Is the Bear Market's Most

Violent Decline Right Around the Corner?

Meet Wave 3:

The Superhero of All Waves

Is the most powerful of all waves right around the corner? See an idealized impulse wave 3 in bull and bear markets.

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, andYou'll know it when you see it.

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:"Worst of the recession is over" ~ July 7"Econ Crisis Not Over, But Worst Has Passed" ~ July 8"June job bounce could mean worst is over" ~ July 7"Wall St's fear gauge suggests the worst is over" ~ June 28Recognizing 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.