Elliott Wave Case of a New Rally

February has been quite a month. UST IPM Model suggested that investors should exit the market on or around Jan 28, 2013. Since then market has gone net sideways. Some markets have significantly declined, while others managed to crawl up in the first 2 weeks of February before declining sharply.

As Joseph correctly said in one of his comments a few weeks ago, “no matter what you say, we are in a correction.” As we know that corrections are overlapping and can take any of the 11 possible Elliott Wave shapes, it is difficult to predict the exact shape of a correction. But all markets had one thing in common, they had overlapping and choppy charts. This kind of behavior is a classic description of Wave 4 in Elliott Wave terms because Wave 2s are typically sharp and deep.

Although UST subscribers knew about the potential bottom date in February, it is an appropriate time to reevaluate the market structure to see where we are and where the markets are headed. This structural analysis has kept us on the right side of trade since March 2012. In January 2013, it was stated in IPM Model update that we need a series of 4 and 5 waves to complete this rally and that is what we have got.

The first chart below shows DJIA and its wave structure since Nov 2012 bottom. DJIA rose in a clear impulsive manner from Nov 2012 low to January 2013 high. At that point we needed a 4^th wave. It appears like DJIA traced out an expanding triangle pattern in February. Triangles typically take place during 4^th waves  and represent consolidation before continuation in the prior direction. This chart clearly shows the rally potential of DJIA as we approach the IPM Model bottom date.

2nd chart shows the market performance from IPM Model top to IPM Model bottom. As one can clearly see, market has undergone one month of correction, and is now ready to break out of this range.

Thrird chart below shows SP500 pattern since Nov 2012 bottom. It shows a similar picture as DJIA, except for the fact that in SP500 we do not have a triangle. Instead we have a clear 3 wave decline from February top to February bottom. In January IPM Model update, it was mentioned that due to internal strength of the rally that we have witnessed since November, it is likely that market could continue higher till mid-February before declining to complete 4^th wave (sent to subscribers).

This wave structure (impulsive rise, followed by a 3-wave decline) is in harmony with the new Bull market thesis presented to UST subscribers in early December 2012. In the next update, we will discuss the near term market structure and associated market signals which are suggesting that markets has already bottomed.

Note: Next IPM Model update will be e-mailed to subscribers on March 3, 2013. IPM Model has been a very informative tool for market timing. If interested in IPM Model Subscription, please fill out the form below. IPM Subscription fee might increase in April 2013 for new subscribers. Model Performance