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With more people focusing in on Elliott Wave as the current decline from 2007 conforms to an ideal Elliott Pattern, let’s take a look at a potential count that begins in October 2007 and is broken-down in respective subdivisions all the way to March 2009.

S&P 500 Daily Elliott Wave Structure:

(You’ll need to click to view the full picture)

I won’t go into much detail so as to let the proposed wave labeling speak for itself.

I’m relatively new to Elliott Wave and am stunned at how the Wave Structure has played out almost perfectly to the rules and guidelines developed by Ralph Elliott in the 1930s.

Impulse Waves subdivide into 5 Waves (in the larger trend) and Corrective Waves (labeled “ABC”) subdivide into 3 Waves.

The 3rd is never the shortest, but is oftentimes the longest wave (this plays out on almost all subdivisions).

What’s amazing me is that if you look closely, the October near-vertical downward plunge is located in the Wave Structure exactly where you would expect it to be, confirming the count:  Sub-Wave 3 of Fractal Wave (3) of Major Wave 3 down.  To me, that’s chilling.

It’s also known as the “Point of Recognition” where people begin to “catch on” that we’re in a bear market and they generally stop buying pullbacks.  Until then, it was feasible to some investors that things weren’t so bad… though October officially changed that all.

Now, it seems everyone’s a bear and people - even on TV - are saying we’re going to be headed down for a long time and there’s no bottom in sight…

But if you look at the Wave Structure, we need a Wave (4) up and then a Wave (5) down to finish off Circled (Major) Wave 5 before launching upwards into some sort of upwards ABC Correction.

For now, take a moment to study over the Price Wave Structure that began in October 2007 and try to internalize it - to me, it appears a textbook example in real life of the Elliott Wave Principle.

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Corey Rosenbloom

In poker terms, the Treasury and the Fed have gone "all in." Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won't leave willingly.

• Warren Buffett says the economic turmoil that contributed to a 62 percent profit drop last year at the holding company he controls is certain to continue in 2009, but the revered investor remains optimistic.
• Buffett released his annual letter to Berkshire Hathaway Inc. shareholders Saturday morning, and detailed the worst of his 44 years leading the Omaha-based company. But in between the news of Berkshire's sharply lower profit and its nearly $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation's future. He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.
• "Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
• Within Berkshire, Buffett said the company's retail businesses, including furniture and jewelry stores, and those tied to residential construction, such as Shaw carpet and Acme Brick, were hit hard last year, and they will likely continue to perform below their potential in 2009.
• But he said Berkshire's utility and insurance businesses, which includes Geico, both delivered outstanding results in 2008 that helped balance out the other businesses.
• Buffett devoted nearly five pages of his letter to Berkshire Hathaway shareholders to explaining the role derivatives played in the company's investment losses last year. Buffett said he initiated all of Berkshire's 251 different derivative contracts because he believes they were mispriced in Berkshire's favor. "If we lose money on our derivatives, it will be my fault," Buffett said.
• Buffett said he did not anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.

 ON THE 2008 FINANCIAL CRISIS

 "As the year progressed, a series of life-threatening problems within many

		of the world's great financial institutions was unveiled. This led to a

		dysfunctional credit market that in important respects soon turned

		nonfunctional. The watchword throughout the country became the creed I saw on

		restaurant walls when I was young: "In God we trust; all others pay cash."

 THE CREDIT MELTDOWN

 "By the fourth quarter, the credit crisis, coupled with tumbling home and

		stock prices, had produced a paralyzing fear that engulfed the country. A

		freefall in business activity ensued, accelerating at a pace that I have never

		before witnessed. The U.S. -- and much of the world -- became trapped in a

		vicious negative-feedback cycle. Fear led to business contraction, and that in

		turn led to even greater fear."

 2009 OUTLOOK

 "Most of the Berkshire businesses whose results are significantly affected

		by the economy earned below their potential last year, and that will be true in

		2009 as well. Our retailers were hit particularly hard, as were our operations

		tied to residential construction."

 MAKING MOVES IN THIS MARKET

 "During 2008 I did some dumb things in investments. I made at least one

		major mistake of commission and several lesser ones that also hurt. I will tell

		you more about these later. Furthermore, I made some errors of omission,

		sucking my thumb when new facts came in that should have caused me to

		re-examine my thinking and promptly take action.

 "Additionally, the market value of the bonds and stocks that we continue to

		hold suffered a significant decline along with the general market. This does

		not bother Charlie and me. Indeed, we enjoy such price declines if we have

		funds available to increase our positions. Long ago, Ben Graham taught me that

		'Price is what you pay; value is what you get.'

 "Whether we're talking about socks or stocks, I like buying quality

		merchandise when it is marked down."

 IDENTIFYING ACQUISITIONS

 "Our long-avowed goal is to be the 'buyer of choice' for businesses --

		particularly those built and owned by families. The way to achieve this goal is

		to deserve it. That means we must keep our promises; avoid leveraging up

		acquired businesses; grant unusual autonomy to our managers; and hold the

		purchased companies through thick and thin (though we prefer thick and

		thicker).

 "Our record matches our rhetoric. Most buyers competing against us,

		however, follow a different path.

 "For them, acquisitions are 'merchandise.' Before the ink dries on their

		purchase contracts, these operators are contemplating 'exit strategies.' We

		have a decided advantage, therefore, when we encounter sellers who truly care

		about the future of their businesses."

 GEICO

 "As we view GEICO's current opportunities, Tony (Nicely) and I feel like

		two hungry mosquitoes in a nudist camp. Juicy targets are everywhere."

 REINSURANCE BUSINESS

 "From year to year, Ajit (Jain)'s business is never the same. It features

		very large transactions, incredible speed of execution and a willingness to

		quote on policies that leave others scratching their heads. When there is a

		huge and unusual risk to be insured, Ajit is almost certain to be called.

 "Ajit came to Berkshire in 1986. Very quickly, I realized that we had

		acquired an extraordinary talent.

 "So I did the logical thing: I wrote his parents in New Delhi and asked if

		they had another one like him at home. Of course, I knew the answer before

		writing. There isn't anyone like Ajit."

 HOUSING MELTDOWN

 "At that time, much of the industry employed sales practices that were

		atrocious. Writing about the period somewhat later, I described it as involving

		'borrowers who shouldn't have borrowed being financed by lenders who shouldn't

		have lent.'

 "To begin with, the need for meaningful down payments was frequently

		ignored. Sometimes fakery was involved. ('That certainly looks like a $2,000

		cat to me' says the salesman who will receive a $3,000 commission if the loan

		goes through.) Moreover, impossible-to-meet monthly payments were being agreed

		to by borrowers who signed up because they had nothing to lose. The resulting

		mortgages were usually packaged ('securitized') and sold by Wall Street firms

		to unsuspecting investors. This chain of folly had to end badly, and it did."

 OWNING A HOME

 "Home ownership is a wonderful thing. My family and I have enjoyed my

		present home for 50 years, with more to come. But enjoyment and utility should

		be the primary motives for purchase, not profit or refi possibilities. And the

		home purchased ought to fit the income of the purchaser.

 "The present housing debacle should teach home buyers, lenders, brokers and

		government some simple lessons that will ensure stability in the future. Home

		purchases should involve an honest-to-God down payment of at least 10 percent

		and monthly payments that can be comfortably handled by the borrower's income.

		That income should be carefully verified.

 "Putting people into homes, though a desirable goal, shouldn't be our

		country's primary objective. Keeping them in their homes should be the

		ambition."

 MUNICIPAL BOND INSURANCE

 "When faced with large revenue shortfalls, communities that have all of

		their bonds insured will be more prone to develop 'solutions' less favorable to

		bondholders than those communities that have uninsured bonds held by local

		banks and residents. Losses in the tax-exempt arena, when they come, are also

		likely to be highly correlated among issuers. If a few communities stiff their

		creditors and get away with it, the chance that others will follow in their

		footsteps will grow. What mayor or city council is going to choose pain to

		local citizens in the form of major tax increases over pain to a far-away bond

		insurer?

 "Insuring tax-exempts, therefore, has the look today of a dangerous

		business -- one with similarities, in fact, to the insuring of natural

		catastrophes. In both cases, a string of loss-free years can be followed by a

		devastating experience that more than wipes out all earlier profits. We will

		try, therefore, to proceed carefully in this business, eschewing many classes

		of bonds that other monolines regularly embrace."

 MAKING MISTAKES

 "Without urging from Charlie or anyone else, I bought a large amount of

		ConocoPhillips (COP.N) stock when oil and gas prices were near their peak. I in

		no way anticipated the dramatic fall in energy prices that occurred in the last

		half of the year. I still believe the odds are good that oil sells far higher

		in the future than the current $40-$50 price. But so far I have been dead

		wrong. Even if prices should rise, moreover, the terrible timing of my purchase

		has cost Berkshire several billion dollars.

 "I made some other already-recognizable errors as well. They were smaller,

		but unfortunately not that small. During 2008, I spent $244 million for shares

		of two Irish banks that appeared cheap to me. At yearend we wrote these

		holdings down to market: $27 million, for an 89% loss. Since then, the two

		stocks have declined even further. The tennis crowd would call my mistakes

		'unforced errors.'"

 DERIVATIVES

 "Derivatives are dangerous. They have dramatically increased the leverage

		and risks in our financial system. They have made it almost impossible for

		investors to understand and analyze our largest commercial banks and investment

		banks. They allowed Fannie Mae and Freddie Mac to engage in massive

		misstatements of earnings for years. So indecipherable were Freddie and Fannie

		that their federal regulator, OFHEO, whose more than 100 employees had no job

		except the oversight of these two institutions, totally missed their cooking of

		the books."

Friday was a monumental day in so many ways, primarily because the S&P 500 closed at a multi-year low.  Let’s step inside that intraday structure and see how the day developed and how we might have traded within the intraday timeframe.

DIA 5-min chart:

I’ll be honest - this was a very difficult day (at least for me) to trade.  The initial gap (and breaking of the November low on the S&P 500) led you to believe we could have a powerful trend day down (as bulls threw in the towel) so it made sense to try to short any sort of pullback to the 20 EMA, namely that of the 10:00 and 11:00 hour - neither of which gave satisfaction.

Next, the gap was slightly beyond the $1.00 threshold which meant the gap became a ‘large-scale’ gap and thus less likely to fade… but it wound up fading.

So as price made it back to fill the gap and find resistance at yesterday’s close, those were also excellent shorting opportunities, but price remained flat.  Some investors might have figured “bulls pushed prices back above the lows so maybe the so-called “Plunge Protection Team” stepped in and I should be buying/getting long.”  That failed as prices broke to new lows at the end of the day.

There was even a head-fake that trapped both sellers at 1:30 (triggering shorts) and buyers as the price turned quickly positive on the day (at 2:00).

The point is - this day whipped everyone around up and down and was quite difficult.

Oh, in hindsight, the picture is abundantly clear and the structure is obvious - we had an initial gap down which was gently filled and supply gently overtook demand as the day turned down, forming a type of “Rounded Reversal.”

I figured out the structure with 30 minutes to go in the trading day and managed to capture the end-of-day bear flag short-sell (into EMA resistance), but otherwise was chopped around as price consolidated and formed its range for the day.

And that’s exactly why I do these end-of-day “Idealized Trades” posts - because the more you work with price structure and highlight (to yourself) key trade set-ups, the more you’ll internalize these patterns, see the structure developing during the day, and act in real-time upon these opportunities.  I highly encourage you all (who trade intraday) to do the same in your end-of-day reviews.

Corey Rosenbloom

I got this broker question the other day.

The single most important question would be what broker do you use to trade your personal money(not a demo account)?  Secondly who would be someone there to contact you personally deal with?

For stocks and options I still have the original brokerage account I opened lo these many years ago. That’s with Charles Schwab. I’ve never seriously looked at anyone else because I’ve been satisfied with the service and all of that, so I was never motivated to make a switch. I’ve heard good things about others, but as I haven’t personally explored them yet myself, I do not feel comfortable commenting on them.

On the futures side, I currently trade with PFG Best. In the past I have used Lind Waldock and Interactive Brokers. I’ve been satisfied with all of them, though they will all appeal to different types of traders.

In forex I experimented with several different brokers before ending up with Oanda. I also use them exclusively in my trading education work. They are considerably different from other forex brokers in that they have no fixed lots or minimums of any kind.

I do not have personal contacts at any of the above brokerages except at PFG Best. In that case, however, my contact has move out of futures.

All the above said, I do not specifically recommend any of the above brokers for any given person. Each of us has different needs which some brokers address better than others. You should absolutely do your research and not just take my or anyone else’s advice without looking into things yourself.

One final note. Especially in the forex realm there is a lot of slamming of brokers on forum sites and whatnot. Some of it is legitimate, but if you just go by that stuff you’ll be scared of every broker out there. Keep in mind that people have a strong tendency to complain rather than praise and traders who have lost money are prone to wanting to place blame on someone other than themselves. In other words, take it all with a grain of salt.

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