this is the best explanation you will find anywhere for today's price action, simply brilliant......
"well, here we go... I will admit to being a little surprised by today's price action, although thinking about it logically, I should perhaps not be. Once again, it is these corrective waves which are often so difficult to read. You will remember during December when we were in the wave 4 of this bear market, I was finding the volatility difficult back then. The point is that corrective waves are more difficult to read because they can take on so many different forms within the Elliott guidelines. This does not mean that the guidelines are woolly, it means that they do allow for different possibilities. However, one thing which is certain about markets is that one of their functions is to maximise trade - which is why, among other things, gaps usually get filled. The other facet about maximising trade is that the markets will always try to knock out our stops - because, once again, that maximises trade.
So today what have we seen? I think we have seen a spike akin to a bear squeeze which has knocked out a lot of stops, and in doing so has caused the market to rise even more sharply by triggering those buy orders. The point there is that once those buy orders have been triggered, because they are stops, they will be closing trades, and therefore the market will fall back more sharply after they have been executed than it would had they been part of a more genuine bull run. Hence, we have seen the market come off very sharply, with the Dow also coming back below 8,000 - with all the psychological factors that that entails.
A few days ago now I had mentioned the possibility of a bear squeeze in my emails, but then I thought the risk of that had diminished a little. It was only in the face of yesterday's and today's strong rises that I felt had to take a closer look at any alternative possibility that could exist. And the only one I came up with was that the corrective wave (correcting the January fall) might not be complete.
The problem now is one of sentiment - and sentiment is affected greatly when the Dow nudges 8,000, after all, we have all seen the repeated bounces off that level. The fear factor is there, and basically the fear is that if the Dow fails to hold 8,000, then how far does it go?
My own belief, as you know, is that we will see it well below 8,000, and we will also see the FTSE head down toward 3,500 in the next month or so.
Whether we have seen the top of the correction here or not is a point for debate now. But the two possibilities are there: if we have seen the top, then I think that the decline could be swift, but if we haven't, then personally I will use what's left of any rise to add to my existing long term short position.
One other point in favour of continued downside is that the Dax is showing a very pronounced selling spike up to 4,550, retesting the levels it last saw at the peak on 28th January, which was the previous peak of this corrective wave..
As I write this, the Dow is just closing around 7,960 and has been bouncing around 7,940 - 7,990 for the last 2 hours. Looking weak."
My good friend Sir William,
