by Alexandra Lienhard
Updated: May 25, 2017
In our latest "Video Mailbag," Pete Kendall, the co-editor of The Elliott Wave Financial Forecast, answers questions submitted by viewers like you.
(Click here to submit any questions or feedback you may have and we'll do our best to get to them in our next episode.)
Alexandra Lienhard: You asked. We answered. Welcome to our latest ElliottWaveTV video mailbag, where our analysts sit down to answer questions submitted by viewers like you. If you have a question for one of our analysts, visit the link below to submit it, and we'll do our very best to get to it the next time around. Enjoy.
Our first question today comes from Martin in Chicago, Illinois, who asks, why do you sometimes use log scale?
Pete Kendall: Ultimately, investors are concerned with percentage return, as opposed to just the points. A 100-point move in the Dow in 2017 does not have the same significance as a 100-point move in 1940. But on an arithmetic scale, they would be treated the same. Log scale graphs price movement on a percentage change basis. Therefore, whenever there was a wide range of values, it's better to use log scale as opposed to an arithmetic scale.
AL: Laura from Princeton, New Jersey, asks, I understand that volume tends to pick up around the middle of wave three, at the point of recognition. Other than wave five sometimes not having greater volume than wave three, are there any other nuances of volume patterns that accompany Elliott Wave theory?
PK: In extended fifth waves, at less than Primary Degree, volume is often greater than in wave three. At Primary Degree and higher, we normally see greater volume in fifth waves. Volume tends to decline in corrective wave patterns. However, one has to be alert for spikes in volume in wave C.
AL: Miguel from Mexico City would like to know, how do you interpret and label waves when there are morning gaps, meaning no price data?
PK: You can still identify your wave count by using price data that's available, and by keeping in mind that gaps often indicate a third impulse wave, or a third of a third. A price gap as part of the wave.
AL: The next question comes from Barbara in Naples, Florida. Are there any early warning signs that wave five will be truncated, meaning that wave five will fail to exceed the termination point of wave three.
PK: If there is an exceptionally strong third wave, then the fifth wave has a greater chance of being truncated. Truncations are a sign of exhaustion in the main trend.
AL: Our last question today is from James in Liverpool, England, who asks, can you please elaborate on how to use the Wave Principle for individual stocks?
PK: Certain individual stocks, including widely traded ones, do exhibit clear Elliott Wave patterns. It just depends on the stock and the time frame. For an individual stock, avoid taking action unless you're able to discern a clear Wave pattern. If there is a clear pattern, then in terms of taking action, the wave count of the individual stock supersedes the wave count for the market as a whole.