Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Trading Strategies for Unpredictable Markets, Current Wave Pattern Creates Difficult and Dangerous Trading Environment

Stock-Markets / Stock Markets 2010 Mar 30, 2010 - 09:35 AM GMT

By: Glenn_Neely

Stock-Markets

Best Financial Markets Analysis ArticleThis article is the first in my series, titled “Trading Strategies for Unpredictable Markets.” Here, I discuss the U.S. stock market’s current phase of pattern development – a strange Wave phenomenon – and how it impacts trading strategies and risk management. The U.S. stock market has entered the center of a 20-year correction, and I’ll discuss what this means to traders and investors.


The U.S. stock market is currently in a highly unpredictable phase. In fact, stock market predictions in 2010 – and for the next several years – will continue to be extremely challenging. This is an unavoidable phenomenon, which makes trading at this time more difficult and dangerous.

Understanding market predictability

The current U.S. stock market environment is an interesting phenomenon related to Wave Theory. Most people who approach Wave analysis believe the stock market is predictable all the time – as long as you can figure out the Wave count. The reality is that Wave counts are predictable some of the time – along with market predictability – and sometimes they’re not. Markets go through phases of predictability that I call Specific Predictability, General Predictability, and Unpredictability. This understanding of predictability is an important component of NEoWave technology, an advancement of Wave theory that presents logical concepts, structures, and rules. To be clear, the logical design of NEoWave is not present in the original Elliott Wave Theory.

What is the current Wave pattern, and why is the stock market is so unpredictable right now? First, let’s look at the chart below. This presents the high-low cash data for every six months of the S&P 500 between 1982 and early 2010. This chart illustrates the historical Waves – and shows my stock market predictions for 2010 and beyond.

As an aside, in my book, Mastering Elliott Wave, I specifically address how to plot charts. You should always plot the market on a cash basis, because cash prices don’t deteriorate over time like futures data. Also, the highs and lows should be plotted in order – do not put the highs and lows on the same vertical plane – as this helps you create a chart that actually shows Wave patterns. If you use bar charts, you’re not really looking at Wave patterns, and it’s difficult to decipher Wave structure.

Now let’s look at the chart, starting with the high in 2000. As you can see, this was the end of a multi-decade advance. Under Wave Theory, this is a five-way structure with a fifth-Wave extension. The pattern concluded, and we went into a bear market, which technically began on September 5, 2000. (The high was in February 2000, but the actual start of the bear market under Wave Theory was September 5, 2000.) The decline began with a strong directional move, which was extremely predictable because we were in the very early stages of a large, 20-year corrective formation.

The start of a Wave is more predictable than the center – and we’re in the center now

The beginning of a large formation offers a high degree of predictability, with extremely accurate stock market predictions. However, from January 2008 through 2012 (and possibly 2014), we will be in the Unpredictable phase of Wave pattern development. That’s a long time to not be able to specifically predict what will happen. The interesting part of this Unpredictable phase that began in January 2008 is that it goes through a pattern of Specific Predictability, General Predictability, and Unpredictability. (On the chart, the S stands for Specific, G for General, and U for Unpredictable.)

We’re in the center of a very large 20-year correction, and the center of a Wave pattern is the greatest period of uncertainty. Whenever you’re in an environment of unpredictably, it opens up the market tremendously to outside influences, unexpected economic circumstances, and geopolitical events like the terrorist attacks of September 2001 (this was near the center of the 2000-to-2002 decline, which was a period of unpredictability). We’re dealing with that kind of environment now, which means unexpected events, uncertainty, and fear will reign supreme for the next few years.

The center of an unpredictable environment presents a lot of uncertainty due to polarization of opinion. The market can swing in wild ways, because there’s a lot of money either sitting on the sidelines or doing the opposite of what the other half is doing. If one group suddenly decides to join the other group, this can move the market dramatically and quickly. This situation allows for randomness and unpredictability that you don’t get near the beginning and end of patterns. It’s like throwing an extra person on one end of a teeter-totter, which results in a sudden and dramatic shift.

Unfortunately, this unpredictable market environment will continue for several more years, certainly throughout 2010. The risk of violent, unexpected external events that could affect the stock market is very high for the entire year. Generally speaking, Wave Theory suggests that we’re in a sideways or down trend, which began in January 2008. And I’m certain we’ll be in this sideways or down trend for four to six years. This means the bear market will not finish until at least 2012 – and it could stretch out until 2014. At that point, the large Unpredictable phase will come to an end, and we’ll move back into a General Predictability phase, like that of 2002 to 2007.

Strategies for traders and investors

This Unpredictable phase does make trading far more dangerous. As the market moves toward the center formation, our focus has to shift away from dependability on Wave structure and Wave patterns that you would expect to occur. Now, trading strategies must be based on bottom-line-oriented capital management strategies. Traders and investors need to look to market trading strategies that are outside the realm of Wave Theory.

The best way to deal with unpredictable stock markets is to use what I call second-tier technologies: strategies for trading, risk management, and capital management that are independent of Wave Theory. Clearly, when the stock market is harder to predict, it’s harder to trade. Therefore, you need to be much more careful about risk management and protecting your capital. You need to minimize risk and maximize potential. In this unpredictable environment, you need to reduce the emphasis on predicting the stock market and place the emphasis on careful, strategic trading and on strategies to preserve capital.

In the next article in this series, I will introduce the fundamentals of my revolutionary Neely River Technology. This provides a behavioral framework for traders and investors to better deal with the randomness of price fluctuations in unpredictable market environments.

About the author

Founder of NEoWave Institute, Glenn Neely is internationally regarded as the premier Wave analyst. He has devoted more than 25 years to mastering Wave theory, stock market predictions, and successful trading. In 1990, Neely published his advanced Wave analysis process in his classic book, Mastering Elliott Wave. In the following decades, Neely continued to evolve Wave theory to make it objective, practical, and consistently accurate. This evolution produced NEoWave technology – a precise, step-by-step assessment of market structure, which results in low-risk, high-profit trading and investing. See for yourself: Subscribe to NEoWave’s 2-week Trial Service. Learn more Glenn Neely and NEoWave Trading and Forecasting services at www.NEoWave.com.

© 2010 Copyright  Glenn Neely - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules