Transports.

The failure of one index to join the other in penetrating an important

price high or price low is a nonconfirmation and an early warning
indication of a possible reversal in price trend. Also, buying climaxes
and selling climaxes are early warning signals of an impending reversal
of trend. A climax denotes the termination of a recent wave of intense
buying or selling. At the termination, relative volume expands, but the
price index does not advance (decline) commensurately, suggesting
that opposite bull or bear interests are entering the market in force.
Buying climaxes are often associated with overbought conditions, while
selling climaxes are often associated with oversold conditions. These
overbought/oversold conditions are invariably followed by a rally or reaction in
price, often referred to as a technical rally or technical reaction
(see Figure 3.7).
Diagnosis and Prognosis From the foregoing parameters, concepts,
and tools, together with the diagram of price shown in Figure 3.8, the
technical trader could make the diagnosis (prognosis) of an impending
turning point from a bull move to a bear move. The trend direction had
been up, as evidenced by the upward zigzag of prices. Eventually this
price movement starts to roll over (lose momentum). The loss of momentum
takes on critical significance when it occurs in the vicinity of the previously
projected price target. Finally, if the form reveals an upward zigzag entering the
final step of stage III, then the analyst can conclude that the upward trend is
coming to an end and that an important down move is probable.
I have often found that the Elliott Wave structure of a market on a
smaller time scale is a good clue as to the current health and probable future
trend of a market. For example, if a rally occurs during a protracted decline that
is composed of five subwaves, it is safe to assume that more rally efforts will be
forthcoming.