My blog is boring (and you thought the market was boring). People might be asking themselves, "why don't you follow the NASDAQ to count your Elliott Waves?", or "what's wrong with the Russell 2000?", or "why don't you follow some hot stocks to show what people are thinking?" Well, here are some cold facts just for you to consider in the form of a three-block chart of daily volume. The top chart is SPY, the middle chart is QQQ, and the IWM is the bottom chart.
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| SPY, QQQ, IWM - Daily - Volume Peak & Average |
I'm not sure how well you can read the chart (please expand to fill the monitor if you can), so I'll provide the salient facts below.
Tradeable Peak Volume Avg Volume
SPY 164.16 MM 53.78 MM
QQQ 116.27 MM 48.24 MM
IWM 99.62 MM 29.68 MM
Clearly, in terms of volume, the SPY is hands down the winner with both greater average volume for the one-year period studied and greater peak volume. These are simple facts. Hopefully they are not up for dispute.
And Ralph Nelson Elliott suggested that the purpose of the Wave Principle was to help assess the overall level of mass psychology in the markets.
So, this suggests using the tradeable that has the widest following, the widest participation. And that is hands down the SPY and its counterpart the ES futures at the moment to best gauge overall technical sentiment regarding equities.
Please don't hear this wrong. It doesn't mean that the NASDAQ is not important or that the MAG10 didn't really create a significant price spike in the market. But what it does mean is that if one excludes the major tradeable from consideration, then one is losing 53 - 54 million votes per day. Why throw those away from your bullish or bearish read on things?
And let's say one was solely focused on the Russell and its ETF or futures for trading. OK. But then one is losing roughly 102 million votes per day, a number of votes far outweighing the constituents of the index being followed if one is trying to use wave theory. And with so many fewer votes, it means that a large trade in any one stock or by any one operator can have a more sizeable influence on the price level of that index.
Folks. Elliott was an accountant. How Borrrring!!!! is that. But he understood averages, and he understood weighted averages. And he used the averages to smooth out the spikes of emotion and ego that rule the trading world. For him, it provided an edge.
For us, it means that if we try to use Elliott on an individual stock, or a sub-market index, we need to be aware that we may be getting less than the full picture and probably are getting less than the full picture.
Think of it like people voting with their money to buy something or not. And, oh, yes, it sure is sexy when the App crowd decides they're going to do a short squeeze on a certain stock. But how often do such individuals know 1) when to get in, 2) how far, and 3) when to get out. Sure, they may play it by ear and strike the big one. More power to them. Or they may not, and they may be one of those that got in later and got hung out to dry - either by price - or by the regulators for market manipulation.
Either way, it's not Elliott. Elliott is boring.
Have an excellent rest of the evening,
TraderJoe
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