We often hear objections like, “It’s too complex,” or “It takes too much effort” with regard to Elliott’s wave theory. But, anything worthwhile usually takes effort, and is complex, and those that endure the learning process to undertake such endeavors are generally rewarded. We use Elliott because it is effective at classifying market moves, but it’s deeper than that, sort of a metaphysical reason. Elliott, and its underlying Fibonacci-based mathematical structure is a law of the universe. We talk more about that for example here in the previous “From Dow to Broccoli” post.
We use Elliott waves to find a good handle on the context of prices, or understand the price structure. One way to simplify Elliott is to master trend lines, channels, horizontal support and resistance lines.
Today, I’ll show you the last two weeks of the SPY ETF with trend lines alone. They don’t predict what is going to happen, but they show what areas are worth watching and what scenarios are the most likely considerations. Currently the thick orange and blue lines are in play.
There’s a couple of items to note here, setting Elliott aside for the moment. First, RSI found bullish support at the pullback on Monday when it formed the double bottom, and has now pushed into “sustainable bull territory.” That means we should be viewing any smaller time frame decline as a corrective pullback, not an immediate change in trend. That’s the case regardless of the Elliott count we may have.
Secondly, prices are still in two channels, and both need to break and have to be successfully tested before we seriously consider something larger to the downside.
If you’d like to learn more about combining Elliott with Momentum into a trading process check back in with us, because our trading process booklet will be released soon.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.