Elliott Wave - Know when to be the contrarian, bear market low signals, bull market tops

screen capture of finance.cnn.com pop-thru advertisement on October 24, 2003 3:20pm EST

Was 2000 really a drive-by-accident waiting to happen, or did somebody know something we all missed?  Does the media give us subtle clues about the future direction of market or investor psychology?  I believe so, and consider it one of the most fascinating aspects of Elliott Wave theory.  Witness the rise of wealth in the United States coinciding with the release of "Forest Gump" in the 1994 movie based on dumb luck and fortunate turn of events.  Audiences and nerds whose fortunes grew each day by millions were delighted as "The Matrix" sent everyone on a journey questioning reality, and in a parallel universe the analysts where heatedly debating the recession-proof chip sector on the eve of the Y2K hoax.  In March 2000, the snazzy Nasdaq marketplace facade was turned on just as the QQQ was split 2:1 on the ascent to the the top.  How it stands in stark contrast against the adventure "Perfect Storm" released soon thereafter which taught lessons on how greed can dull the senses.

It is now 2003, and the year is winding down a series of Enron, Worldcom, and mutual fund timing scandals.  In one of the most influencial and brilliantly timed pieces describing the volatilie mix of ego, crowd behavior, and need for perspective, an article from http://contraryinvestor.com/ swayed readers to draw conclusions about market risk as the indicies started to diverge in what was a war of new vs. old economy.  In their article "What's It Like at the Top?", written in February 2000, the author suggested an imminent perfect storm was brewing in the market seas, and drew parallels to the ascent of Mount Everest as narrated in the book "Into Thin Air".  The Sir Hillary Step represents the most technically challenging section of the mountain just shy of the summit, where climbers are forced to traverse a steep chute single file in one direction only; the Hall / Fischer expedition was doomed since "too many climbers simultaneously trying to summit that day that led to significantly decreased odds of success for the many."

We're using our little analogy here to point up two concepts we believe are important in today's market environment.  "What's it like at the top?" is the question of the moment.  The second "eye of the needle"/Hillary Step analogy can be likened to investors being fully loaded in the tech and Internet names.  There's a huge crowd at the summit. Can everyone descend successfully as storm clouds approach?  The Hillary Step dictates that only those who leave well ahead of the crowd have the chance to avoid the bottleneck.

The media doesn't necessarily always have to create tops.  Significant bottoms are marked by distinct shifts in investor psychology, political gyrations, or significant media events.  A technician would say that the patterns which are coincident with market turns merely point the way to future price movements and later confirmations by business fundamentals and economic reports.  Trader's lore states that "the market anticipates 6 months ahead" - if so, then who are the smart folks that get it just right, and what tools are they using to manage their risk?  Students of market behavior, using technical analysis as their insight - and the media tends to give us some very timely clues.

screen capture from October 9, 2002  -  XAL /airline sector was called to bottom at 27  -  most airline stocks have doubled since  -  Nasdaq has done nicely, too :)

 

Back to the Future

Session Start: Fri Oct 24 09:46:37 2003
[09:46] good morning
[09:47] ES 1,023.75 .. testing yesterday's open spike low .. watch .5
[09:49] tick +592 .. still trying to bounce
[09:51] ES 1,025 .. am setup .. ES_intraday__1024_am.gif

[09:52] doji players are paying attention here
[09:53] QQQ, MDY, SPY, DIA .. testing 50dma levels .. all based on a micro divergence from last week .. MARKETS_daily__1025.gif

[09:55] put together a summary on ES dayscalper players (from yesterday) .. "Cards on the Table" .. pattern-trading-players.htm
[09:57] [AkePer] voodoo are u in the Pacific Time zone?
[09:58] [Dowtrader] Dow moved down 100 pts in after hours last night after MSFT figs
[09:59] Ake - yes .. am offset by market -3hrs

[10:00] ES 1,025 .. am watching the first signs of an overlapping wave structure .. 2nd push higher
[10:02] ES 1,026 .. 10-10:15 window opening
[10:03] I would ideally like to see this lift end in 3*push sequence higher .. right at 1,027.5
[10:03] another level to watch would be the broken neckline (now confirmed) of yesterday's h&s into the close .. around 1,028.25
[10:05] fwiw .. yesterday's wolfewave target line .. tagged perfectly on open .. gartley players are also satisfied with h&s gamers
[10:06] with = along with
[10:18] ES 1,023.5 .. will a 3rd push higher show? .. if not, natural neckline around 1,023.25 is on radar
[10:26] ES 1,024.75 .. grinding at channel breakdown targets aroudn 1,023.5 .. consider that the AM pivot to watch
[10:28] eye is on retest of natural neck at 1,023 as lower bound .. upper bound still fuzzy
[10:29] remember the monster gap from 10/3/03 .. starting to fill here
[10:29] how appropriate for the halloween season
[10:32] ES 1,023 .. key test .. higher-low players on watch
[10:32] copy channel bounds from yesterday's bear flag to watch
[10:38] ES 1,024 .. first guess on scenerio setup .. tri concolidation watch .. ES_intrday__1024_am2.gif

[10:40] tick +928 .. hod
[10:41] flipping to 45min timing interval based on spike up series
[10:47] ES 1,026.25 .. upper channel test .. nice bounce
[10:48] for really -good- insight and information on gold .. go only to http://zealllc.com/
[10:48] fwiw .. he -was- one of few .. calling the top in Nazzy and bottom in gold in 2000
[10:49] GC /gold 391 .. bearish "gartley" is broken
[10:54] more on zeal: this was when I started paying real attention .. the author was using 2x timescale acceleration on Nasdaq at the time, but later switched to 1x1 time scaling .. if I swing in the trees, and hourly is a forest view, this guy was taking satelite pictures from outter space .. nasdaq2000.gif

[10:56] ES 1,024 .. triangle games
[10:56] e-wavers start 3-3-5 count
[11:02] while on stroll down memory lane .. more fun with candlestick sequences .. always interesting how "doji" games and 3-stick sequences work on daily patterns also (not confined to 5min timing) .. whew! rembember when 150pts on NDX was 'nuthin' .. NDX.gif

[11:02] ES 1,026.25 .. eye is on 1,027.25 move (upper channel bounds)
[11:03] tick +763 .. not as strong as earlier lift attempts
[11:05] ES 1,027 .. "think 5pts"
[11:06] ES 1,026.5 .. 5min/40ema levels .. an update .. ES_intraday__1024_ch.gif

[11:28] ES 1,033.5 .. an update .. ES_intraday__1024_335.gif

[11:28] bean/bar counters @ work here
[11:29] 11:30 is key tick timing interval
[11:30] ES 1,023.25 .. bar #6
[11:30] doji watch
[11:31] ES 1,022.75 .. lower bounds of rising channel being tested .. first key test
[11:33] "maribozu" impulse on channel break
[11:33] tick -610 .. lod retest
[11:36] tick -683 .. lod
[11:36] "think 5pts"
[11:37] mizc - best when taking in larget context of patterns, support/resistance .. ES_intraday__1024__maribozu_doji.gif

[11:38] larget=larger
[11:38] tick blinker
[11:40] i'm no genuis .. everthing I talk about .. is based on years of studies of folks that traded in 1920's thru modern day .. I don't invent this stuff, I just "see" it
[11:41] [Nick_] voodoo, so now retrace to break?
[11:41] nick - may wanna note divergences on -price action- momentum
[11:42] yes.. retrace to spike low will confirm an intraday "2x top" trigger point
[11:42] this is the "no edge" level
[11:42] gartley players, bean counters, and gann games .. have taken the winnings of the last hand "think 5pts" hand
[11:43] some redudancy in there .. must be my fingers saying they are tired .. catch y'all a bit later .. fast money has been made
[11:54] ES 1,020.5 .. a rather interesting level from the forest view .. ES_intraday__1024_hs.gif

[11:54] watch 10/2 gap @ 1,020
[12:01] ES 1,022 .. first divergence game of ayem session .. wolfwave players will wanna join in soon if there is a 3rd push lower sequence going into noon swoon .. ES_intraday__1024_doji.gif

[12:03] fwiw .. indicies are now grinding @ 50dma levels .. QQQ, SPY, DIA
[12:08] fans of Pesavento's work will recognize a "butterfly" shaping up on intraday
[12:11] butterflies are delicate creatures / patterns
[12:12] oh yeah .. for some very nice, stunning pictures .. these are thanks from one of your pitstock operators .. http://voodootrader.com/don.htm
[12:13] "ripples in a pond"
[13:11] ES 1,019 .. all downside target measures met .. very nice call on "retrace to breakdown" along with 2x top combo .. 2x "think 5pts"
[13:12] credit where due: [11:41] [Nick_] voodoo, so now retrace to break?
[13:13] ES 1,018.5 .. an update .. ES_intraday__1024_meas.gif

[13:43] ES 1,019 . back up against 5min /20ema resist
[13:43] consolidation sequence
[13:49] ES 1,018 .. retesting measure point .. ES -11pts
[13:50] next key tick timing interval @ 2pm sharp
[13:52] ES 1,018.5 .. pm setup .. ES_intraday__1024_pm.gif

[13:54] the usual play is a fade to 3:00.. and a rebound into close to push to new extremes
[13:55] hrm.. odd tick divergence, but unconfirmed
[13:58] cute example of "when the charts show rounding, hoofs start pounding" .. lead-in pattern on this timescale was a "3 waves + dome" sequence .. MARKETS_daily__1024_round.gif

[13:58] another pattern that gives a good psychological clue .. is "broadening triangle" = lack of control
[13:59] it is a a 5-point pattern that requires higher-highs -and- lower lows
[14:01] it shows that neither bull nor bear has an upper hand to play .. ES_daily__1024_broad.gif

[14:02] key distinguishing feature between it and wolfewaves .. is inflection #4 - but the 1-3-5 three push count remains the same ..
[14:02] patterns within patterns
[14:03] on broadening triangles .. you find the pivot point (intersection of upper+lower bounds .. price target #1 is a retrace to that pivot
[14:04] from there .. they form either "diamonds" .. or break down hard
[14:05] example of diamond pattern .. and the most perfect timing signal of all .. Abbey @ a top (just like earlier this week) .. DOW_diamond_0607.gif

[14:06] note broad pattern .. @ Abbey crest
[14:06] h&s to build the right symmetrical triangle
[14:06] diamond = broadening triangle + constricting triangle
[14:08] 2pm tick timing .. lod
[14:09] "doj" suggesting it is time to clone some p-lines from AM action
[14:11] ES 1,018.5 .. pm update .. 5min/20ema only thing that matters for next hour .. ES_intraday__1024_pm2.gif

[14:14] diamonds (continued) .. the ultimate in timing signals .. all within bounds of a diamond pattern .. loss of control .. Dow_diamond_pivots.gif

[14:15] although I may bash Precher / Hochberg over at EWI for their short-term calls
[14:15] they have done some excellent work when under "duress" and they were fighting against the majority of the opinion
[14:16] vs. the hiddena agenda of selling "conquer" books
[14:17] hiddena=hidden
[14:19] channel players perking up
[14:19] eye now to 5min/40ema
[14:22] the other key thing to take away from Ellott Wave ..
[14:22] is that is uses the media to gauge psychology shifts
[14:23] it is by far the most fascinating aspect of that theory
[14:23] is that psychology has such an impact
[14:23] and that it is only a matter of opening our eyes to the changes around us
[14:26] I like to use popular movies .. (e.g. progression of
"Forest Gump" .. "Matrix" .. "Hannibal" .. "Perfect Storm" .. "Grinch" .. "Shrek" .. "Monsters, Inc." .. "Spiderman" .. "Hulk"
[14:26] some use the covers of magazines
[14:27] in the end .. it boils down to just more timing tricks
[14:27] and to gain an "edge"
[14:27] [TheLASCONE] u can time the market using movie releases?
[14:28] Lascone - I used movies for a gauge of sentiment
[14:31] to me .. that progression signifies:
("dumb luck" .. "there is no spoon" .. "do you count the sheep, Clarice?" .. "Greed Kills" .. "Save us Green Man" .. "Green Man is a Dork, but Looks are Deceiving" .. "Scary Dreams, Voice of Reason" .. "Save Us, Green is Mean" .. "Control your Anger, Mr Green Man"
[14:33] March 2001 into the first swoon .. EWI was watching this setup: QQQ_wave5_322.gif

[14:34] lo and behold .. same day ..
[14:34] TIME_bear_322.gif

[14:35] NEWSWEEK_cover_322.gif

[14:35] USNEWS_cover_322.gif

11:36] ES 1,021 .. breakout above 5min/40ema
[14:36] first place to watch for triangle games
[14:37] tick +847
[14:37] tick turn signal blinking
[14:38] I have put in a conscious effort in past few days to do a -LOT- of running commentary
[14:39] mostly to express and debunk the notion that technical analysis does work
[14:39] it is -not- voodoo as the Fools believe
[14:40] I appreciate all the accolades .. but I will feel much better if this is a jumping point for y'all to get a solid sense of your risk profile ..
[14:40] and find something that works for -you- .. something you can always trust
[14:41] I don't listen to CNBC thru the trading day
[14:41] rock and roll is how I find my rhythm .. not being baited and switched
[14:41] charts talk to me
[14:41] they tell stories
[14:42] is only a matter of whether you want to put your mind to work .. or be blindly lead around
[14:42] know your fish .. know your pool .. know what the limits of your trading is
[14:43] am done, now
[14:43] peace to all players
[14:43] nite

[14:44] [prop] just caught up. did voodoo say tech analysis was stupid?
 

 

 

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