Euphoric Kick

What we are seeing in the markets is the sweet journey higher of a market stoked on its own momentum. Investors are just riding the classic Elliot wave three higher. Not dramatic just a smooth ride higher. Only the odd mid-air bump.

There are days when the market finishes at the lower end of the days range. Some investors are getting a little scalded as they buy impulsively at the early opening bids only to find the market slip away during the day and these investors finish out of pocket on the day. Not a big deal but not the way I trade.

So where to from here?

Let’s look at the current action – for the XJO

In the daily chart above, we see a classic Elliott five wave impulse pattern taking the market higher. We also see a negative divergence between the market volume and the market direction as highlighted in yellow above. The market is moving higher, but volume is fading, and we will most likely see that happen through to end January with volume being rather thin. Not a big deal as it is the normal patter at year end. Though the big institutional investors take a break it is also a good time for the small punters to take a break. But make sure your portfolio has been cleaned up – of doubtful looking stocks or where large losses have been incurred or could occur.

So back to the five-wave impulse pattern. The market range traded from June to October and then bolted out of the blue in November. As this was happening the wave four retreat reared its head. Again, a standard behavioural pattern.

The big question is whether the wave four is imminent and if you looked at the oscillator then you could be forgiven for thinking it was already underway.

Wave threes surprise constantly. Whilst it appears to lurk more often than not it is further away than it looks. It is just an alert. It wants to remind us not to take the euphoria for granted.

I expect the wave three will stretch higher and even to the wave five levels and then we may see the wave four kick in with investors once again running for cover.

This is what makes markets interesting.

Enjoy the ride - Higher, as you have earnt this one

Tom Scollon