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Wednesday, March 20, 2013

5th of 5th of 5th

I am not a big fan of Elliott Wave Theory (EWT)
This is from personal experience. I don't think anybody disputing that EWT is very hard to properly analyze in real time. What really necessary is for pattern to be finished, reversal of some kind to already occur and only then you have a "confirmed" EW count. This whole business is really pretty and can blow your mind with benefit of hindsight.

In practice, trading based on Elliott Wave, Gann, Wolfe etc always ended in doing me more harm than good. Its easy to imagine a pattern or scenario that supports my present position, or worse - to start taking positions based on count that is not finished yet. There-in is a hidden contradiction: I can't invest based on incomplete pattern, but by the time pattern is complete and confirmed it will be to late to invest. Basta! After I experienced this vicious circle several times and always managed to lose money, I decided to stay away from fancy-shmancy theories including EWT. It did me good, and allowed me to observe rather than act on imperfect info.

Truly, ALL information on markets is imperfect. We have to make an aggressive directional bet, based on incomplete data, for unpredictable amount of time. Notably, there are "right" situations, when risk is low(er) than possible reward. "Wrong" is wrong all over the place. And then there are stages in-between.

SPX went thru bunch of stages, some looking like major top, some like run-away long term bull market, until everybody left. Bulls are afraid to get caught again, bears can't take anymore pain. Five big waives off 2009 bottom, five well defined waves off Fall  2011, five off November 2012 low. This last one has distribution happening thruout - not on averages, but on most of former market leading stocks. I am not an expert on Elliott Wave Theory, and I am not sure how to properly label all stages, but i am looking at a picture that is just too perfect.

I am not bullish. My target was 1600+ on SPX, some 50 point away. Possible correction / bear market can take this market to 1000 SPX, some 500 points away.

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