Riding The Wave

Many readers have asked about my opinion about the Elliott Wave Theory (EWT).

I personally don’t follow it, because I try to focus mainly on the major trends. However, there are some lessons to be learned in terms of where we might be at in the big picture. While my trend tracking approach tells us whether we are in bull or bear market territory, EWT attempts to define more closely at which point in either scenario we might be at.

Mish at Global Economics posted another worthwhile update on the current wave 4 that we’re in. He also had some interesting comments in “Bear Market Rallies Frequently End On Good News:”

The market may rally in a sloppy choppy fashion until Obama is inaugurated and signs the bill Nancy Pelosi has waiting, with an overshoot of 1-3 days, culminating in a big gap and crap event.

This thesis is based on the idea that major bear market rallies frequently end on good news, not bad news. Likewise, bull market corrections often end on bad news. With that in mind, the market may be rallying now in expectation of a huge economic stimulus package, something that the news media and most economic pundits thinks is “good news” even if the reality is otherwise.

Under this scenario, the rally lasts until Obama signs that economic stimulus bill plus a 1 to 3 day euphoric blowoff or gap and crap when the world realizes that a true recovery was actually postponed by the recovery package.

This theory may or may not happen, but the key now is that regardless of “why”, and until proven otherwise, we are still in a choppy overlapping wave 4 up. Either catch the wave or stand aside. Swimming against the tide is simply no fun.

My view is similar in that I expect the current rally to end; I am just not sure when that moment will arrive. It makes sense that reality will strike the markets after the inauguration and the signing of whatever stimulus bill will be promoted to be the savior.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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