Market Reflections

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)?

* 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.

* 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.

Tags: "Equity Market", Forecasting

This entry was posted by Raymond on Monday, June 29th, 2009 at 10:35 pm and is filed under Outlooks for 2009. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.