Market Reflections

Thoughts, ideas and musings on current state and evolution of financial markets

Where’s the Market Top

This is a follow-up triggered from the comments/questions to “PUTTING IN A TOP”
For a trader it is imperative to understand the strengths and weaknesses of any tool one uses. After all, it I ones money out in risk. Refined Elliott Trader (RET) is a technical forecasting tool. It relies on the recent past market price action to forecast the future. Its strength lies in substantial statistical database of past market price pattern measurements. Recent past market price action reflects the market’s expectation of what’s ahead.
To be successful in trading one must accept that the market is always right. We all (folks survived decades of trading) know and understand that the market expectation changes constantly as the target nears and more actual measurements are under the belt. The recent market price action reflects this change of expectations and so does the RET forecast. It changes as the market price action does. Sorry for the long, drawn out intro, but I hoped to avoid the need for fruitless searches what’s the value of this forecast. Folks unfamiliar with Elliott wave theory or RET charts will find brief explanation right here (under Links).
Now, all readers on the same page, what does the RET show after June 26 (about a month since the first post)?

Wheres the Market Top_html_m202dd467* Click on chart to view larger image and print.

The D3 from 2008 Nov low has changed to a Flat pattern (FL). FL is very similar to D3 except its third wave is an impulse (IM) rather than a zig-zag (ZZ). For uninitiated ZZ is a 3 wave pattern, while IM is a 5 wave pattern. Otherwise they are similar. What does this chart tell us?

  1. The likely time frame of FL last wave’s completion (that’s the top) is overdue by close to 2 months now, but it has time to complete for another 149 trading days. The market has been “in box” (green box) for long time already. In other words it is about to complete any time now.
  2. Once the FL completes, the market will move down definitely way below Mar 2009 lows, but how low depends on the height of the FL third wave and its length. So, sorry, RET does not tell us yet where the next down wave will likely stop. It will do this after the FL completes.

The pattern from the low of Mar 2009 looks like this.

Wheres the Market Top_html_m123ee4bd* Click on chart to view larger image and print.

It’s a very highly rated pattern (very similar to most) completing in 2 – 9 days probably in 1000 – 1030 range. It could be complete tomorrow, June 30, but most likely will go on for few more days. It will most likely be complete after the market crosses below of June 23.

Let’s put that in prospective of known future events:

  1. If July 2 employment report disappoints, then that is probably the turning point
  2. The banks are most likely starting to report losses for Q2 (after holidays) after counted in fake profits in Q1 – another possible turning point turns attention to credit card and commercial real-estate losses. There is a reason why small banks a lining up for TARP funds – better than being closed by feds.
  3. so on .. one gets the picture how to interpret this forecast correctly

It is very important to understand that the scenarios picked for this post are just the “most likely”. There are hundreds of other scenarios possible and presented by RET. I don’t know which of these will actually play out, but applying the fundamental knowledge in parallel with technical keeps “ones head above the waterline” while making trading decisions.

Successful trading requires preserving your trading capital. One will not be around to win without that!

Think about it and assign appropriate priority.

About The Author

Raymond has been active on financial markets since 1989 mostly trading commodity and currency futures and options. Trading systems and strategies, statistical and empirical modeling of markets have been his focus almost two decades now. Few projects are listed on his website. Raymond believes that every person could and should take responsibility and protect his/her finances. At least to be able to identify scams and fraud before giving life savings to a crook. It is not enough to rely on government because way too often officials (elected or other) are part of the scam themselves. Whether their reasons are campaign contributions, cushy job or lack of knowledge to understand the consequences of their actions none will help the victim. Recent succession of governments each trying to bankrupt the country faster than the previous it may very well happen that the world largest Ponzi schemes Social Security and Medicare will go down with the country. Without prudent financial decisions now one may sorely miss every penny of his/her savings lost to scam artists and “professionals”. To help out Raymond is sharing with users his analysis and views on variety of economic, financial market and trading issues.


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