On The Battlefield by Mike Burk
In Elliott wave theory, the A, B and C waves refer to the reaction following the initial decline from a cycle top: The A wave is the initial decline, the B wave is a slight advance after the initial decline and the C wave is the decline following the secondary high. The period of the most rapidly moving prices in the stock market is often the beginning of this second decline, the beginning of the C portion of the Elliott wave, a downward wave that occurs after an unconfirmed market top drops for a while and then begins moving up again.
As such, it is the best time to buy puts. With this in mind I looked for this B and C wave formation after the widely unconfirmed stock market top of September 1, 1989. The picture that developed was remarkably similar to the July 5-November 14, 1978, cycle, when my upside volume indicator (AV) and basic volume indicator (VOL) collapsed while prices rose. (See my previous articles listed in the Reference section at the end of this article.) In 1978, the cycle price top was confirmed by the advance-decline line (ADL) and AV. Both weakened quickly after the price top.
On October 3, 1989, when the DJIA closed at a new all-time high of 2754.56, it appeared to be walking on air. Not one of my indicators even came close to supporting the high. My patience lasted until the afternoon of October 5, when it appeared that the DJIA would close higher with declining issues outnumbering advancing issues.