Autumn Volatility: Why Elliott Wave Top US Intraday Stocks Analyst Says "Rotation" is Key

Tom Prindaville, the editor of Elliott Wave International's U.S. Intraday Stocks Pro Service, tells you why he's looking for increased volatility heading into the month of October.

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[Editor's note: A text version of the interview is below.]

Alexandra Lienhard:  I'm Alexandra Lienhard for ElliottWaveTV, and today I have Tom Prindaville joining me by phone. Tom provides analysis of the U.S. markets for Elliott Wave International's Pro Service team. Now Tom, first of all, thanks for talking today. I want to kick it off by talking about market volatility. Generally speaking, September and October are two of the more volatile months for U.S. markets. Do you find that to be the case and if so, have you seen any evidence of that kind of volatility this year?

Tom Prindaville: Good to talk to you again, Alex. Yes, I do agree with it, more so in October. You know, October and March, those are the two primary months where you find the tops and bottoms, looking back at U.S. markets.

It just takes a short walk down history lane to realize the bottom in 2009 was in March. The top in 2007 was in October. The bottom in 2002 was in October. '98 bottomed in October. 1990 bottomed in October. All these things, you can say -- ok, if the market is moving in that direction, either down or up, whatever direction it's moving, as long as it's trending, once you get to October, you can look for a pivot point. It doesn't always happen, but if your Elliott wave count is right, if the price pattern is forming properly, if you're heading into October -- start looking for a turn.

We don't see that necessarily right here, right now. So, instead, we are going to be looking for increased volatility moving into these few months.

Alexandra: Looking at the volatility, and the markets in general, the ones you focus on are the Dow, the S&P and the Nasdaq. In your mind, does one of those markets lead the others -- and if that's the case, is it generally speaking the same market leading, or is there a rotation amongst them?

Tom: Well, you hit a key word, “rotation.” Yet, it's not so much rotation between the stock indices, it's rotating within the stocks that comprise each index. That is to say that, typically, you want to see the high-beta stocks leading he charge if the market is rallying. You don't want to be a bull and watch the high-beta stocks going down sharply. But if the market is rallying with the high-beta stocks, which pretty much is all of the Nasdaq 100, you want to use that index as a leader. So, the Nasdaq would be your basic leader, in that situation.

But going back to the phrase that you used in the beginning, the word “rotation.” If the market is rotating out of large caps into small caps, if it's moving from risk to more safety, you're going to see other indices, at least for a period of time, lead the charge -- and it's important to recognize that. And often you can see that within the Elliott wave count itself.

Alexandra: Tom, beyond U.S. markets, do you look at any other markets through the day? FX, bonds, etc.? 

Tom: You know, I look at a lot of markets, but I try not to analyze them to the point where it starts to influence what I'm thinking about stocks, what's going on in the three big indices that I cover. In fact, I'll have Bloomberg up in the corner of one of my screens during the day with the sound off -- because I don't want to hear all their commentary. I don't want my brother-in-law calling me up with a stock tip. I don't want to talk to a lot of people.

There was once a pit trader who was famous for saying, "I don't want to hear nothing from nobody about nothing." Because it's not important to what he's trying to do. I kind of feel the same way. I try to keep it a blank canvas and let the market tell me exactly what it's trying to do, rather than me impose my idea, or somebody else's idea, of what the market should be doing.

Alexandra: Well Tom thanks for chatting today, I know you're a busy guy so it's been great getting a couple minutes to pick your brain.

Tom: You're very welcome, Alex. Anytime.