Stock Market Highlight #8
January 12, 1998 to May 4, 1998 rally in Dow Jones Industrial Average labeled as completed and PROPORTIONATE segment.
(COMMENT # 414)
UPDATED 19980522
COMMENT 1998-414
1. If you draw an up trendline off the March / April lows in the cash and spot futures NASDAQ 100, you will see that this market broke and closed below that trendline yesterday.
2. The break of a trendline by itself is not, of course, sufficient evidence of the direction of a market.
3. It is an important signal, however, and suggests that the market is acting in accordance with our expectations.
4. The Nasdaq is one of the stock market leaders to the downside, as expected.
5. The leader has to be the June Russell 2000 which is already approaching the 50 percent retracement level of the January / April upmove.
6. When we look back at market moves, one indication that a move has completed the entirety of the move is that the move will be PROPORTIONATE in price and time.
7. The various segments of the market move will also oscillate in such manner as to produce interesting numerical combinations which are often difficult to detect as the move is unfolding.
8. As an example, the move from the 980112 low to the 980120 high required 5 trading days in the DJIA.
9. The move from the 980427 low to the 980504 high required the same number of trading days.
10. The first move traversed 431.4 DJIA intraday points, the second 421.3 (approximate equality).
11. 421 = SQ FIBONACCI # 21.
12. Because of this numerical, PROPORTIONATE relationship in both price and time, a conclusion with respect to the Elliott Wave may be formed.
13. The conclusion suggests that the two cited segments are the 1st and 5th waves and that the market move has experienced equality of the 1st and 5th segments.
14. We can now work backwards and label the 980123 low as the "2 wave" and the 980422 high as the "3 wave".
15. If this labeling is correct, we should be able to break "wave 3" down into a "smaller degree" or "fractal" movement of 5 waves.
16. We already know that "wave 3" ended with an ascending diagonal triangle formation which we correctly identified and took advantage of in COMMENT # 336.
17. In fact, when you view the chart at that COMMENT, note that the tone therein was suggestive of an important top, which it was, but not of a final top.
18. This ascending diagonal triangle covered 14 trading days and 503.5 DJIA intraday points from the 980401 low to the 980422 high.
19. We'll call this move "wave v of wave 3".
20. Since "wave 3" of 1570.6 DJIA intraday points was larger than both waves 1 and 5, we can say that "wave 3" was "extended".
21. Since "wave 3" "extended", and since we know that "wave v of wave 3" was an ascending diagonal triangle, we now know that either "wave i of wave 3" or "wave iii of wave 3" should have "extended".
22. The Elliott Wave has a rule of "alternation" which basically means that, since we have already identified "wave 3" as having "extended", that of the two choices, we should be able to see the "extension" in "wave i of wave 3".
23. Hence, if "wave 1 of wave 3" should have extended, "wave iii of wave 3" should be similar to "wave v of 3" in TIME and PRICE.
24. We already know that "wave v of wave 3" covered 503.5 DJIA intraday points in 14 days.
25. We also know that "wave iii of wave 3" ended on 980325 since it was the previous high extreme.
26. If we count back the same amount of TIME (14 trading days), we arrive at the 980305 low.
27. These two segments ("waves iii and v of wave 3") are thus equal in TIME.
28. The 14 day segment "wave iii of wave 3" segment traversed 464.6 DJIA intraday points (2 X FIBONACCI # 233 = 466).
29. This leaves the movement from the "wave 2" low on 980123 to the "wave i of 3" high on 980303 as the only remaining logical choice.
30. This move required 26 trading days and rose 942.3 intraday DJIA points.
31. 942.3 / 464.6 = 2.028 (PHI X SQ RT PHI = 1.618 X 1.272 = 2.058).
32. The interpretation thus satisfies the alternation requirement since "wave i of wave 3" "extended" in the smaller degree and "wave 3" "extended" in the next larger degree.
33. Converting to calendar days, "wave v of wave 3" required 21 calendar days (FIBONACCI # = 21).
34. "Wave i of wave 3" required 39 calendar days (3 X FIBONACCI # 13).
35. The mathematical relationships of the move from the 980112 to the 980504 high thus suggests that the move is a completed 5 wave Elliott Wave sequence.
36. The reason this analysis is important, even though it is being presented here post hoc, is because it is strongly suggestive that the 980504 intraday high COMPLETED, in Elliott Wave terms, the entirety of the movement from the 980112 low.
37. The exacting relationships of the various swings further provides added confidence that our bearish interpretation is the correct interpretation.
38. Note that our analysis was not derived from the EW, but that the EW interpretation "FITS" our expectation and is therefore one more tool CONFIRMING our outlook of lower prices.
39. Finally, note the importance of the "A & P Points" to this topping process.
40. First, the 980422 "wave 3" MINOR peak occurred on a MINOR "A Point" - EXACTLY (see page 398 of "The 1998 $upertrader's Almanac - 1st Half Edition")!
41. Second, if the analysis is correct, we will several weeks from now look back and recognize the formation of an important "head and shoulders top" with the "head" of the formation having formed at the 980504 peak. The "right shoulder" then formed on 980513, but 1 day off the MAJOR "A Point"!
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