TradersworldJuly - August 2010ISSUE #47comInterview with Dan ZangerHeading Off TroubleFractal City and the Recovery TopChicago Wheat Futuresand W.D. Gann’s Natural SquaresThe Jehovah Cycle inW.D. Gann’s “The Tunner thru the Air”The Overlap Rule and MoreIt’s a Trader’s MarketThe Market Oracle ReportMTPredictor Software ReviewTsunami-Tradingsoftware reviewOmniTraderSoftware ReviewAn Objective Entryand StoplossPlacement StrategyWWW.TRADERSWORLD.COM July/August 20101
A Rare Phenomenon, CurrentWave Pattern CreatesUnpredictable EnvironmentUnderstanding why Today’s Stock Market Is Unpredictable and thebest Trading Strategies to EmployBy Glenn Neely, Founder, NEoWave InstituteThe U.S. stock market has entered thecenter of a 20-year correction and iscurrently in a highly unpredictable phase.In fact, stock market predictions in 2010– and for the next several years – willcontinue to be extremely challenging. Thisis an unavoidable phenomenon, whichPDNHV WUDGLQJ DW WKLV WLPH PRUH GLI¿FXOW and dangerous than usual. In this article,I discuss the U.S. stock market’s currentWWW.TRADERSWORLD.COM July/August 201059
– and sometimes they’re not. Markets gothrough phases of predictability that I call6SHFL¿F 3UHGLFWDELOLW\ *HQHUDO 3UHGLFWDELOLW\ and Unpredictability. This understanding ofpredictability is an important component ofNEoWave technology, an advancement ofNEoWave’s phases of marketWave theory that presents logical concepts,predictabilityThe current U.S. stock market environment structures, and rules. To be clear, theis an interesting phenomenon related to logical design of NEoWave is not present inWave Theory. Most people who approach the original Elliott Wave Theory.What is the current Wave pattern, andWave analysis believe the stock market ispredictable all the time – as long as you why is the stock market so unpredictableFDQ ¿JXUH RXW WKH :DYH FRXQW 7KH UHDOLW\ right now? First, let’s look at the chartis that Wave counts are predictable some of below. This presents the high-low cashthe time – along with market predictability data for every six months of the S&P 500phase of pattern development – a strangeWave phenomenon – and how it impactstrading strategies and risk management,and what it means to traders and investors.60WWW.TRADERSWORLD.COM July/August 2010
between 1982 and early 2010. This chartillustrates the historical Waves – and showsmy stock market predictions for 2010 andbeyond.As an aside, in my book, Mastering Elliott:DYH , VSHFL¿FDOO\ DGGUHVV KRZ WR SORW charts. You should always plot the marketon a cash basis, because cash prices don’tdeteriorate over time like futures data.Also, the highs and lows should be plottedin order – do not put the highs and lowson the same vertical plane – this helps youcreate a chart that actually shows Wavepatterns. If you use bar charts, you’re notreally looking at Wave patterns, and it’sGLI¿FXOW WR GHFLSKHU :DYH VWUXFWXUH Let’s look at the chart, starting withthe high in 2000. As you can see, this wasthe end of a multi-decade advance. Under:DYH 7KHRU\ WKLV LV D ¿YH ZD\ VWUXFWXUH ZLWK D ¿IWK :DYH H[WHQVLRQ 7KH SDWWHUQ concluded, and we went into a bear market,which technically began on September 5,2000. (The high was in February 2000, butthe actual start of the bear market underWave Theory was September 5, 2000.)The decline began with a strong directionalmove, which was extremely predictablebecause we were in the very early stagesof a large, 20-year corrective formation.My ability to predict stock marketaction for the next two years was trulystunning to many people. It was the mostpredictable market action I’d seen in nearlymy entire career – because we were at thevery beginning of a long-term formation.'XULQJ WKLV SHULRG RI 6SHFL¿F 3UHGLFWDELOLW\ you can precisely forecast what will happenday-to-day, week-to-week, and month-tomonth. My stock market predictions duringthis timeframe were extremely precise.The center of a Wave is far moreGLI¿FXOW WR SUHGLFW WKDQ WKH beginningThe beginning of a large formationoffers a high degree of predictability,with extremely accurate stock marketpredictions. However, from January 2008through 2012 (and possibly 2014), wewill be in the Unpredictable phase ofWave pattern development. That’s a longWLPH WR QRW EH DEOH WR VSHFL¿FDOO\ SUHGLFW what will happen. The interesting part ofthis Unpredictable phase that began inJanuary 2008 is that it goes through aSDWWHUQ RI 6SHFL¿F 3UHGLFWDELOLW\ *HQHUDO Predictability, and Unpredictability. (OnWKH FKDUW WKH 6 VWDQGV IRU 6SHFL¿F * IRU General, and U for Unpredictable.)We’re in the center of a very large 20year correction, and the center of a Wavepattern is the greatest period of uncertainty.Whenever you’re in an environment ofunpredictably, it opens up the marketWUHPHQGRXVO\ WR RXWVLGH LQÀXHQFHV unexpected economic circumstances, andgeopolitical events like the terrorist attacksof September 2001 (this was near thecenter of the 2000-to-2002 decline, whichwas a period of unpredictability). We’redealing with that kind of environmentnow, which means unexpected events,uncertainty, and fear will reign supremefor the next few years.The center of an unpredictableenvironment presents a lot of uncertaintydue to polarization of opinion. The marketcan swing in wild ways, because there’s alot of money either sitting on the sidelinesor doing the opposite of what the otherhalf is doing. If one group suddenlydecides to join the other group, this canmove the market dramatically and quickly.WWW.TRADERSWORLD.COM July/August 201061
This situation allows for randomness andunpredictability that you don’t get nearthe beginning and end of patterns. It’s likethrowing an extra person on one end ofa teeter-totter, which results in a suddenand dramatic shift.Unfortunately, this unpredictable marketenvironment will continue for several moreyears, certainly throughout 2010. The riskof violent, unexpected external events thatcould affect the stock market is very highfor the entire year. Generally speaking,Wave Theory suggests that we’re in asideways or down trend, which began inJanuary 2008. And I’m certain we’ll be inthis sideways or down trend for four to sixyears. This means the bear market willQRW ¿QLVK XQWLO DW OHDVW DQG LW FRXOG stretch out until 2014. At that point, thelarge Unpredictable phase will come to anend, and we’ll move back into a GeneralPredictability phase, like that of 2002 to2007.What are the best tradingstrategies for this unpredictablemarket?This Unpredictable phase does maketrading far more dangerous. As the marketmoves toward the center formation, ourfocus has to shift away from dependabilityon Wave structure and Wave patterns thatyou would expect to occur. Now, tradingstrategies must be based on bottom-lineoriented capital management strategies.Traders and investors need to look tomarket trading strategies that are outsidethe realm of Wave Theory.The best way to deal with unpredictablestock markets is to use what I callVHFRQG WLHU WHFKQRORJLHV VWUDWHJLHV IRU trading, risk management, and capital62WWW.TRADERSWORLD.COM July/August 2010management that are independent ofWave Theory. Clearly, when the stockmarket is harder to predict, it’s harder totrade. Therefore, you need to be muchmore careful about risk managementand protecting your capital. You need tominimize risk and maximize potential. Inthis unpredictable environment, you needto reduce the emphasis on predicting thestock market and place the emphasis oncareful, strategic trading and on strategiesto preserve capital.In the next article in this series, Iwill introduce the fundamentals of myrevolutionary Neely River Technology.This provides a behavioral framework fortraders and investors to better deal withWKH UDQGRPQHVV RI SULFH ÀXFWXDWLRQV LQ unpredictable market environments.Founder of NEoWave Institute, Glenn Neelyis internationally regarded as the premierWave analyst. He has devoted morethan 25 years to mastering Wave theory,stock market predictions, and successfultrading. In 1990, Neely published hisadvanced Wave analysis process in hisclassic book, Mastering Elliott Wave. Inthe following decades, Neely continued toevolve Wave theory to make it objective,practical, and consistently accurate. Thisevolution produced NEoWave technology– a precise, step-by-step assessment ofmarket structure, which results in low-risk,KLJK SUR¿W WUDGLQJ DQG LQYHVWLQJ 6HH IRU yourself: Subscribe to NEoWave’s 2-weekTrial Service. Learn more Glenn Neely andNEoWave Trading and Forecasting servicesat www.NEoWave.com.
Interview with Dan Zanger Heading Off Trouble Fractal City and the Recovery Top Chicago Wheat Futures and W.D. Gann’s Natural Squares The Jehovah Cycle in W.D. Gann’s “The Tunner thru the Air” The Overlap Rule and More It’s a Trader’s Market The Market Oracle Report MTPredictor Software Review Tsunami-Trading software review An Objective Entry and Stoploss Placement Strategy .