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Thoughts On The Primary Trend - Matthew Claassen at Trader’s Narrative





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If you were reading the blog earlier this year you may recall that we had the good fortune to interview Matthew Claassen (CMT) of Claassen Research. Over the weekend Matthew shared his latest thinking on the primary trend and the likelihood that the market may indeed be closer to a top than most believe.

Take a look and let me know what you think:

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7 Responses to “Thoughts On The Primary Trend - Matthew Claassen”  

  1. 1 wyatt earp

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    Excellent post! I believe Claasen is right on the money and a lot of traders are going to be taken by surprise by the sharp and sudden top that eventually occurs. Time will tell of course. As far as indicators go the only leading indicator that’s ever helped me much is the yield on the 30year bond. The yield often falls before the market actually tops.

  2. 2 Adrian Wu

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    Really excellent article. It is indeed important to look at technical indicators in the context of where we are within a market cycle. Since most people still live in the memory of the great bull market of 1982 - 2000, they still apply technical (e.g. market breadth) and valuation (e.g. P/E, dividend yield) models from this historically abnormal period. Elliott Wave analysis takes into account cycles when applying technical analysis. For example, we are currently in a secular bear market that started in 2000. Although there was a new high in 2007 in nominal terms, this was due to the enormous inflationary forces unleashed by the Fed, and when the Dow is expressed in gold instead of dollars, it was far from the peak. The initial decline from 2000 was wave A, the rise to all time high was wave B, and we are now at the end of wave 2 of wave C, the deepest wave of a correction. The inverted V shape top is completely characteristic of the transition between wave 2 and wave 3, as wave 3 is often the longest, steepest, most violent sell off in a bear market. Only with cycle analysis and using the Elliott Wave theory in particular can one confidently make use of technical indicators to identify market turns.
    Sentiment indicators are all flashing extremely bearish signals, with some indicators at record extremes. How much longer can this bear market correction continue ?

  3. 3 MatthewC

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    Two thoughts:

    One - I am not a fan of using Elliott Wave to forecast long term market trends. Having studied Elliott Wave since the 1980’s I can say that it is the most subjective form of technical analysis I know. While there is value in looking for three vs. five wave moves in the market (confirmed by other indicators), I can use Elliott Wave to argue a bullish or bearish case at almost any point in time. Even more important, in each case the investor who uses only Elliott Wave will be on the wrong side of the market for too long a period time before confirming their analysis (Elliot Wave count) was incorrect.

    The person I would consider a master at applying Elliott Wave and Gann to real life trading is Robert Miner. His book High Probability Trading Strategies is a must read for investors wishing to apply Ewave profitably. http://www.highprobabilitytradingstrategies.com/book/about/

    Two - I know many others on this site wish to apply some of the indicators commonly used by professionals (ie % above 50 day average, advance decline lines, Force Index, breadth etc). There is a very inexpensive piece of software that allows investors to create their own indexes, use the above indicators and even include fundamental factors in their decisions. Even though this software is only about $50 / month, I now consider it the most important tool I have for stock selection and market analysis. It is called HGS Investor and you can get 60 days free by following this link

    No, I do not work for these people and they do not pay me.
    Hope this helps

  4. 4 Doctor Stock

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    Exactly… the Elliott Wave is useful (to both sides of the argument). I’ve seen it used on both sides of the argument in the past few days. Best to remember how emotion plays such a key role.

  5. 5 Sharpe Trader

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    One of the best articles I’ve read free online.

    Mr. Claassen, it is an absolute pleasure and privilege to read your work. I very much enjoy having to hear what you have to say. What you mentioned above about how liquidity-driven cyclical bull markets can top with little or no breadth/volume indications, and how you supported it with previous examples…was brilliant.

    Keep up the great blog work, Babak. If you have time, please check out my blog.

  6. 6 JAC

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    Great post. Mr Claassen is suggesting we look at sector performance instead of market breadth to identify trend.

    Materials and emerging markets are showing weak RSI and that should be considered a bearish sign. Isn’t it?

  7. 7 PAUL MONTGOMERY

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    just subscribing to interesting thread

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