The chart above shows the past month’s trading for the NYSE Financial Index on an hourly time frame. I’ve added Elliott Wave indicators to the chart that support the idea that index has seen a bottom for the time being.
I don’t use them as religiously as I’ve represented them on the chart but I do believe in the merits of the theory which is based on the Fibonacci sequence and fractal analysis. To put it simply (which is a real disservice to the elegant complexities of the thing), the Elliott Wave theory posits that a dominant trend is defined by impulsive moves and a corrective phase is marked by more choppy trading.
And in the chart we can see just that: a clear impulse move higher followed by a corrective phase. What I find interesting is that the corrective phase is marked by mirrored 750 point moves which take the correction right to the 0.618 retrace mark, also known as the golden ratio.
According to the theory, then, the financials should be poised to resume their upward trend. However, even if they do make another impulse move higher, the theory would suggest that the entire move from the July lows may be simply a corrective trade against a larger dominant downtrend (this is where the fractal analysis comes in).
I haven’t found the theory to be all that useful (aka, profitable) but that doesn’t change the fact that it’s fun to look at the markets this way – whether the financials have found a bottom already or not.