Stock Market Highlight #26
Principle of DIVERGENCE reviewed in Russell 2000 in discussion of
October 8, 1998 stock market bottom which ALIGNED with "Inversion Index" and
"Linear Cycle Index" projections listed in "The 1998-99 $upertrader's Book
of Linear Time Cycles".
(COMMENT # 749)
UPDATED 19981017
COMMENT 1998-749
1. The chart shows daily Russell 2000 cash prices through Friday's close.
2. This chart is being shown because it is has been the weakest of
the stock market averages, appears to provide the clearest Elliott Wave interpretation,
and most closely mirrors the Mutual Fund cash index shown in "Investor's Business
Daily" and,
thereby, the average investor's stock market experience.
3. First, you should note that this index peaked on 980422 instead of 980717/980720.
4. The all-time peak on 980422 in the Russell 2000 marked an "Astro Point"
EXACTLY (see page 398 of "The 1998 $upertrader's Almanac - 1st Half Edition").
5. The all-time closing peak on 980717 in most other stock market indexes also marked an
"Astro Point" EXACTLY (see page 398 of "The 1998 $upertrader's Almanac -
2nd Half Edition") (The Dow Jones Transportation Average actually peaked one day
earlier on
980421).
6. Hence, it wasn't just the "Inversion Cycle Indexes" and "Linear Cycle
Indexes" which marked the all-time highs in the stock market indexes.
7. They also ALIGNED with the "A&P Points".
8. As we've repeatedly discussed in these COMMENTS, the Elliott Wave is a useful tool, but
it's only one of many tools in the trader's tool kit (see pages 283-92 of "The
$upertrader's Reference Manual").
9. Of course, many rely on it exclusively.
10. In my opinion, however, it is no more nor less important than "Linear Time
Cycle" analysis, symmetry, ratios, static numbers, seasonals, anniversary dates and
so on.
11. The "Inversion Cycles" and "Astro Points" should be accorded
greater weight.
12. Anyhow, back to the chart which, from an Elliott Wave perspective, appears pretty
clear.
13. The only question is whether the movement since "Point 4" shown in the chart
is the beginning of a "Wave 5 of III" collapse.
14. This scenario was presented in COMMENT # 734 of 981006.
15. If it is correct, "Point 5 of III" shown at the bottom of the chart is but
"Wave i of 5 of III" and the movement up last week is part of the process of
completing "Wave ii of 5 of III".
16. This would place the market in very vulnerable position with the decline ready to soon
resume.
17. The very small horizontal line just to the left of Friday's price is the 50 percent
retracement of the downmove from "Point 4" to "Point 5" (see pages
185-7 of "The $upertrader's Reference Manual").
18. The problem with this outlook is that other averages such as the Dow Jones Industrial
Average, the S&P 500 and so on have experienced many "overlaps".
19. The Elliott Wave PATTERN is not as clear in these indexes and is certainly not as
bearish (though such an interpretation is suggested as a possibility).
20. We would normally expect the Russell 2000 to trade up to the horizontal lines shown in
the chart.
21. These mark the .382, .500 and .618 retracement levels of the "Wave III"
decline.
22. Note that the retracements are only marked for the "Wave III" decline and
not for the entirety of the movement since the 980422 high.
23. Similarly, the vertical line marks a 50 percent TIME retracement of the "Wave
III" decline.
24. Such a decline would normally be expected to extend to the "4th wave of next
smaller degree" or to around the "Point 4" price level shown in the chart
(see pages 283-92 of "The $upertrader's Reference Manual").
25. The DJIA has already traded above the equivalent "Point 4" level and has
even retraced 50 percent of its price decline from the 980717/980720 all-time high.
26. It is important that we note the inability of the DJIA to make a new low on 981008
below its 980901 when most other stock market averages were failing miserably versus the
ability of the DJIA to trade above its highs of 980923/980924 price highs WHEN
ALL OTHER AVERAGES HAVE FAILED TO CONFIRM THE MOVE IN THE DJIA (see "Point 4" in
the above chart) (see pages 171-84 in "The $upertrader's Reference Manual").
27. This price action is especially important to the "Progression of Prices"
presented on pages 282-88 of "The 1998 $upertrader's Almanac - 2nd Half
Edition".
28. Remember, the 981005 high in the US Treasury Bonds was made EXACTLY during the week of
a weekly "Inversion Cycle Index" turning point projection (see page 193 in
"The 1998-99 $upertrader's Book of Linear Time Cycles") and EXACTLY on the
981005 "Astro
Turning Point" projected on page 398 of "The 1998 $upertrader's Almanac - 2nd
Half Edition".
29. COMMENT # 728 of 981005, the very day of the all-time high in the bonds, noted several
of these ALIGNMENTS in the bond market.
30. One thus needs to allow for the strength in the DJIA relative to the other stock
indexes as such relative strength relates to the "Progression of Prices"
discussion.
31. Finally, the move down in the Russell 2000 is unfolding in classic PROPORTION.
32. For example, "Wave I" required 37 trading days (FIBONACCI # = 34) and 54
calendar days (FIBONACCI # = 55), "Wave II" required 23 trading days (FIBONACCI
# = 21) and 32 calendar days (FIBONACCI # = 34), and "Wave III" required 58
trading days
(FIBONACCI # = 55) and 83 trading days (FIBONACCI # = 89).
33. In price, "Wave III" lasted 160.46 points and "Wave I" 58.62
points.
34. 160.46 : 58.62 = 2.737 (SQ PHI = 2.618).
35. 58.62 X PHI = 153.47, close to the "Wave III" length of 160.46.
36. In "Wave III", "Wave 1" was 70.30 points, "Wave 3" was
76.97 points, and "Wave 5" was 73.10 points.
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