Importance of the Elliott Wave Theory

In the last part of this series, we provided an overview of the Elliott Wave Theory. In this part of the series, we’ll discuss the psychology behind the Elliott Wave Theory’s two phases—the impulse phase and the corrective phase.

Why is the Elliott Wave Theory important in technical analysis?

The above chart shows the entry and exit signal for Home Depot’s (HD) stock. It used the Elliott Wave Theory.

In the impulsive phase, wave 1 forms at the beginning of an uptrend. In this phase, the stock price rises due to psychological factors—like investors expecting a change in trend or hedge funds buying at market bottoms. The fundamental news is negative during this period. All stock market forecasts are negative. This negative sentiment causes the stock price to fall. This forms wave 2.

Wave 2 doesn’t fall below the beginning of wave 1. Wave 3 forms when stock market news is positive and the trend rises. In wave 4, stock prices fall due to profit booking. Wave 5 is formed when stock news is positive and investor optimism is high.

In the beginning of the corrective phase, it’s difficult to predict that the market trend has stopped. The stock price starts dropping due to correction. This phase is called wave A. In wave B, the stock price increases on the anticipation that the long uptrend is still there. Wave C is formed when stock market news is negative and a downtrend is confirmed.

The Elliott Wave Theory is used to identify the trend direction. It’s also used to identify entry and exit points for investing in stock markets.

Applying technical analysis concepts

The technical analysis concepts can be applied to stocks like Ford Motors (F), General Motors (GM), Tesla Motors (TSLA), and Goodyear Tire (GT). These companies are all major parts of exchange-traded funds (or ETFs) like the Consumer Discretionary Select Sector SPDR Fund (XLY).

Latest articles

Today, Canopy Growth announced that it acquired the Saskatchewan-based KeyLeaf Life Sciences along with entities relating to the company and its intellectual property. Here's what you need to know about the completed deal.

Yesterday, Tyson Foods (TSN) and fellow meat producers Pilgrim’s Pride (PPC) and Sanderson Farms (SAFM) took a hit to their stocks after news came out about an investigation over price-fixing allegations.

On June 24, RH (RH) was trading at $115.01, implying a rise of 21.2% since its announcement of its first-quarter earnings results on June 12. Despite the surge in its stock price, the company is still trading at a discount of 29.1% to its 52-week high.

26 Jun

Roku Stock Fell Close to 7.0% Yesterday

WRITTEN BY Aditya Raghunath

Roku stock fell 6.8% yesterday to close trading at $93.25 per share. Roku stock has lost over 9.0% in market value in the last two trading days. Prior to this pullback, Roku stock was up a whopping 235.0% year-to-date.

26 Jun

Beyond Meat Stock Up Today on New Product Launch

WRITTEN BY Rajiv Nanjapla

Today, Beyond Meat (BYND) announced that its new product, Beyond Beef, will hit markets across the US later this week.

FedEx (FDX) ended fiscal 2019 on a dismal note and reported a significant YoY decline in fourth-quarter earnings. The delivery giant posted adjusted EPS of $5.01, which was 15.2% lower than the year-ago quarter’s earnings of $5.91. The company cited sluggish revenue growth and increased expenses as the main reason behind the dismal bottom-line performance.

172.31.16.229