gem-x's Elliott Wave Forecast for Feb 12, 02
The wave we've seen from 1772 to 1846 looks a lot like the wave up from 1852 to 1942 we saw last week, which gives the move a stronger chance of it being a Wave 4, or an upward correction in a down move.
A fast move up, with the second day having low volume, and worst of all, on the 5th wave up, a leading diagonal. Leading diagonal or in "bear talk" terms a "wedge" on a rising move spells bad news, because the reversals are fast and vicious. That's what happened last week from 1942 on the NASDAQ. A wedge on the 5th wave.
Today had such a move, and to play it safe, I got out at 1837.....around that time the volume was real weak, and the day ended well, to the upside, but the volume was pathetically low. Not good when the market needs a solid follow through day, and can't rally with large volume.
The day might start out, completing this wedge, and could have that big reversal down wave from around 1858...but there's a lot of people expecting it.....I'll be watching carefully for a clear channel break, from there....if a lot of people are expecting something, like a big drop, and it doesn't happen, the scramble to cover could create the necessary volume for a reversal confirmation.
But if the market starts to rally hard on large volume (around 900 million shares by 11-:30-12PM, and well over 1858, I might get aggressive, but it's almost impossible since there's 5 waves up from 1772, already.
What was pretty surprising today was how the put/call ratio hit 1.15 intraday, when the market was up.....so a nice fearful but quick down wave would be just the trick for a fuel up to create a larger more sustainable rally. I wouldn't mind seeing one more wave down, to create a real crescendo of fear and put-buying.
I just checked the 10 day MA and 21 day MA on the put/call ratio, I was pretty surprised to see the 10 day MA at .87, which is .01 higher than the put/call in March 2001 (preceded 712 point rally), and the 21 day MA is higher too....if this wave up from 1772 was Wave 4, a likely target on the downside is 1739, which is equal length to wave 1 (1846 - 107 points) or equal length to Wave A (1959 -220).
But, I'd prefer not too be aggressively short, because 5th waves down can truncate (not reach a new low and reverse really hard), or not have the strength to drag down stocks that have strong relative strength...in other words, the NASDAQ may go down, but the stock you short doesn't follow... I'm not a big fan of going after 1-2 points on a risky trade on a 5th wave, when with good patience, a strong volume reversal with confirmations can reward you with 10-15 in a flash on the upside.
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