ChartWatchers

THE MARKET'S HAD A FIVE WAVE ADVANCE

John Murphy

John Murphy

Chief Technical Analyst, StockCharts.com

Determining Elliott Wave counts can be very subjective. One way to make it little easier is to employ a "ZigZag"overlay on the price chart. [The ZigZag is located in the same Overlays menu that includes moving averages]. The idea of the ZigZag overlay is to apply a percentage filter on market trends. The default setting is 5% which means that only price moves of at least 5% are shown. Anything smaller than 5% is ignored. You can change the percentage filter to make the lines more or less sensitive. I increased the ZigZag filter to 7% in Chart 1 to show the two 7% corrections from last August and this March without upsetting the 5% line count. The lines help eliminate some of the subjectivity when counting market waves. Chart 1 shows five clear lines since last summer's bottom. Three up lines and two down lines. [The numbers were added by me]. Elliott Wavers know that five-wave advance is usually a signal that an upmove has been completed and that correction within the uptrend is likely. I've also recently shown a number of negative divergences on daily and weekly indicators like RSI. Why that's important is that fifth wave negative divergences are usually more serious warnings of a market correction.

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John Murphy
About the author: is the Chief Technical Analyst at StockCharts.com, a renowned author in the investment field and a former technical analyst for CNBC, and is considered the father of inter-market technical analysis. With over 40 years of market experience, he is the author of numerous popular works including “Technical Analysis of the Financial Markets” and “Trading with Intermarket Analysis”. Before joining StockCharts, John was the technical analyst for CNBC-TV for seven years on the popular show Tech Talk, and has authored three best-selling books on the subject: Technical Analysis of the Financial Markets, Trading with Intermarket Analysis and The Visual Investor. Learn More