Some investors picked this stock market run up as early as March, some have picked it up over the last few weeks, some have just got in recently and are now wondering whether they should bail out and lastly there is the group that have remained on the sidelines. And I guess there are probably many investors that fit into almost all categories.

So where to from here?

Initially I am going to go into a little theory or at least speak anecdotally about my experience over many years in the markets and then I am going to look at BLD as a classical example of price pattern to support my views.

In Elliot Wave theory - to which I am a great subscriber – the greatest profits are made on Wave 3 and that is what we have seen over the last several months. Some may argue that it has been a Wave 5 – but again it is important to look at both a daily and weekly chart – they will give you a different perspective and that in itself is a good thing.

Wave 3 is a long run but it eventually tends to run out of steam as buyers become less keen and sellers want to lock in profits – in broad terms. Some players are shrewd and get out at the top of Wave 3 and others follow the retracement right down – it takes some traders longer than others to react. This process of early buyers bailing out and anxious late entrants buying in makes for a Wave 4. Wave 4 finds a bottom when the equilibrium is found between buyers and sellers – neither have the upper hand.

When Wave 4 approaches completion, some buyers eventually believe that the stock has been oversold and move in which creates the next move up – which eventually becomes Wave 5. But more often than not Wave 5 recovery is somewhat less certain than Wave 3 with a great deal of vacillation. Buyers are not quite as ferocious and as the price recovers some sellers who could not exit on the earlier pull back from Wave 3 take that opportunity to exit. So we can sometimes see a great deal of see-sawing.

These points are well illustrated in the BLD daily chart below – especially the vacillation we are now seeing in the stock.