Question of the Week: 9/12/2007

Is NEoWave suitable for individual Stocks?


Both NEoWave and orthodox Elliott Wave depend on mass psychology to create identifiable price patterns that are then used to predict the future. The smaller a company, the less liquid its stock (i.e., the smaller its float) and therefore the less its price action reflects mass psychology.

In general, I don't recommend using wave theory to predict individual stocks. Wave theory works best when applied to stock indicies such as the S&P 500, Russell 1000, the Nasdaq, the Dow Jones Industrial average or any average that reflects a country's top companies.

If you are going to use wave theory to predict the action of an individual stock, I recommend you reserve it for companies with one billion in market capitalization or higher. Any mid-cap company should fall into that category.

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