4 Rules for Applying The Elliott Wave Principle

4 Rules for Applying The Elliott Wave Principle

Precious Metals and the Economy

To say that the precious metals markets have been volatile as of late would be an understatement.  I continue to view the entire downward move from the all time highs as corrective.  Therefore I think precious metals will reverse the trend and begin to head higher and I think sooner rather than later.

Even though, the precious metals are traded in different currencies it is the U.S. dollar that all precious metals are denominated in.  Presently, it would appear that the developed economies of the world are in a war of competitive devaluation.  The U.S. is creating dollars with impunity.  The Japanese are determined to take the yen down, which leaves the European community in a position where it must respond and then of course that would lead to additional responses from the U.S., Japan as the game of musical chairs continues.

Precious metals are a generally accepted medium of exchange that does not have domestic devaluation on a political constitutional basis.  Precious metals are denominated in U.S. dollars, which happen to be in what some would consider a “slow-motion” multiple vehicle wreck.  This will benefit (in nominal terms) the price of gold as well as most other precious metals.  In fact the current blind faith (confidence) in the equity markets today is one “hatched” of U.S. dollar liquidity.  The FED and other global Central Banks have created a comfort level amongst the population that treating the “crisis” issue as one of liquidity and by adding trillions of dollars or Euros or Yen that the solvency issue is being solved.  However, when the dollar and debt bubbles finally reach heights that can no longer be ignored by the populations the precious metals complex will increasingly be favored over something that can’t be “printed.”   This will include many commodities including natural resources as well.

Day Trading vs. Position Trading

Recently I have been discussing the necessity to toss out most if not all of your old trading ideas and join the ranks of algorithmic trading I haven’t, as many of my friends believe gone over to the Dark Side.  On the contrary, it is the Elliott Wave Principle that reveals that the ultimate highs are not in yet even if the markets throw a 10 to 20% correction our way over the next month or so.

The use of overbought/oversold indicators and momentum oscillators indicate where money is flowing, where an imbalance of buyers or sellers occurs and a  “bull trap” or ”bear trap” forms.  It is also where the market will continue to move to find the maximum volume where the trapped traders or investors are forced out of their positions.

As of this writing, my longer-term analysis continues to show that the “mother” of all bull traps is in the making and will continue to pull in more unsuspecting late comers to the party who unknowingly are blinded by conventional wisdom theory and can’t see that the bull is very old and will ultimately give up the ghost.  These poor investors will be caught like deer in the headlights as a significant correction slaps them down.  But don’t be fooled the market gods will delve out additional pain over the short-term and trap the bears with a few more thrusts to the upside.

It will only get more confusing going forward as the market ignores “the writing on the wall” and pushes higher under a false sense of security built on negative input.  For example, price volatility has increased with the norm within the broader averages being a 2 to 3 percent and as high as 10 percent move intraday.  Many stocks have seen daily trading ranges expand to between 10 and 15 points or more intraday.  As an example it is not unusual to see Apple Computer up 15 to 25 point higher and the next day being 10 to 20 points lower.

This type of action is the primary motivation behind my advocating switching strategies if necessary and focusing on day trading and less on position trading.  I do believe there are discernable longer-term positions investors should consider and implement, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk.