Historic Action Doesn't Damage Wave Count

Amazingly, all three major indexes held above their respective February 5, 2010 lows in what turned out to be a classic [c] wave event. For those who are new to elliott wave theory, C waves, which come at the end of a 3 wave A-B-C correction, can be just as vicious and sharp as 3rd waves which come in the middle of a 5 wave impulse.

If today's lows hold, what this means is that the correction that we were expecting to take several weeks was completed today. Although it may take several weeks for the market to get going again and we may see a higher low in June, the most likely conclusion is that we should be on our way to new rally highs. The only thing that would derail that view is if the markets continued lower below today's low in the next few days, an outcome that does not appear to be likely given today's capitulation event.

There is little reason to be short this market for the next few days until we see what the real direction is for sure. I exited my short term short positions in AAPL and JBL today for nice gains of 14% and 7% respectively. Unforturnately, the sharp intraday movement stopped me out of a couple of otherwise profitable intermediate positions, which negated the gains. However, I used the rare opportunity to take positions in GOOG, CREE and RFMD just after the extreme lows were seen though not at the lows of the day. I think GOOG has bottomed and will head higher the rest of the summer, CREE should resume its uptrend, and RFMD is a small cap that may have potential to move above 12.50 later this year.

Today's action is an extremely rare event that can only be managed with experience. The best way to manage it is to do nothing. If we had been in a downtrend for the weeks preceding today's event, the story would be different, but for those who can put their emotions at bay, an event like today's is a great time to pick up stocks at cheap prices for quick gains.

Once things settle down, I will re-examine the elliott wave count to see where we might be headed.