Elliott Wave Revisited

Elliott Wave patterns show up in different timeframes and are a fractal pattern based on a 5 wave count. The basic pattern is 3 steps forward and 2 steps back (or 3 step backwards and 2 steps forward in a downtrend as shown below) after which there is a reversal of trend or a 3 wave consolidation pattern known as an A-B-C correction.

This pattern is one you must look out for and many market analyst have gone to great lengths to identify this pattern. I have mentioned Elliott Wave many times before, see here, here, and here. It has been successfull in calling cyclical changes in the market. The 3 month daily chart below seems to me to have made a 5th wave low. We could now be in for a change of trend(a rally) or a consoldation pattern before heading to new lows. We will just have to wait and see. Click on chart to enlarge.
Addendum: Wave count correction
While leaving the chart above as an example of a wave count error, I would like to add that it was a mistake on my part for seeing a 4th wave and that in fact we are still in a 3rd wave down. I have noted this by drawing the red broken line. The 4th wave is usually very choppy and would last longer than I have shown here.

Indicator Development

Now that I have more time I will be actively developing new indicators for market analysis. This indicator below changes both the bar and the background color ot the chart for easy visual reading of market trend – green for up and red for down. My goal is to make the chart easier to read in all time frames. Naturally, we want to trade in the direction of the trend of the longer timeframe while using the shorter timeframe for entry and exits. The current trend is down on the daily timeframe. Click chart to enlarge.

Market Summary

For the past week Gold was down the most followed by the International iShares EFA. Other markets were essentially flat. Click on table to enlarge.

The Air Car

I am so impressed with this idea that I want to pause for a moment from market analysis to share this with you. Take a look. This is the future. Thanks to my friend Robert Hill for telling me about it.

Market Summary

There was a lot of bad news this last week and the market took a hit. I am posting this table of performance sorted by last 4 weeks.

The Energy Sector

From the prior post it can be seen that the energy sector has had the best performance of all the sectors listed in the 4 week, 3 month, 6 month, and 12 month columns. The XLE holdings are 36 companies or 7% of the companies in the S&P 500.. Energy companies in this Index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services.

Since as a group the energy sector has the best performance it gives us an idea of what to look for in terms of performance related to fundamentals.
Ratio XLE
Average Price/Earnings 10.45
Average Price/Book 2.53
Average Price/Sales 1.20
Average Price/Cashflow 8.22

The 36 companies that make up the XLE can be found here The top performane for the past 3 months goes to NBR up 36.4% and for the past 12 months CNX up 99.31%.

4 Week Sector Performance

It has been said that the best way to make money in the market is to be in the right sector. That way all the stocks in a sector benefit from each other. I think this is good advice and I am posting the table below that list the Sectors and their performance sorted by the last 4 weeks. Click on table to enlarge.To give a visual representation here is a chart of the above 4 week performance. Click on chart to enlarge.

The 20 Day View

I like the 20 day candlestick chart made up of 4 hour candles. It is a chart of approximately one month of trading days. The chart below begins on the left side with prices on May 5th and goes to todays prices on the right side. It can be seen that on May 6th there was a high in the market Then in the middle of the chart on May 19th is the highest high. And finally, last Thursday on May 29th was a lower high. Those are the highs. The lows are as follows: on May 9th and May 27th.

We have here now a series of lower lows and lower highs. This is our definition of a downtrend. Even though it is a small series, two lows and two highs, it is enough to say that the former uptrend has changed and now we have a downtrend. Also note that the fast band of moving averages has crossed below the slow band.

What does this mean? Since the real trend is determined by the daily chart we will have to watch the daily chart to see if it makes a similar pattern as shown here with the ½ day chart. If it does then the trend is confirmed down and sell in May and walk away holds true. If not, this could be a period of consolidation before another move to the upside. We will just have to wait and see. Click on chart to enlarge