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U.S. Stocks: The "Do's" and "Don'ts" of Forecasting

Insights into market analysis from our intraday U.S. stocks specialist

by Robert Kelley
Updated: April 25, 2018

Dana Weeks: Hi, I'm Dana Weeks, and I'm here today with Robert Kelley, Elliott Wave International's editor of US Stocks Intra-day Pro Service. Welcome back, Robert.

Robert Kelley:  Hi Dana, good to talk to you again.

DW:  So you specialize in intraday markets. I've been wondering, do you look at them the same way that you would longer-term markets, or is there a difference in each approach?

RK:  There's not a huge difference, but I will look at more short-term indicators to help me try to forecast what's happening. Specifically, like, intra-day put/call ratios, tick readings, short-term oscillators, that sort of thing. But the wave principle is the same generally, but you have to look at the short-term indicators to focus on that time frame.

DW:  OK. And what about if we do look at Elliott wave itself did the waves manifest the same way or are there subtle changes based on the frame?

RK:  I would say that the shorter term you go, sometimes the less ideal the waves actually are. But looking at even a five-minute chart, you're still going to get fairly clear wave counts. And the only-- the difference is, I would say, that the longer-term counts, you have multiple degrees of waves to look at and to assist you in your forecast. You know, multiple degrees of trend coming to completion at the same time, for example. On the short term, you don't have quite so many degrees of layers of waves to look at. But, the short-term patterns surprisingly, in my opinion, exhibit fairly clear wave counts even down to the five-minute shorter-term charts.

DW:  OK, and that's because the Elliott Wave model is seen as a fractal?

RK:  Exactly, yeah the patterns are basically the same, you know, flats, triangles, third waves, five-way patterns, they all manifest themselves no matter what time frame you're looking at.

DW:  And with looking at intra-day markets, there can be so much going on with news, and data, and events. How do you handle these brief, near-term, knee-jerk reactions?

RK:  Well generally you have to take them with a, kind of, a grain of salt. You know, anybody who's traded for a while knows that reactions to news are quite often reversed. Certainly not always, but quite often the initial reaction is the wrong one. And especially if you have a wave count that is coming to a completion, like a corrective rally might be ending, the rally's on news. That's actually an ideal set up for trading opportunity. So, if it's clear, and we have, kind of, a compelling short-term count, and there's a reaction on news, sometimes it can really set up good opportunities. It's not always so clear, so you have to be careful with news. But when everything, kind of, comes together, those emotional reactions set up some good opportunities.

DW:  So you really have to watch to not be impulsive when looking at intra-day?

RK:  Yeah, I would say in general, jumping on a news related move quite often can be the wrong decision.

DW:  And Robert, do you look for a synchronicity between the Dow Jones Industrial Average, the NASDAQ, and the S&P, or is it OK if they tend to point in different directions?

RK:  Well, generally they're going to go in the same direction. But, the biggest thing about looking at those indexes, and I really advocate-- especially, that's one of the great advantages of trading the stock market, is you have these different sectors and indexes. And when you notice diverging patterns between them, when you see one index making a new high on the day and the other one doesn't, that's usually a very helpful indicator or a warning sign that maybe, the move is about to reverse. So I really like to look at those three indexes specifically, and a few others like the Russell, the New York Stock Exchange Composite. When you see divergences, that's very helpful in adding confidence to an impending trend change. So yeah, having all of that variety really does add to the, kind of, the complexion and the color of analyzing the stock market.

DW:  All right Robert, well thank you so much for coming on today. I know you're very busy, and you probably want to get back to those markets, so I appreciate you taking the time.

RK:  Exactly, thank you so much Dana, good to talk to you.


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