logical concepts (to the orthodox theory) to deal with the increasing complexity of wave formations that were developing, such as NEoWave Diametrics, Symmetricals, Neutral Triangles and Reverse Alternation. These were new types of market behavior that orthodox Elliott Wave could not explain or interpret.

In the late 80's and early 90's, the study of Fibonacci relationships also reached a zenith. Again, the market made adjustments to counteract its popularity; as a result, the new NEoWave patterns mentioned above began to develop without the presence of Fibonacci relationships. As a matter of fact, one of the crucial features of NEoWave Diametircs and Symmetricals is the absence of Fibonacci relationships.

Since 2000, I have seen dozens of NEoWave Diametrics, Neutral Triangles and (to a lessor extent) Symmetricals on both smaller and larger time frames - many of them lasting months. Because all three of the above formations have proliferated for the last 10 years, and because they develop without the presence of Fibonacci relationships, the value of Fibonacci (since the stock market top in 2000) in the study and confirmation of wave patterns has declined significantly. That is the reason you rarely read about it in my current and past NEoWave updates dating back to 2000's high.

[Vipul garg]

DG,
yes it has been a happy period!!
But then i d like to be more happy!

[KRG]

Vipul : You had fantastic forecasts.. I hope that you could trade some or all of them.. I understand that one can have a great forecast but still may not make as much one likes to.. trading discipline, conviction, patience et al

Cheers

[vipul garg]

KRG
i dont trade notes and currency, so they are only forecasts.
rest are trades, with indian equities being my primary trading vehicle.

and ofcourse forecasting is way easy than trading.

major moves in indices and stocks esp liquid ones are theoretically worth a lot of money .as a trader , i aim and hope to maximise returns and get at-least some share of these major moves in indian stocks n index and spx.

i dont know if you read about say my expectancy for coal india.it has just done that.but was i able to capitalise it fully? no.
i subscribed to it in HNI , got a few shares.on the listing day the first real trade was 300 RS, i wanted to buy there, but didnt. finally managed to buy half of my planned position at 329 rs and i ll sell it tomorrow(monday).
so inspite of having a 100% conviction on how it will list and perform, i bought only half of position at say about rs 25 extra. now thats a huge opportunity lost.
in life, fear makes you do a lot of things, but nowhere it is more dominant than in front of a trading screen.
so more discipline, conviction, patience, egolessness is needed as you said.

[Patrick]

DG,

I know its always just a "coincidence" when markets, even to this day, trade up /down to, pause etc at .382, .50 and .618's on the weekly charts. The simple discipline still works for the most part. When a market breaks above or below a fib number it invariably goes to the next number. What ewave pattern it takes to get there is irrelevant to me. The longer you trade the markets, decades, the fewer the trades you will make.

Who can argue with Neely's work with ewaves but I will definitely argue the validity of Fib work on any liquid market, before and after computers.

[Dsquare]

I still use fibs quite a bit. Particularly 0.618, in determining whether a b wave is small or large and whether the time taken relative to the a-wave is appropriate for a triangle or a diametric.

BTW, Neely's count on the SPX, where in the first phase we got a wave-a off the bottom and then a wave-b that made a lower low as part of the triangle, Maybe we'll see something like that for the USD? Anyway that's what I'm watching for.

[Michael]

"Anyway, long post but obviously with this week's new highs confounding many (fortunately, my wave count left open this possibility, so I don't have any wailing and gnashing of teeth over seeing new highs), it's a good time to take stock of what your methods are and are not accomplishing in helping you reach your trading goals." - DG

The bottomline is that anyone that got caught up in "Elliott Wave Theory" most likely missed some of the biggest bull moves in inverse dollar trades such as coal, iron ore, copper, steel, precious metals, and energy trades.

A MONKEY could have made money trading off of dollar weakness over the past year. That's a fact.

Sometimes, making money trading doesn't have to be as difficult as some people make it out to be, with interpretations of grandiose all-encompassing wave "theories" that jump from one alternate count to another.

I've highlighted the opportunities from the LONG SIDE in all of the sectors above for the last 14 months on several blogs (including this one) but for some reason I highly doubt that anyone here has ever traded the likes of ACI, BTU, CLF, JOYG, FCX, or WLT from the long side.

What a shame.

[Dsquare]

"Neely has done an admirable job of creating more precise rules to the theory, trying to remove the discretion that bedevils almost all analysts, but besides touting fairly odd wave patterns (eg., the great rise of America as a global economic power in the late 1800s as a corrective wave), he ends up with new and evolving wave forms that seem more like Ptolemaic epicycles than a solid foundation for precision. Tony Caldaro has also tried to make wave theory more rules-based than pattern-matching. Yet despite their efforts, they have not seemed to have risen that far above EWI."

I disagree with that comment re Neely. Problem with EWI, they have no rules.