A new article has been posted on Forbes.com and will be yet another learning experience for readers of this blog.
Truth be told, I first heard of this index some 15 minutes ago when I received an email from good old Bob.D. So I googled it and read the entry in Wikipedia.
“The Value Line Geometric Composite Index is the original index released, and launched on June 30, 1961. It is an equally weighted index using a geometric average. Because it is based on a geometric average the daily change is closest to the median stock price change.
The daily price change of the Value Line Geometric Composite Index is found by multiplying the ratio of each stock’s closing price to its previous closing price, and raising that result to the reciprocal of the total number of stock”
Can’t say it made me any wiser 🙂
But a look at the charts was quite revealing, and I am happy to share them with you.
I suggest that you open each chart in a new tab so it will be easy to go back and forth. Like always, my comments appear on the charts themselves and so I won’t add any more fluff. Enjoy and share with friends.
This first chart is a monthly chart going back almost to the time I was born. Pay attention to the time frame and the color coding that will help you spot where we are in the progression.
I am posting this around 1.30 pm EST on 3rd April. The S&P500 index is straddling the bottom of a diagonal triangle, and a break seems imminent. What you can learn from the chart below is how the internal waves are all so related to each other, and have followed the Elliott Wave rules. Enjoy.
Now that the S&P500 has entered the 1435-1450 window that I had discussed in my Forbes article, it is natural that we ask ourselves what next for the index. I thought maybe this is a good time to spell out my approach to the markets again. Elliott Wave analysis is a great tool to have in your armory if you know how to use it. Some of us are under the illusion that Elliott Waves will give all the answers to our problems (the main one being our craving to know in advance where the market will turn). The truth is (and I have no hesitation in admitting this) no one knows the future. Can I be wrong about the anticpated turn in the 1435-1450 window? Of course! Does that make all the charts (and my interview on Forbes) utterly useless? Of course not. The key point we have to learn is this. Have a model on which to base your trades. Then get into the market at key levels. When the odds are highly in your favor, you should risk real money. Elliot Waves gives you that opportunity. For example, in my most recent update I had suggested that we will get a dip below 1400 and then rally to 1435-1450.
The prospect of something bitterly disappointing in terms of news flows was quite remote at that point in time. So there was a low-risk trade below 1400. However, as we enter the window where a turn was anticipated by my analysis, the odds for a continuation of the rally seems to be better than an about turn. In such a situation, we have to be cautious. Even if the market does make an about-face in the next few sessions, the bulls are not going to give up without a fight. So we will very likely get a full re-test of the highs from which any such about-face happens. In these circumstances, it is to our benefit that we remain patient and watch the market developments with interest. Never get into a trade while the odds are not yet moving markedly in your favor.
Now a few words about the value of Elliott Wave analysis even if one is going to be wrong. While the market was recovering from the lows at 1267, Elliott Waves told us to look for a 3-wave recovery before a possible sell off. Then, as the market developed, and not too far away from the lows, I pointed out that we are very likely going to get a full test of the highs (which at that time was still 1422). ANd further out, I came up with a diagonal triangle scenario that suggested we will travel to 1435/1450. AT every stage, if one were persistently bearish, he would have refrained from selling until a better level was seen! However, this trader who remained a bear would have missed buying on dips. Without a question, that was an opportunity loss. But this trader was still following his model. There could have been short-term low risk trades that a bolder trader could have made (for example, the move from 1396-1435) but in general, the value came from being faithful to your model. The persistent bear would strike it rich at some point because he is following a model. Not because he is clever, but because he has a method. That, dear reader, is the lesson that we all have to bear in mind. Use Elliott Waves to tarde the market, not to showcase we are brilliant at counting. Good luck.
PS. The bearish counts on the S&P are still not negated by the way 🙂
After my recent posts on the S&P500 provoked some animated discussions, I was persuaded by one reader to look at the Dow. What follows below are three charts that offer my Elliott Wave Analysis of the Dow Jones Industrial Average.
Elliott Wave Rules and Guidelines continue to be observed here. However, I must confess that I am trying to squeeze in a count to fit my view. This is not an entirely recommended approach to using the wave analysis. However,because I am not able to honestly call the current recovery from the June low of 12035 as impulsive, the wave counts that I offer you on the Dow here is my best effort. We shall know soon enough. Good luck folks.
In his latest post on Forbes, Ramki says that Elliott Waves warn of a big tumble ahead for stocks.
When one is dealing with a complex correction, it is best to let others do the trading while you sit back and watch. This is what I have done with the S&P 500. I made my views clear. I pointed out this was a complex correction. A lot of people are trying to figure out tops and bottoms. It is a futile exercise. There are just too many possibilities.
The best way to deal with it is to wait for a clear impulse move in one direction and then trade on the retracement. There are other clues, and these are explained in my upcoming book. (Some of you with long memories will remember I posted a teaser chart that is appearing in the book. That called for a retest of the highs. How I came up with that back in mid-June is explained in the book too). But seriously, you should avoid trading a complex correction if you can. At worst, you would have missed an opportunity. On the other hand, you could have saved yourself needless tension and perhaps even some hard-earned cash!