Adventures in Charting

When on earth is this rally ever going to end?  Or even pause?  It's amazing how market sentiments can continue to launch higher and higher into the stratosphere, how rallies can just seem to run on and on.  Room to Run with a Cap On.

For those of you unfamiliar with R. N. Elliot's Wave Theory, commonly known as Elliot Wave Theory, it's worth a look.  Even if you aren't a technical-analysis buff, the reading alone makes it very worthwhile.

Probably the best one-stop resource for learning the basics of Elliot Wave Theory is Robert Prechter's book "Elliot Wave Principle".




But of course most of us just don't have time to be avid theorists.  This includes myself - to truly be a master of interpreting Elliott Wave counts takes years of study and practice, watching particular markets and seeing how the waves play out.  It is a game of human psychology entirely, with a set of rules and a list of guidelines as your roadmap to success.  Elliott Wave analysis is as much an art as it is a science that takes a lifetime to master - I'm more of what you would call a "hobby" Elliotwave-ist (is that a new term?)

Anyway, moving on from the "what" to the "how".  How does one go about applying Elliot waves?  More importantly, how are they useful?  For details, I'll leave you to read Robert Prechter's book.  As for what the finished product might look like, let me know what you think - Am I the next Da Vinci or the next Cheney?

There is most certainly still room to run in this rally.  For any of you out there that doubt the Fibonacci "myth", you probably won't enjoy the Elliott Wave Theory anyway.  But try trading gaps and you will quickly find out just how useful those "hokey" numbers really are.

So, dear readers, we are calling a top.  Despite, using our new Leading Indicator, the fact that the smart money has been withdrawing from the market (this includes Insiders), we feel there is some more room for the rest of the players to dive in at exactly the worst moments.  Based on Elliott Wave Theory and our own findings regarding Mr. Market, this is what we can expect over the short-term:

• Crazier heights in positive sentiment 
• A possible further and exhaustive rally in Gold and Gold Stocks
• A possible further dive in the dollar, equally exhaustive
• Higher highs in the broad stock markets.  Especially the US and Chinese markets
• Another spike in speculative investments (for example, the Junk Bond Market is on par for a Record Year so far, and Wall Street Wants you to Die Young!)
• Everyone you know talking about how great their stocks are doing and trying to offer you water-cooler advice.
• Commodity buffs claiming that commodities are going to be the surest bet of a lifetime
• Treasury and Bond yields to rise

However, once we have formed a top where the majority of these factors are extended beyond belief, we will surely find out just how fast those sentiments can turn.

As always, folks, be careful out there.  This market makes people and breaks people - hard and fast.  Those who lose deserve to lose.  Keep your heads up and minds sharp.

Happy Investing!

Derek.