Learn Elliott Wave Principle

By in Technical Analysis on March 2, 2020

Monday, April 11, 2011
Stocks Look Vulnerable Here


Using my Elliott Wave Blog fundamentals can give us an edge on predicting future movement of the financial markets.

I’ve been talking about how weak the rally looks internally the past few weeks and how I’m looking for volume to re-enter the market to give us some momentum in either direction. I didn’t want to take a position randomly because I know how the market can easily just float higher and higher and higher on light volume for several weeks. And that’s exactly what it has done. But now the daily price action is starting to match the weakness the internals have shown the past few weeks. Today’s internals continue that trend with a measly 817 NYSE shares traded, but decliners well exceeded advancers by 1,178; a bearish indicator here.

When volume returns, it should move this market sharply. If it shoots higher with that volume, I believe it would be a capitulation move, not the start of the next rally leg lasting months. So it should be capped and reversed in fairly quick order. I wouldn’t short into the rally, I would simply get out of its way and let it run its course and wait for signs of a top. Then I’ll try shorting against a recent swing high. The other option is that the market just shoots lower from current levels either Tuesday or Wednesday this week. If so, and volume increases on the decline, I’d short into that weakness.

ELLIOTT WAVE COUNT

With a clear 3 wave drop from the high on the year the only accurate way to count this is an ABC decline within a larger correction, most likely a WXY combination. The market should soon be undergoing another 3 wave drop to form wave (Y). Making a new high on the year would negate this count from contention and most likely mean the 3 wave decline was simply an ABC zig-zag correction within a larger 4th wave. But under this scenario, the market would soon top and reverse anyway. So I favor the short side now and am looking for an opportunity to get short.

The daily S&P chart tells a grim picture for stocks. Volume has fallen significantly as the market has risen, suggesting the rally has little teeth to it and that it’s most likely just a correction [which I’m labeling Wave (X)]. Also notice the RSI has already reversed and has been headed lower for days while price has consolidated. I can’t emphasize enough how weak this market looks right now. But without any solid evidence of a top, we have to expect it to float higher….and continue to wait.

The euro count eludes me for the short and medium terms. The larger downtrend count remains intact though so I want to look for shorting opportunities. A reversal day, sharp decline and/or an impulsive move lower would get me to attempt a small short position. Aside from that, I’m on the sidelines here.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

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