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I am an equity option and futures trader. I have been trading the markets since 1979. More about me on my website
My blog:
Beyond the Chart
My book:
7 Keys to Successful Option Trading
  • Dow Industrials...Hold On, This Bull's Still Running!! 0 comments
    Sep 24, 2013 2:14 PM

    (click to enlarge)Bull RidingOne of the websites I like to check on a regular basis is The Elliott Wave Lives On. Tony Caldero does a great job analyzing the market from an Elliott Wave perspective and has been very accurate.

    Another Elliott Wave expert is Ramki Ramakrishnan who publishes Wavetimes. He published an eBook, Five Waves to Financial Freedom, about Elliott Waves that I find very useful and constantly use as a reference.

    An Elliott Wave Analysis

    Ok, why am I saying this bull's still running? Tony is thinking that the recent selloff to a low of 14,760 on August 28th was the completion of Major Wave 4 and that makes sense to me. That's 4 waves out of 5 up from the low on Oct. 4, 2011. Now using Ramki's methods for projecting where Wave 5 will end is how I come up with a minimum move to 16,763 and possibly to 18,000 on the Dow Industrials.

    (click to enlarge)DJIA Wave 5 of III


    A Fibonacci Projection

    So how does he do that? Well if either Wave 1 or Wave 3 extended, and Wave 3 did, then you measure the entire distance from the beginning of Wave 1 to the end of Wave 3. Then you calculate 38.2% of that and add it to the end of Wave 4 and you get the minimum expected move for Wave 5. That calculates to 16,763 for the Dow Industrials.

    You can also create a channel by drawing a trendline between end of Wave 2 and 4 then creating a parallel line. Normally you position the parallel line from end of Wave 3 but when Wave 3 has been strong, it's better to use end of Wave 1 as shown on my chart. That channel line projects right into the middle of my projections.

    NYSE Composite Confirmation?

    Another view that I've discussed on my market update videos recently is the picture that the NYSE Composite (NYA) is giving us. See the chart below. It is a classic Ascending Triangle. NYA broke out to the upside on September 16 and has pulled back in the last few days.

    (click to enlarge)NYSE Ascending Triangle

    To project the move you draw a parallel line to the rising trendline and connect it at the beginning of the triangle as shown. This projects to 10,600 which is an 8.9% move from yesterday's close. This is an almost identical percentage move to what I am getting with the Fibonacci projections via Elliott Wave.

    These pictures seem pretty clear to me. Can they change by next week? Absolutely. Which is why you need to constantly reassess where you are and your assumptions. But now it looks very bullish. It makes me feel a little uncomfortable given what is going in Congress right now, but this is the message I am getting from the market. I've learned to listen to the market.

    What message are you getting? Leave me a comment and let me know your thoughts.

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