Hold the phone – stocks will now rally!
Yesterday, I saw signs that the big decline is ending and the EW pattern in the Nasdaq is the clearest. The Dow made a new low by a tick or two but the Nasdaq put in a deeper wave 5 low. In fact, it made two fifth wave lows which strengthens my case that stocks are about to enter a huge counter-trend rally.
But don’t worry – I have already taken profits of over 1,000 pips on my short Dow trades and I am now long. Does this mean I am fickle – after all, I was aggressively bearish and now I am bullish? What gives?
Hey – I am never head over heels in love with a viewpoint or position. I just let the markets speak – and all I have to do is listen and act accordingly. And that listening is the hard part for many traders. They approach the markets with a fixed view and only change it when they have suffered a big loss. I prefer to change my mind well before that happens.
So what is the secret of successful trading? There really is no secret, but one quality all great traders have is this – they are humble and they never marry into a position. Leave your ego at your trading room door and listen to what the market is saying. Be prepared to change your stance quickly if the market signals a different direction – and never ever fight the market. It has a lot more firepower than you!
I use Elliott Wave theory to give me clues when a market is likely to turn – and this is a great example.
Here are my EW labels on the Nasdaq off its recent high.:
This is a textbook five down with long and strong w3, a complex w4 and a w5 that has five clear sub-waves. To cap it off there are two huge pos mom divs. A big rally lies ahead.
But where to? A common retrace is the 50% Fibonacci level, which is also where the w4 high is located. That will be my major target.
We have some US jobs data out today and tomorrow and whatever numbers are released, I can confidently forecast that they will be ‘good’. Meanwhile, being a humble trader, I have my protective stop in.