Sep 092012
 

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 :)

  15 Responses to “What Next For The S&P500”

  1. Thanks for an excellent post. I think the decipline you speak of is the most important thing we have as traders. I dont think any of us expect you to nail every call that is impossible and unrealistic. Thanks again for a good informative read.

  2. Hi Ramki

    Could you provide a wave count (probably a weekly chart) from the collapse in Oct 2007 for S&P500 ?

    Sogoh

  3. Hi Ramki, how about AUD, same pattern with s&P500?. Thank’s

  4. Hi Ramki,

    I am new to Elliott Waves. I like your analysis and articles. I have been going through your book Fives Waves to Financial Freedom. Learned a lot about Elliott Wave from it.

    Based on this article, I have a question now. Does this mean we should not trade to profit on corrections when we have identified a set of 5 waves? Most of the time, Corrections are against an established trend.

    I appreciate you taking time out to reply. Thank you.
    Vinay

  5. Ramki
    I was attracted to EW and bought your book FWFF. However I am not sure EWA is any better than flipping a coin. It it has so many alternate wave readings /probabilities that you have to wonder how it can be a useful tool for a trader. Furthermore, EW was observed during a period when government intervention was not that strong and I wonder if the system as shown by RN Elliot needs modification/is no longer appropriate. Using EW analysis, you have persisitently been bearish on S&P 500 for at least the last 6 months. Others like Tony have been bullish. Both of you are very experienced. So where does that leave a newbie.

    • HI Bansi, I appreciate the frustration you feel. Let me first address my bearish stance on S&P. I have published three articles in Forbes about this. The first one looked for a turn either between 1435 and 1475. This was published in March. We got a sell off from 1422 to 1266. Then, when we started recovering, I posted in June that we should when we get an overlap of the first leg following a 3-step correction. And most recently, in AUgust, I once again presented an analysis that showed a topping pattern with a possible top in the 1435/1450 window. WHile it is true I have looked for a sell off, we are not too far away from the levels where I was looking for the turn. WIth additional information, we are now able to change our mind. This is the value of using EWP in trading and investing. One can of course blame me for not being bullish from 1266 to 1460. BUt if we are following a model, we have to be failthful to the model. If we discard the model because one signal turned out wrong, then we are depriving ourselves of a useful tool to navigate the market.
      ABout Tony’s correct call, yes, he is an experienced technician and a friend. Just like me, he was being faithful to his own count. But you would have also noticed that he was always having an alternate count on the DOw which was bearish. Both counts are correct. Until one is porved wrong. My count on the S&P500 is wrong. DOes that diminish the value of the analysis? Depends on how you use it. On balance, I think we can honestly say that one can get a count wrong several times, but it should still be possible to make money. For example, if one is looking for a move to 1435, then an aggressive trader can buy on intraday supports. A long term player can exit his stocks near 1430 but reenter when the count changes.
      Thanks for writing. I wish you good luck

  6. Hi Ramki,

    Firstly let me thank you for having written such a fantastic book which really does add an extra dimension to technical analysis. I now look forward to your next book.
    Coming to the market, Since we are in an extended 5th wave in SP500, there is no doubt there will be a correction which will bring it down to 1420 levels. But do you still stick to your strong conviction of a massive sell off in SP500 ? Also at what point will this bearish count get invalidated and change to a bullish count ? Thanking you in advance for an early reply.

  7. So, Ramki, are you still bearish on S&P 500 according to your previous answer?
    Futhermore, I’m still short on EUR/USD, expecting also a bearish turn….
    Best regards

  8. Hi Ramki,

    With this strong thrust beyond 1450, hasn’t the diagonal been broken and how high do you think the S&P goes? Also, has there been a meaningful change in your wave count?

  9. Hello Sir

    Plz Kabhi Kabhi Mcx Commodities Ka Bhi View Dal Diya Karo Sir …

  10. HELLOW SIR, I M READING YOUR BOOK SIR AND IT IS QUITE SUPERB .SIR I AM USING CHART SOFTWARE IN WHICH I HAVE AN OPTION OF SWING . SO SIR WILL U PLEASE KINDLY TELL ME THAT HOW MUCH PERCENTAGE OF SWING I HAVE TO USE TO COUNT WAVES ? LIKE 1% OF PERCENTAGE OR MORE THAN IT.

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