Howtotradeew Flats

8/2/2019 Howtotradeew Flats

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Elliott Wave International's free educational series on elliottwave.com bridges the gap between analysis and trading.

Expanded Flats

As an investor, what should you know to make Elliott Waves work for YOU?

Robert Prechter's answer to this question is simple:

"The key to Elliott Wave patterns is that the market goes three steps forward for every two steps back. If you do not get scared by the two steps back, and if youare not euphorically confident after the third step forward, you're light years ahead of the pack ."

Now, the "three steps forward" can actually be falling prices, because Bob's remarkexplains the direction of the dominant trend . So in a bear market, the two steps back goup, to "correct" the larger trend.

And yes, it can be hard not to "get scared by the two steps back" Bob mentions. Yet thepractical truth is this: The two steps back often present an opportunity to enter a trade .

An expanded flat is a corrective pattern (one of the steps back ) that powerfully interruptsthe market's larger trend in a distinctive, three-wave movement. They tend to occur whenthe larger trend is strong, so entering a trade at the end of an expanded flat can be veryprofitable. Investors can patiently wait until the corrective pattern is near completion, thenposition themselves for the reversal -- the next big leap forward. Here's what Elliott WavePrinciple -- Key to Market Behavior (Frost & Prechter) says about expanded flats:

The word "flat" is used as a catchall name for any A-B-C correction thatsubdivides 3-3-5. Most common, however, is the variety we call anexpanded flat, which contains a price extreme beyond that of the precedingimpulse wave. In expanded flats, wave B of the 3-3-5 pattern terminatesbeyond the starting level of wave A, and wave C ends more substantiallybeyond the ending level of wave A (pictured at left and in the flash examplebelow). EWP, p. 45-46

Figure 1-36 from EWP, p. 47

This particular corrective price pattern provided us with a great opportunity to short Kimberly-Clark, as you'll see in theexample below from our premium stock picking service, Prime Stocks Flash . These are the actual Flashes we issued toenter the trade and to take profits:

Expanded Flats

http://www.elliottwave.com/info/flash







Actual Prime Stocks Flash

Sell Kimberly-Clark (KMB) Now 5/21/2002 11:57:22 AM

Investors:CALL YOUR BROKER AND SAY :SELL 100 [or fill in the number] shares of KMB at market, to Open.

As a stop, BUY 100 [or fill in the number] shares of KMB at 76.26, to Close. GTC.

or DO THIS ONLINE

SELL 100 [or fill in the number] shares of KMB at market, to Open. As a stop, BUY 100 [or fill in the number] shares of KMB at 76.26, to Close. GTC .

Kimberly-Clark(KMB) is a $14.5 billion global consumer products company employing more than64,000 people worldwide. The company is organized into three business segments: PersonalCare, Consumer Tissue, and Business-to-Business. KMB is home to name brands like Kleenex,




Scott, Huggies, and Pull-Ups; their products are manufactured in 42 countries and sold in morethan 150.

KMB has moved in three waves up from its mid-2001 low at 53, as you can see on the chart

above. Momentum is waning as the final subdivisions in wave C trace out.In Q1 of 2002 their net sales rose less than 1%. Or maybe it's worse - the SEC just ruled thatKimberly-Clark and its chief financial officer violated reporting rules on several counts - castingdoubt on any numbers they produced.

KMB's also being sued for "fraudulently withholding true royalty payments" by DariusEnterprises, Inc. These charges are being added to an earlier suit filed in September 1999.

With all the "weak dollar" hype, portfolio managers apparently like KMB because some 45% of its revenue comes from outside the U.S.




Actual Prime Stocks Flash

Take Kimberly-Clark (KMB) Profits Now1/22/2003 11:41:47 AM

Investors:CALL YOUR BROKER AND SAY :BUY 100 [or fill in the number] shares of KMB at market, to Close. And CANCEL stop (62.26).

or DO THIS ONLINE BUY 100 [or fill in the number] shares of KMB at market, to Close. And CANCEL stop (62.26).

We recommended a short position in Kimberly-Clark (KMB) at 65.64 on May 21st. At that time, wavestructure, momentum, volume, and sentiment all suggested a peak and reversal of the major trend.




As you can see on the updated chart above, the top indeed arrived just before our recommendation (bluelabel (2)). Downside action since then has been impulsive. But the pattern, momentum, volume, andsentiment now suggest a rebound is due, before lower prices resume in KMB.

Cover short positions in KMB.

Strong support in KMB resides in the mid-40's. Momentum is diverging, volume is drying up on declines,and Wall Street has turned "neutral" from "bullish" on KMB with just 3 buy recommendations, 5 holds, andeven 1 sell rating. Also, the 21-day put/call ratio has pushed to its second highest reading in the pastyear. Wave structure likewise argues for a substantial "correction" before the major trend in KMBresumes.

Cover short positions in KMB now and cancel buy stops at 62.26.

We entered this trade near the end of the expanded flat correction then closed the trade 8months later for a 29% profit. This is a great example of the profit potential found in expandedflat.

(Editor's Note : The charts and commentary show the complete Kimberly-Clark Flashrecommendation, exactly as subscribers received it. Flash is not for everyone, and we strongly suggest that you have trading experience and adequate investment capital. To learn more about EWI's Flash services, go to the link below or call EWI customer service at 800-336-1618 (U.S.)or 770-536-0309 (International) and mention code HTT. )

Flash Services

Flash instantly alerts you to high-confidence trading opportunities in thefutures markets or individual stocks, complete with the exact instruction for your broker and a risk-limiting stop.

Visit http://www.elliottwave.com/info/flash .

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