The 5 waves---Murphy

LINE CHART SHOWS FIFTH DOWNWAVE... Earlier today I wrote a Market Message supporting the idea that the stock market appears to be putting in a bottom of at least intermediate proportions. I also showed a number of short-term positive divergences suggesting that the market is due for a rally. I got a number of e-mails asking for an update on my Elliott Wave reading. While the market was consolidating during February, I wrote that I expected the market to have one more downleg. That's because bear markets usually take place in five waves. Chart 1 is intended to suggest that the fifth wave may have just been completed. That's why I'm using a line chart instead of a bar chart. On a daily bar chart, it looks like the S&P 500 bounced off its January low (forming a potential double bottom). The line chart shows that a new low was hit. In either case, it looks like this phase of the decline starting last October has been completed. [The second trough of a double bottom can also serve as a fifth downwave at the end of a decline]. That doesn't necessarily mean that a new bull market is in the offing. It just means that the market is due for a decent rally. I've placed the 12-day Rate of Change (ROC) oscillator below Chart 1 for a reason. The rising trendline shows the positive divergence between the rising ROC and the falling S&P price. Positive divergences take on more importance if the market is in its fifth wave down. And I believe that to be the case. As a result, I've turned a good deal less bearish on the market