Market Report: Using Elliott Wave on Stocks
Many Elliotticians and traders feel that you can't use Elliott Wave on individual stocks and that it's only for selective markets. I actually disagree with that statement; Elliott Wave can be used on a number of markets providing you have good volume and a number of participants to make up the collective opinion needed to move price around to creative the waves.
Now I will say that a penny stock is hardly likely to get the attention of big hedge funds, but large stocks such as AAPL, IBM, GOOG etc are big stocks that have a lot of shares and big volume, those are the stocks where Elliott Wave can be applied.
Here are some examples I would like to share.
Back in July 2012 I was looking for a high to end what I thought was a 3 wave advance from the March 2009 lows. The setup was as good as it gets with regards to controlled risk, it had a clear price invalidation level at the wave 2 high, and with such a small risk level the risk/reward was greatly in favor of a big move lower, seeing as we had a potential large 3 wave advance into a measured move target from the March 2009 lows.
The target was a move back under $12, and it seemed a brave call to make with its trading near $25.
Lets fast forward shall we.
We can clearly see that this stock has literally collapsed, and a hedge fund favorite as well, in case you missed it I never once referred to looking for any news as to why this declined the way it did. I simply trusted the patterns that were potentially being setup, I could not tell you the reasons why this stock has declined and frankly that does not interest me.
As mentioned, traders buy and sell and create the waves that I count, it makes no difference to what the news was, as all I was interested in was price action to support or negate my ideas.
I think INTC has far lower to come and that initial $12 stock is not looking to outrageous now is it?
A great example of a low risk/high reward trade, and this stock should meet its objective over the coming months. So a stock that still has some potential downside to trade, although it's getting extended now and dangerous to sell short from current levels.
Back in March 2012 I was looking for a high and monitoring a few stocks to help find a high point in the major US markets.
If you look at the larger stocks that move with the major stock markets you can gain a massive edge to potential ideas aligning together, I felt at the time Goldman was offering clues to a potential reversal in the main markets as well as decline in the individual stock.
You can clearly see that from the low marked B there is a 5 wave advance. So a simple 5 wave move, Elliott Wave theory suggests once a market has developed a 5 wave move the pattern is likely maturing and reversal is setting up.
Furthermore it actually ended with a clear ending diagonal which further supported the idea that Goldman had topped.
The target was a test of $85. Was it crazy to suggest that price target when the stock is trading at $130?
Let's take a look at what has happened since then shall we.
You can see it virtually hits its target (well it fell short a little but almost a home run) and subsequently has bounced strongly back almost to the prior highs, it potentially has topped a 5 wave advance with wave 5 as a truncation which could be an important clue for the major US markets.
A strong decline in Goldman could be setting up with an initial target towards $100.
When you look at Goldman overlaid with an SPX chart you can see how important it could be in finding an edge with the main US markets.
Although one stock alone is not a reason to suggest the major markets have topped or about to, when I look at it together with other markets and clues, it potentially could be a small but vital clue, such as it was back in March 2012.
One stock I am following is a big Dow component and that is CVX, it has the potential to see a strong decline and I think it's just getting started. With a 5 wave advance this reversed well and appears to be confirming a strong reversal, although it's still in its infancy but still it is has great potential. Target around $85.
So you can clearly see that Elliott Wave is a valid tool if used correctly as well as used on the correct stocks, stock that have high volume can still be counted.
Until next time,
Have a profitable week ahead.