Calling the top of a bear market rally is notoriously difficult even as both fundamental analysis and technical analysis fail to yield any fool proof method for doing so. Elliott Wave analysis is another tool in the arsenal of the market student to analyze the patterns of stock prices and aim to predict the top of a bear market rally. Taken independently, Elliott wave patterns are just as hard to interpret - especially when making countertrend moves. However, followers of Elliott waves tend to add a couple of other powerful metrics - social mood and market strength - in making their assessment about whether a bear market rally has seen its top or not.

Bear markets tend to be a tough place for most investors to preserve any money, let alone make profits. The markets rise on most days before deciding to plunge at unspecified points. Repeated attempts at creating formulas for a bear market have failed, leaving behind wealth destruction and decimated portfolios. Attempting to play markets for rallies or on the short side are equally fraught with dangers, as bear markets are interrupted by vicious rallies to the upside.

And yet, markets do have patterns and tend to have primary, intermediate and short-term trends. Playing the primary trend is one of the best ways to play the market in bull or bear markets. Elliott wave analysis can help align you with the primary trend, which tend to run for multiple months and gives you an opportunity to position your portfolio appropriately. Elliott wave analysis shows that markets tend to move three steps forward interspersed with two steps back. In a bear market, it is thus three legs down and two legs up.

These counter-trend legs tend to have many different variant possibilities - and this is one of the reasons most investors get shaken out or misinterpret the movement as "bottom formation" or end of the bear market. Elliott wave analysts use added metrics such as "investor sentiment", "social mood" as well as market strength "number of stocks that went up or down", "leadership sectors" and so on to give more context to their interpretation. For example if it looks as if a bear market rally may have topped, they look to, apart from Elliott wave analysis, to factors such as

• Does the investor sentiment indicate sufficient optimism for the rally to have ended?
• Is the social mood becoming euphoric?
• Are the market internals beginning to deteriorate even while the indices make new highs?

All these factors help further ascertain whether a true rally top has been made - because it is the job of a bear market to lure in as many unwary investors as possible (just as a bull market will keep everyone out). Extremes in sentiment with deteriorating internals are usually good indications, in addition to Elliott wave patterns, to confirm a rally top. Subsequent depth of market decline then finally confirms whether the bear market is back in operation, or is a new bull market set to flower. The analysts at Elliott Wave International do as good a job as any in the business of interpreting these rallies and turning points. They are not right all the time, but call many of the turning points correctly, enough to make it profitable for you.