Jun 252016

Elliott Wave analysis of the German DAX (DE30) index would have guided us well ahead of time about the deep correction that is underway in the European stock markets. This post discusses how we could have used Elliott Wave analysis to anticipate key turning points in the benchmark index, and taken steps to lighten our equity exposures. The steps I use have all been explained in detail in the Elliott Wave book “Five Waves to Financial Freedom”. Let us start by looking at the various waves since the significant low of 3588 on 13 March 2009.
Wave 1
The first wave, or what we label as wave 1, went from the low of 3588 to a high of 7442. If you look at the intra-day charts of the German Dax during this period, you will be able to see that this wave 1 had its own set of five sub waves. You will also notice that sub wave 3 within this wave 1 was extended, in that it traveled more than 161.8% of sub wave 1. Thus, I would have determined that wave 1 was extended, giving a low probability for either of the upcoming impulse waves to extend. However, the more interesting development happened subsequently. But first, let us look at the chart.

Wave 1 of the German Dax index

Wave 1 and wave 2 of the German Dax index

Wave 2
Wave 2 was a complex correction. It has traced what is described in the Elliott Wave book “Five Waves to Financial Freedom” as an irregular correction. Notice that sub wave b posted a high that went above the end of wave 1. We then got a deep sell off as wave c to compete a three-step complex correction. The fact that wave 2 was deep is important at that time because it signaled to us that wave 4 will likely be short and simple.

Wave 3
Next we look at the third wave, or wave 3. Observe that it reached slightly higher than the 123.6% Fibonacci ratio projection of wave 1.

Wave 3 of the Dax index was a normal wave

Wave 3 of the Dax index was a normal wave

Wave 4
As anticipated earlier on, wave 4 was a brief and short correction. It was also a normal zigzag correction. Traders and investors would have added to their holdings on this dip. When I advise my high-net-worth clients and fund managers, I recommend them to add more to their core holdings during this fourth wave dip.

Wave 5
And finally, Wave 5 finished exactly at the 61.8% measure of the distance traveled from point 0 to point 3. This is quite an amazing phenomenon, and has been described in detail in my book. Now you tell me, which other approach to the financial markets can be more accurate than this in anticipating the end of a bull cycle!

Wave 5 of the German Dax index finished exactly at 61.8% of 0-3

Wave 5 of the German Dax index finished exactly at 61.8% of 0-3

I agree that it is not easy for traders and investors to be able to label waves with confidence, which is why many high networth individuals and hedge fund managers seek the advice of professionals. But, you too can improve your performance in the stock market by paying simple attention to some relatively straight forward rules and guidelines. I wish you all the best. Ramki

Aug 062012

From an Elliott Wave point of view, the recovery in the Gernam Dax index from its June 5, 2012 low of 5914 does not look like a third wave. In addition, the prior recovery from the September 2011 low of 4965 to 7194 looks like a three wave movement, followed by an overlap. Thus, while we should acknowledge the possibility of the index making one more significant recovery before a more serious decline in the big picture, the near term also warns of an impending completion of a minor diagonal. This is not to say you should run out today and short the DAX. Just be aware that as we witness a slow down in momentum in the ‘e’ wave of the diagonal, we should get ready for a correction. The attached chart of the German Dax shows my Elliott Wave counts in detail.

Elliott Wave count of German Dax Index

Elliott Wave count of German Dax Index

Mar 292012

Back in Dec 2011, I posted my Dax index outlook using Elliott Wave analysis, more with an intention to teach how we could apply the Elliott wave Principle than to forecast. I proposed a bearish count, but the index recovered more than anticpated. Now is a good time to review the movements from the low posted in September 2011.

I am continuing to label the first rally up as wave A for now. Remember that all Elliott Wave labels are work in progress. We will make changes as the market unfolds. The idea is to give ourselves an edge, a system, that will tell us we are wrong much sooner than otherwise. Observe from the chart that we have likely finished a 5 wave rally from the (potential) wave B bottom. If this 5 wave rally is a C wave (and not a 3rd wave) we will eventually get an overlap on the top of wave A to confirm a bearish count. However, I tend to be careful at these levels.

There are two supports that we need to keep an eye on from here. These are 6802 and 6510. Unless we get some really bad news, we should expect 6510 to hold first try and get a move up again. We shall then come back to the question of whether a deep sell off is the correct prognosis for the German Dax.

Mar 262012

As part of your Elliott Wave education, WaveTimes brings you the analysis of the AEX Index, which is a free-floated adjusted market capitalization weighted index of the leading Dutch (Netherland) stocks on the Amsterdam Exchange.

As always, there are notes directly on the chart itself. Elliott Wave analysis is always a work in progress. You should not ever think that once you do your wave counts, you can forget about it and the markets have to obey your diktat! Quite the opposite, really! The market is the master, and we make adjustments along the way. However, the real value of Elliott Waves come into play when you know before hand that there is a chance to reach 356, and that if the index starts coming off from there, we should be watchful near the top of wave (a) because a move below that top will violate one of the rules of Elliott Wave Principle. If that happens, we will cease to buy dips because we will then be back in a bear mode…and so on and so forth.
AEX Index Amsterdam Exchange
Of course, Elliott Waves will appear daunting to the uninitiated, but I hope the book “Five Waves to Financial Freedom” has helped make it easy for you to learn enough of Elliott Waves so that you can start applying what you have learned quite quickly. Good luck, ye punters.

Mar 212012

Every now and then I get a request to do Elliott Wave Analysis of a new instrument, and this time it is the turn of the IMKB-100, or the benchmark equity index of the Istanbul stock exchange in Turkey.

As regular readers of this blog know, I beleive that you could apply Elliott Waves to any well traded instrument and frequently the result is an eye-opener. I am sure there are thousands of traders in Turkey who are unaware of how they could benefit if they applied even some basic concepts that is explained in WaveTimes. So this post is dedicated to them. Please share.

Elliott Wave Analysis of Istanbul Stock Index

There are two charts that are presented here. The first one is a long-term week chart. You can see how we got a nice five wave rally from the mid 1990s. The third wave was 200% of the first wave. Then we got a 38.2% correction as wave 4, followed by a fifth wave that was itself capable of being broken down into 5 minor waves. The ending point of the fifth wave was predictable using the method I explained in the book ‘Five Waves to Financial Freedom’. If one had gotten out near there, he/she could have escaped a loss of 61.8% in the value of the broad market!

The next chart gives you the details of the new up move that began after the major correction. This is a daily chart, and once again you can see how one could have used Elliott Wave Analysis to benefit.

Elliott Wave Analysis of IMKB100

I have also drawn a tentative path the five waves of the current C wave should travel. Once that move is over, expect a relatively large downmove again to complete a correction of the huge rally we saw from near 20,000 to above 70,000.

Mar 122012

Elliott Wave analysis can be applied to just about any well traded market. In this post, we shall discuss the outlook for Russian stock market using their benchmark index.

We start our Elliott Wave labeling from the significant low of 494 posted back in October 2008 and observe that the third wave had extended to cover a distance of 261.8% of wave 1. The fifth wave has developed as a ‘normal’ wave because it was not longer than the 3rd wave. Once the five wave sequence was completed, we got a correction that brought the index down to near the prior fourth wave, but did not quite reach that level.

Elliott Wave outlook for Russian Stock Market Index

Elliott Wave outlook for Russian Stock Market Index

The key point for us to note now is how the subsequent recovery turned out. If the entire prior 5 wave rally is considered as Wave 1 of a higher degree, then we should be embarking on wave 3 of a higher degree as well. How should a third wave look like? Does the current rally look like a third wave? These are the questions an ELliott Wave trader should ask himself. Then he makes a judgement call. I think we will probably get to around 1730 and start coming off. Any overlap of the top of what I have labeled as Wave (a) in orange color will be decisive in confirming that we are only seeing an ‘X” wave and so another a/b/c downmove will happen. Let us take it one step at a time. For now, wait for the rally to take us higher a bit.
This discussion about the Elliott Wave outlook for Russian stock market index is just an example of the kind you would find in my book “Five Waves to Financial Freedom”. Go ahead and check it out yourself.
Dec 192011

How bad can it get for the European stocks during this ongoing crisis? In particular, can Germany’s DAX index weather the storm? When one thinks back at how nicely the US stock markets performed during the last couple of years, I am probably going to be frightfully wrong with this analysis. Yet, you should be aware of how bad it can get if things go the way I have shown here.All I have done is to use my knowledge of the Wave Principle, and come up with one scenario. This scenario respects all the rules and guidelines that needs to be followed while using Elliott Wave Principle. However, the picture could change as we go forward, and hence you should be aware that this doomsday scenario is currently mostly academic. (Guess I have given sufficient room to escape your wrath if the index goes straight up!!)

Anyway, I have also illustrated how you could count the waves from the significant low posted by the DAX index in March 2009. At the very least you would have gained some insight at how the waves tie in with each other. Look at the charts in the same order as posted.
Happy New Year folks!