The way I do it is to focus 90% of my intraday analysis on the DIA but trade the patterns through the @YM for a variety of reasons.

For whatever reason, I don’t like the pricing structure of the S&P and e-mini and am much more comfortable with the Dow. I suspect the patterns would perhaps be better in terms of Elliott in the S&P but I find the price structures to be nearly identical between the DIA and SPY more times than not.

Talking about “crowd psychology”, SPY has the the highest $ volume. Traders of futures, like E-mini, are probably better trained than the “crowd”. Manipulation is also easier in the E-mini futures than in SPY.

Would it be better to look at and get our market cues from SPY charts instead of E-mini charts, even though we are trading E-minis?

The main ‘theory’ behind large-scale 5 waves is the following:

Imagine we’re in a downtrend and prices have been moving down, perhaps like after 2002.

Wave 1 is up, but it’s seen as another chance to “Get short” so no one is really bullish.

Wave 2 is an “I told you so” wave where people are still selling and shorting, but there’s hidden strength, as Wave 2 doesn’t go beneath wave 1 but forms a higher low (precursor for reversal).

As Wave 3 goes up, there are buyers but the public is still bearish. However, when Wave 3 breaks above Wave 2, a lot of short’s stops are taken out and people start to catch on one by one that we’ve put in a bottom and they start to buy. That’s why 3rd waves can be so dramatic – shorts are covering and longs are getting aggressive.

Wave 4 is a profit-taking wave which often yields a comfortable retracement back to support and people start to buy back into…

The final 5th wave as everyone gets bullish and is convinced a bull market will stay for some time. Unfortunately, funds who accumulated in the ‘wave 1′ environment are distributing to the eager and excited public, which creates a top.

That’s a quick primer as to the theory of the 5 waves from both an accumulation/distribution and crowd participation/psychology standpoint.

Elliott – they say – is best viewed on indexes where the forces of crowd psychology is evident.

I think the more common term is “double zig-zag” or “double flat” or also “complex correction” depending on how the waves form.

I also like Elliott because it clues you in to exact prices where – if hit – you know you’re wrong and need to go with an alternate count. Similar to pattern projections (like flags, etc) as well.

Maybe im not using the correct term but the double 3 to me means abcxabc with us now in the X wave. 851 breached would throw that out the window which why im watching it closely.

Exactly – and it could be the case that we’re expanding out of a month-long contraction to the downside.

This pattern now looks extremely similar to the July to September 2008 contraction… and that didn’t end well for investors.

I entered the CMT coursework quite negative on Elliott but exited quite in awe. I’m now applying it and finding it rather complementary to my developing toolbox and I find it helpful for assessing possible structure and context.

Ouch. Double 3. I feel horrible posting publicly the second possibility because it takes us so low. I know of other counts that take us even lower but – for now – those aren’t mainstream.

I always try to keep it on the next probable swing and not get too far out, but I’m finding a larger structure or context to be helpful.

It’s appearing quite like a bear flag, yes.

One thing that I find useful about Elliott is for confirmation or – as Martin Pring says – adding to the “Weight of the Evidence”. In other words, it can help put a possible bear flag pattern into a larger price structure for additional analysis.

All and all, it’s another tool – nothing magical.