Is the most powerful of all waves right around the corner?
The short answer is "YES."
The long answer will help you anticipate where and when …
First, let's describe wave 3.
If wave 3 was a superhero, he'd probably be The Flash (though he could be The Hulk).
Like The Flash, there's no mistaking wave 3's characteristics:
- It gets to where it's going in a hurry.
- It usually catches everyone by surprise, and
- You'll know it when you see it.
EWI's Short Term Update will help you prepare for wave 3's arrival.
Steve Hochberg's Short Term Update closely analyzes the subdivisions of wave 2 so you can prepare for the resulting wave 3 opportunity – or get out of its way entirely. Try Short Term Update risk-free today. Get the best deal when you bundle it with the comprehensive Financial Forecast Service. Learn more.
Robert Prechter describes third waves in his seminal book with A.J. Frost, The Elliott Wave Principle:
"Third waves are wonders to behold. They are strong and broad, and the trend at this point is unmistakable. … Third waves usually generate the greatest volume and price movement and are most often the extended wave in a series."
But to truly appreciate the power and lightening-speed of third waves – and be prepared to anticipate one – you must first know how to identify the waves that precede it, namely wave 2.
Here's what Prechter writes about wave 2 in The Elliott Wave Principle (two words have been reversed to apply to bear markets):
"At this point, investors are thoroughly convinced that the (bull) market is back to stay. Second waves often end on very low volume and volatility, indicating a drying up of (buying) pressure."
If you're thinking the description of wave 2 seems eerily similar to today's environment, you're right.
On February 23, Robert Prechter's Elliott Wave Theorist recommended aggressive speculators close their short positions to avoid being caught in a "sharp and scary" rally. Just a few trading days later, the market began a multi-month rebound – wave 2.
BUT … Volume has steadily decreased since that rally began in early March. Volatility is on the rise. And perhaps most noteworthy of all: The investment herd – more specifically, the financial media – has jumped to proclaim the "worst is over."
All the classic characteristics of bear-market rallies are there. Even a quick online search turns up headlines like:
"Bernanke says recession 'very likely over'" ~ Sept. 15
"Ride this new bull market to gains" ~ Sept. 12
"Great recession over" ~ Sept. 9
Recognizing the personality of wave 2 allows you to prepare for what's next, a move you really want to look out for, wave 3 – The Flash.
Third waves move far and fast. They make good opportunities for aggressive speculators, but they can become a death knell for longer-term investors' portfolios.
Steve Hochberg's Short Term Update closely analyzes the subdivisions of wave 2 so you can prepare for the resulting wave 3 opportunity – or get out of its way entirely. Try Short Term Update risk-free today. Get the best deal when you bundle it with the comprehensive Financial Forecast Service. Learn more.