Elliot Wave Anyone

Basically Elliot Wave is the scientific measurement of mass psychology. The dominant
trends do in fact "seem" to follow the very basic 3 waves up and two correction waves.
See it for your-self in the NASDAQ monthly chart below.
Here we are looking at the devastating (for most) bear market of January 2000 until
October 2002 (?)

First, observe the enormous price run up from November 1999 until January 2000. This
is what is called a "speculative bubble" This was when ever man and his neighbour
couldn't help but make a lot of money in the stock market. Everything was simply
exploding. GREED had taken its hold on the mass population.

Then in January/February 2000 there is a correction. With hindsight this was the start of
the bear market but at the time most simply thought it was "another" correction and the
chance to buy stocks at a cheaper price. No doubt pushed into action by every broker,
newscaster and stock vendor the world over.
So at the bottom of leg 1 we have an attempted rally. This is all those "buy on the dip"
buyers rushing in to snap up those bargains. This caused leg 2 of the Elliot Wave. Now, I
don't pretend to know a lot about E.W but I do know the top of the correction cannot
exceed the start of the number one leg. i.e. the correction must stumble before it breached
the previous high.

As you can see from the chart the leg two, the rally, lasts just two months and is very
feeble. Now the pain starts.

As the masses rushed in with their small trading accounts to buy on the dip, the
professional, institutional investors/traders now realize the rally is going to fail. This isn't
a buying opportunity any longer, it’s the last opportunity to get out whilst they still have
some profits. So they sell. Probably advising the small trader to keep holding at this time
or to buy more. (some "sucker" has to buy their stocks)

But what makes this even more significant is the short sellers realize now is the time to
short those very expensive, high flying Internet stocks with P/E’s of 300 and absolutely
no earnings records. Yahoo, Amazon.com, Pets.com, Ask Jeeves are all stocks trading at
levels they shouldn't be. The professional realizes this is the right time to make a killing
on the short side. (i.e. sell stocks at a high price and buy back much lower in the future
and profiting from the difference)

It started around September 2000 at NASDAQ 4200 and ran all the way down to just over 900

in September 2001. A 79% decline in one year. One of IF NOT THE WORSE Stock

market decline in the history of the stock market. I really hope you were not one of those

investors who bought into the "buy and hold" strategy?

Stocks like Amazon.com, Yahoo and Ask Jeeves declined by over 90%.

Whilst the story was even worse for stocks like: Pets.com, Qcomm,Qwest and Enron. These

stocks never recovered.

After the enormous severity of leg three we hit something of a bottom. Probably not because it

is the bottom of the market or people believe this, but simply because the short sellers

have decided to cash in on some of their enormous profits. In order to do this they have to

buy their stocks back at much, much lower prices.

So we have a small leg up to point number four. But no the whole psychology has shifted.

People are no longer looking to buy on the dips but sell on the rallies. A complete

transformation from the bull market of 1997 to 2000.

Leg five is another leg down. This has to exceed number threes low point BUT leg five is much

shorter than leg three. Remember this is VERY BASIC E.W theory. Three legs down

and within that three leg down two corrective legs.

Look a the chart above. Doesn't it look as if leg five is now completed? Possibly. If you believe

in E.W But it does give us an interesting scenario going forward.

Could this possibly be the bottom of the bear market (October 2002)?

If so, then this must happen:

A correction, which is actually leg one of the new Elliot Wave bull market. A bull trend lasting

about four months taking the NASDAQ to around 1500.

A correction that lasts 2-4 months taking the NASDAQ down to 1200.

The a glorious bull market lasting 18 months+ Taking the NASDAQ all the way up to 3500+ I

don't think we'll see 5500 for a long, long time.

Will it happen that way? I doubt it. Markets are not that predictable. Could it happen? Well

you'll just have to wait and see what happens over the next two years. If I am right then

I'll go on CNBC or write a book "How I Picked The 2002 Market Bottom". If I am not

correct, I'll simply slip into the night……