Like Elliott Corrective Waves ~ The Risk Averse Alert

Tuesday, February 02, 2010

Like Elliott Corrective Waves

Check this out...

SPX 5-min

Pay particular attention to $SPX and coincident RSI behavior following last Thursday's completion of wave 1 [down].


Now compare this to $SPX/RSI behavior off November 2008 bottom. Interesting.

Bear in mind, the greater curiosity here is similar RSI behavior during formation of a "c" wave, irrespective of time-related dimensions under consideration in this particular instance. A "c" wave is a "c" wave — a third wave: typically the most dynamic of all Elliott waves — in the framework of the Elliott Wave Principle.

Per possible price form similarities, we will just have to see what develops. Straight ahead, a retreat back to the green line drawn on the 5-minute chart seems likely before the next (final?) leg higher unfolds in forming wave c of 2.

Now, if a greater measure of dynamism is revealed during wave c or 2's formation (much as was evidenced during wave C of (B) off March '09 bottom) it really should come as little surprise that, prospectively, much of what was lost during the initial move down from mid-January's top might be recovered. In fact, according to the Elliott Wave Principle, second waves typically retrace a significant portion of preceding first waves.

So, per near-term anticipation for a third wave down from top (i.e. wave 3 [prospectively of wave (1) of (C)]) whose unfolding I suggested yesterday is likely to result in major indexes falling well below respective 200-day moving averages, we have a bit of valuable analytical refinement for which to raise confidence in a low-risk options trade upcoming.

You'll be the first to know when I pull the trigger on this, if you are receiving trade notification.

Fast Money
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© The Risk Averse Alert — Advocating a patient, disciplined approach to stock market investing. Overriding objective is limiting financial risk. Minimizing investment capital loss is a priority.

Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.

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