Is the market following a script? If you ask Elliott it is.

The Elliott Wave Theory is a method of explaining market movement using a series of waves that are based on naturally occurring patterns. The system is named after Ralph Nelson Elliott, an accountant who developed the model in the 1930s. Today, Elliott Wave Theory is the basis for a whole school of technical analysts, including yours truly.

So, what’s the theory saying right now about stocks?

The S&P 500 chart below has a 3 wave (abc) look to it jright now. The only problem was the fact that its prime entry took place in the form of a gap, and within minutes traced out the bulk of Thursday’s move.

One look at last week’s action in the NASDAQ Composite below tells us that a potential 5 waves down pattern has taken place. Typically after a 5-waves down affair the next is a 3-waves up affair. Remember, the NASDAQ Composite typically leads the other broad-based indexes, so the suggestion that the downside pattern is over points to a recovery in the S&P 500 and the Dow very soon.

But the recovery may be short lived. As the market sets off on its final wave, we could be in store for a final 3rd wave well to the downside to complete the 5-waves down pattern. Check out the drawing to the left of the chart above for an idea of what to expect… To give you a clue as to what the downside might look like, we don’t have to go back in time too far: we’ve already been there back in March.

We could be very close if not already there for a counter trend rally (that means short term ABC up) then the “Wonder To Behold” to the downside. This could take place in the span of a few days to a few weeks or even a month or two. But the bottom line is the overall trend is down and all rallies are shortable.

Sincerely,
David Grandey
AllAboutTrends.net

February 9, 2010

David Grandey

David Grandey is the founder of All About Trends, an email newsletter service revealing stocks in ideal set-ups offering potential significant short-term gains.  A successful canslim-based stock market investor for the past 10 years, he has worked for Meriwest Credit Union Silicon Valley Bank, helping to establish brand awareness and credibility through feature editorial coverage in leading national and local news media.

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