"The Elliott wave principle is a form of technical analysis that finance traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology."
Over the past week we've seen seen market sentiment turn from extremely bearish, to bullish, as you would expect, but this is no time to become complacent.
Broader Market - S&P 500 $SPX
Yesterday morning we saw a sharp little pullback - at the open - followed by a continuing rally into an extended wave 5, which confirms exactly what I was seeing in the charts on Tuesday. See the annotations on the chart below.
Wednesday I was preoccupied. tracking a 2.6% rally in oil, so I wasn't able to confirm that the breakout in equities, is indeed wave 5, until taking a closer look at the charts this morning.
Of course, momentum slows in wave 5, but you can expect the market to continue to melt up into Options Expiration Friday, where most bearish traders (short sellers) will ultimately capitulate. Markets could even hold up into next week, but this depends largely on when the final target is taken out. What you're really looking for here, is for bullish sentiment to peak out. Bullish traders know this, so you can expect them to continue hammering the market higher.
At this point, I'm quite sure, this is only the first leg up in an extended bearish consolidation pattern, and the second leg up will be even more powerful than the first. Certain indices could ultimately even break out to new all time highs, but that remains to be seen. If my analysis if correct, and so far I'm 5 for 5 - including yesterday's snap-back rally in Oil - since the market bottom was put in - I suspect the next leg up will coincide with the end of the first quarter (window dressing season), and possibly even extend into April, where volatility typically picks up again. As of today volatility remains relatively high, and this presents a great trading environment.
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Have a great day,
AA
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