An Elliott Wave Perspective on European Stock Markets tom'denhamelliottwave'com

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An Elliott Wave Perspective on European Stock
Marketstom.denham_at_elliottwave.com
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Ralph Nelson Elliott
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European Stock IndexWave Counts
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Wave Counts

• Trending markets often develop in five waves.
  Market corrections, on the other hand, tend to
  end after developing three waves. These
  observations are the heart of the Elliott Wave
  Principle and the reason why I count segments of
  price development on charts. Finding five-wave
  and three-wave segments on the chart often
  provides orientation to the trend and reveals
  whether the upside or the downside is likely to
  dominate in the coming days and weeks.
• Markets sometimes complete corrections against
  the trend in one sharp wave, but more often
  corrections develop three waves. Therefore, watch
  for a partial retracement of the first wave
  against the trend and then the development of a
  third wave against the trend that ultimately
  extends beyond the end of the first wave.
  Elliotticians label the first wave against the
  trend A, the retracement of the first wave B, and
  the third wave against the trend C. After a
  market completes a three-wave correction (A-B-C),
  it is likely to reverse and make substantial
  progress in five waves (1-2-3-4-5).
• The best wave counts are those that appear
  obvious when looking at a bare price chart. When
  a chart does not display an easy-to-label wave
  pattern, imposing one often leads to regret. The
  most advanced practitioners of the Elliott Wave
  Principle focus on simple, basic forms.

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Trend Performance

• One characteristic of fifth waves is that they
  "usually display a slower maximum speed of price
  change" than third waves (Elliott Wave Principle,
  page 80).
• However, most European indexes are advancing
  faster now than they did in wave (3). In other
  words, wave (5) is advancing at a sharper angle
  of ascent than wave (3) did. This interesting
  development suggests that wave (5) from the June
  low is extending and could continue considerably
  higher.

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Seasonality

• Seasonality favors the upside as Western European
  stock markets tend to advance from November
  through May and decline from June through
  October.
• Also, stocks tends to move up in the third year
  of the U.S. Presidential cycle, and 2007 is just
  such a year. The DAX Index advanced in 9 of the
  past 11 third years of the cycle, turning down
  only in 1979 and 1987.

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Measuring Risk Appetitewith Asset Class Ratios
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The Elliott ToolsI Use Most Often
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The Compound Construction of Waves
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The Compound Construction of Waves
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The Compound Construction of Waves
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Common Retracements
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Corrections, especially when they themselves are
fourth waves, tend to register their maximum
retracement within the span of travel of the
previous fourth wave of one lesser degree.
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AC or Two Equal Legs
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The Wave Principle

• Guided by observation and not theory.
• Waves are patterns of directional movement.
• Markets ultimately progress in five waves.
• Waves 1, 3, and 5 move in the direction of
  ultimate progress.
• Waves 2 and 4 are counter-trend interruptions.
• The forms of wave patterns are repetitive, so
  they have predictive value.
• The market is always somewhere in the basic
  five-wave pattern.

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