Courtesy of guest author AllanTrends
This is one of those times when being aware of another technical analysis discipline compliments the trend following we espouse here at AllanTrends. The only one I have any use of is Elliott Wave. I use it at times in my charts, but a more sophisticated version is available from Robert Prechter’s Elliott Wave International. I say all of this for two reasons: (1) I am about to quote from their recent analysis and (2) they are currently offering a free two-week trial. Fair enough?
EWI Short Term Update August 5, 2011
Paraphrasing: A head and shoulders pattern in the NYSE, a break of a 2 1/2 year support line, and a Dow Theory bear market signal are confirming the EW structure which places the market in the early stages of a primary wave 3 down. The buy the dip crowd is out in force, but if you focus on the long term, in our opinion, that is down. (Don't miss this FREE opportunity from EWI.)
Now, back to Trend Following.
- SPX – Weekly SELL
- NASDAQ – Weekly Sell
- VXX – Weekly Buy
- IYR – Weekly Sell
- IWM – Weekly Sell
- REE – Daily Sell
What strikes me as remarkable is how the Weekly Sell signals coincide with the Elliott Wave analysis above. I can stop here and this will still be the most important Weekend Update ever. But now we have the downgrade of US debt to deal with and anything can happen come Sunday night and Monday’s open. We go with the models no matter what and since its too late to make any changes in your positions, whether the market sinks (as expected) or rise (downgrade already baked into prices), whatever reaction should be short-lived against the backdrop of these major long term trends turning down.
I’ve added IYR to the Commodities portfolio (Dow Jones U.S. Real Estate Index). It’s inverse leveraged (2x) counterpart is SRS. The lifetime high of SRS is $269.95 on November 20, 2008. It closed Friday at $17.66. These are excellent Weekly (longer term) Trend Models. IYR triggered a sell and SRS triggered a buy on Friday's close.
P.S. Song of a Lifetime,