|
A few years ago the media seemed to be particularly eager to announce the beginning of the bear market and as soon as we experienced a 20% fall in the major indices, all manner of pundits (without a cent actually in the market) crawled out of the woodwork. Although it is early days, according to the same metric we are now officially in a bull market – a 20% rise from the bottom. The question is: “will the next lot of experts come forward to let us know the good news?” For the trader and investor who is actually involved in profiting from market movements, rather than simply talking about them, we need to have the courage of our convictions, a sound trading or investing plan and a sound methodology in order to execute that plan. All of my recent articles have revolved around several macro economic and technical reasons why a bounce was to be expected. Although some of those arguments are relatively complicated, I was recently made aware of a more simple way that the recent low could have been calculated.
Below is a chart of the Dow Jones 30 Index (INDU) as it stood in mid November last year, taken from ProfitSource. Using the long Range Elliott Wave Forecast tool the TAPP (Time and Price Projection) is clearly visible and given by the broken line. In order to replicate chart, simply use the Walk Thru tool (which is circled below) and click on the 18th of November
click to enlarge
The Long Wave Elliott Wave Hi-Lite utilises the fractal nature of Elliott Wave theory to ignore the smaller iterations of waves. It is designed to focus on the longer term and more pervasive impulse wave directions in order to identify the predominant trend. The next chart shows how this played out over the following months.
click to enlarge
Although this was an extremely accurate forecast, it is not necessarily a confirmation to take a short trade using a Dow CFD or future contract. Those more familiar with EBOTs will see that there was a trading opportunity, although the stop strategy employed would have been the critical factor in remaining in this trade over such a long and volatile period.
Regardless, having a target price on a major index will certainly go some way to help all traders and investors position themselves more defensively or aggressively depending on their trading instruments. At the very least, those who had profited from the short side may have reduced position size into what is expected to be an area of potential support. One extra piece of interesting evidence over the first few months of 2009, has been the behaviour of the oscillator. The oscillator provides an additional confirmation to the Elliott Wave formation. Clearly, the power and length of the most recent Wave 5, is very much low in comparison to the Wave 3 (as illustrated below).
click to enlarge
All in all, this recent low was very nicely described in advance by the Elliott Wave rules contained in ProfitSource. It is my view that an integrated approach (such as combining the macro economic and fundamental evidence presented to us) can offer a tremendous and completely unassociated method of confirming good trades or, more importantly, dictating strategy.
Stay Sharp,
John Jeffery
|