Have you kicked yourself for having missed the superb rally of the 1990s in Nasdaq? More likely you have kicked yourself for buying stocks on the way down, only to see it go even lower! Ditto for the rally between 2003-2008 and the collapse that followed. What are we poor blighters supposed to do? Precisely when we gather up enough courage to start buying, the market starts its descent. And while we listened to all the fear mongering and did nothing, the market went up. Perhaps the answer lies in value averaging? There is a nice book written by Michael Elseson on this subject, and would you believe it, for some years the book was actually selling for more than its listed price beause it had gone out of print. Anyway, the concept is simply to marry dollar-cost averaging and rebalancing. The Nasdaq index would undoubetdly start its correction sometime in the future. When the correction starts, we should start buying steadily for similar amounts every month. That way, we would be holding a nice portfolio at an average cost somewhere in the middle of the range of the correction. EVentually, when the third wave starts, (or call it “C” wave if you like – it doesn’t matter which if you are looking for higher prices in the medium term), you will be smiling, and remembeing this post in Wavetimes!
One of the fascinating things about financial markets is the underlying harmony in price action. Once you spot a trend developing, it is often useful to measure how far a move travelled, and be alert for a swing of similar distance in the next leg of the move. This works whether you are a medium term player, or a day trader. Take a look at the Nasdaq charts here, and you will see what I mean.
I read the following in Friday’s FT and thought it is useful to quote here. “History provides some useful benchmarks. After the horrible 1973-74 bear market, equities traded up, though unevenly, until 1982 with six specific bull runs that generated an average 32 percent gain”…but, a buy-and-hold strategy over that time period yielded only 9% compounded annual gains, which merely kept pace with inflation. Accordingly, the idea of meaningful trading rallies may be the great lesson of equities following massive market corrections, similar to the one just suffered by investors and the one experienced in 2002-2002 period”
Needless to say, an investor will be better off using technical analysis to enter and exit the market. This blog will help you towards that end.
Related S&P500 links:
Was that the stock market bottom?
S&P500 and Citi
Fifth wave extensions can make you rich!
Harmony in markets: S&P500
S&P 500: Potential Ending Diagonal Triangle
Ending Diagonal Triangle in S&P500?
S&P500 Elliott Wave update
S&P500 index: is a top already in?
S&P 500 update: where is the top?
S&P500 continues its rally
S&P500 remains resilient
S&P500 ready to dive?
S&P500 Update: May 19, 2009
S&P500 Elliott Wave update:21 May 2009
S&P 500 breaks higher: update 2 June 2009
A few days back (23 Oct. to be precise) I posted the chart of the Nasdaq top 100 index while referencing to Trader Mike’s post of a potential symmetrical triangle in the Nasdaq Composite index. I figured that it is time to take a look at that chart again. There are two charts posted here and you might find it worthwhile to spend some time studying both. Basically I still think we will see around 1140 in the Nasdaq 100 ( which roughly corresponds to 1400 in the composite). The rest of the comments appear on the accompanying charts.
I believe we will reach 1140 in the NASDAQ not too long from now. Not only is that level a 161.8% projection of Wave A computed from the top of Wave B, it also coincides with a projected target for the 5th wave of the C wave. Trader Mike had suggested that we could be forming a symmetrical triangle pattern, which means the next leg down will come once the triangle is resolved. However, it looks to me like the index has posted two lows about the same level (actually the 2nd low was a tiny bit lower than the first). In the big picture it hardly matters whether this is a symmetrical triangle or not, because we agree on the direction. Also, trying to predict the path of a move is downright risky. Most successful traders don’t care to ‘predict’ how a pattern will evolve. They take buy and sell signals at levels which suit their risk appetite and when their system says ‘go’.
However, it is often useful to have a framework with which to trade. For example, if we go lower to 1140, and the market seems to pause there, I might take back any shorts I have because my wave analysis considers the possibility of a recovery before down again. Anyway, here is your Nasdaq chart. Study it and learn by comparison with actual fact after the moves take place. Best. Ramki