That Was Some "Rest"

While I had a good checkup today at the dentist, the market showed us just how tired it really was. When I heard the closing figures for the S&P, I realized it had fallen to about where I thought it would. But later when I saw the chart I got a bit worried: that was no "sloppy" decline today, as it usually is of late. It looked like an impulse wave.

Of course, the Elliott Wave boys think the turn is here and that the market is finished to the upside, and of course they could be right. But my count still calls for another small wave up to THE high. In other words, yesterday's high marked wave 3, today by the looks of it is wave a of wave 4 (with b and c and possibly even d and e to come), and then wave 5 would take us to a new recovery high around 1300.

However, I take a back seat to actual Elliott Wave professionals. I'm not pretending to be one. I have been wrong-footed merely by misreading wave counts on more than one occasion: at the February 2010 lows, I was looking for just one more tiny subdivision down. At the July 2010 lows, somewhere in the middle of nowhere on my cross-country road trip, I was tweeting and twitting and blogging about one more low to come without even looking at the screen. At the December 2010 lows, I miscounted the entire pattern.

Granted, I was not committing fresh funds in the direction of the trend at any of these spots. But I missed having full positions on (or sometimes anything at all). It could be much, much worse, but it's definitely something I'm always working on fine tuning. (Stay tuned also for a humorous tale surrounding the August 2010 lows, which I will recount as soon as this rally truly is over.)

Back to the S&P. Let's say that I'm wrong. The quickest way to know will be if the S&P cash index comes below 1272.04 (1269 futures). That spot, from January 7th, is what I consider to be wave 1 up. If we close below that (or, more precisely, even go below it intraday) that's it. The rally is over.

For any Elliott Wave naysayers out there: every trading desk at every money management firm in the world is at least aware of this method. Most every huge move take place when an Elliott rule is either confirmed or broken.

Since we're at least very close to what could be significant high, I'll leave you with one of my all-time favorite quotes by Robert Prechter:

When optimism has been high for a very long time, it takes very little movement away from peak euphoria to produce stunning effects.