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Update for Monday, February 14, 2005; 5:10 PM, Eastern.

Indexes Snapshot Futures Snapshot

Indexes Close Net Contracts Close Net
DJI 10,791.10 -4.90 Mar DJI 10,793.00 -13.00
S&P 500 1,206.14 .84 Mar S&P 1,206.30 -.70
S&P 100 577.18 .00 Mar NSDQ 1,537.50 3.50
Nasdaq Comp 2,082.90 6.30 Mar Bonds 116^7 ^13
NSDQ 100 1,538.21 7.70 Mar Dollar 84.00 -.61
XAU 95.33 .43 Apr Gold 427.30 5.30
Dollar IDX 83.90 -.67 Mar Silver 734.00 13.00
Mar Notes 112.72 .13

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February 14, 2005 1

A lot of traders must have been dumb-struck by cupid, because Valentine’s day proved to be the slowest
trading day of the year so far (1.26 billion shares on the NYSE and 1.56 billion on the NASDAQ). Today was a
big “yawner” in terms of market action, the wave pattern and the technical picture — nothing of significance
happened. The Dow experienced a slight loss, while the S&P, NASDSAQ and Russell 2000 each had very
slight gains, respectively. Besides the tepid volume, S&P breadth was essentially flat, with just 27 more issues
down than up. NYSE Up volume was just 54.7 percent of up and down volume.

http://www.elliottwave.com Financial Forecast Short Term Update 2

(February 14, 2005)
Today’s range in the [S&P 500] was less than 4 points (a snoozer). The pattern we described Friday remains
intact and is shown in the above chart. Either today’s 1203.59 low marked the bottom of wave iv of (v), or one
quick drop beneath today’s low tomorrow morning should complete the wave. The next move of should still be
wave v of (v) up into at least the 1213.79-1217.10 area. As noted, the index should not break the previous
wave i high of 1198.75 (see green line on the chart) until after the full five waves up are complete (for wave (v)
up). Any break of 1198.75 without first pushing above 1208 would mean that a full fiv e waves up were
complete from the wave 4 low on January 24 (1163.75). Odds would immediately swing back to the bearish
case for a deeper decline for at least the next week or so (possibly longer) if this level is violated (1198.75).

The [DJIA] remains in a rally that should carry above the December 27 peak (10,868) before turning lower in a
concerted manner. Any decline beneath 10,725 would negate the near-term this near-term outlook. The
internal subdivisions of the pattern are not as clear in the Dow as they are in the S&P at the current juncture.
This is the reason why I have been concentrating on the S&P to the exclusion of the Dow of late. As soon as
the subdivisions in the Dow come into better focus, I will post a chart. I suggest following the S&P until then.

http://www.elliottwave.com Financial Forecast Short Term Update 3

(February 14, 2005)
Friday we talked about the lagging behavior in the higher-beta indexes, specifically the NASDAQ. The
NASDAQ’s bounce from the January 24 low has been relatively anemic compared to the percentage
retracements in the S&P and Dow. But there may be some evidence that the NASDAQ is about to outperform
these two blue-chip indexes, at least for the near term. The above chart shows the relative strength of the
internet stocks versus the S&P 500. The internet sector is represented by the [Interactive Week Internet
Index: IIX]. Note how weak the internet stocks have been relative to the S&P in the decline from the
December-January highs. The U.S. Industry Bell Curve (www.investorsintelligence.com) shows the sector as
oversold and you can also see this condition in the momentum profile of the ratio at the bottom of the chart.
Momentum (a double-smoothed average price) is turning up from deep oversold and the IIX appears to have
potential for a bounce into the 159-162 area in the coming week or so. If so, this should have a short-term
positive influence on the NASDAQ’s performance. We are mindful that this bounce should be a countertrend
move in a larger downtrend, which makes forecasting it risky. But the conditions do appear favorable for this
outcome. Any break of last week’s 148.32 low (Feb. 10) in the index would negate the bounce potential for
now.

http://www.elliottwave.com Financial Forecast Short Term Update 4

(February 14, 2005)
So far the [E-mini Russell 2000] has respected the .786 retracement of the wave (i) decline. Nothing has
changed from Friday night. Coming back under last Friday’s 621 low would confirm that wave (iii) of iii (circle)
down was underway toward significantly lower levels. A push past 640 would void our current view that wave ii
(circle) is over and instead project the Russell up to 646-650 in the near term.

http://www.elliottwave.com Financial Forecast Short Term Update 5

(February 14, 2005)
As noted above, the [NASDAQ 100] may experience a short-term period of upside relative strength compared
to the blue-chips in the coming days, particularly if the internet sector experiences a bigger bounce. If so, the
index should pop into the 1558-1576 area in the coming week or so before wave 2 tops. Any break of last
week’s 1497.35 low would negate this forecast and instead indicate that wave 3 down was already underway.
The next minor downside target is 1430-1445, with more bearish potential upon a break of this area.

[Bottom Line]: The stock indexes remain in the same position as they were on Friday, with the only change in
the NASDAQ, which may experience a slightly stronger bounce near term. The S&P’s near-term subdivisions
still suggest more buying this week prior to a high.

http://www.elliottwave.com Financial Forecast Short Term Update 6

(February 14, 2005)
Our work still suggests that [March Bonds] should be in at least a multi-week decline that draws prices back
to the approximate “break out” level near 113^12 (±).A strong push back above Wednesday’s 117^11 high
(basis the March contract) would negate this forecast.

http://www.elliottwave.com Financial Forecast Short Term Update 7

(February 14, 2005)
http://www.elliottwave.com Financial Forecast Short Term Update 8
(February 14, 2005)
The [U.S. Dollar Index] broke beneath 84.20 in overnight trading, which signaled that the index was in the
“deeper pause” scenario described Friday night. Under this count, prices are correcting the entire rise from the
80.39 low of December 31, the bottom of Primary wave 1 (circle). The initial leg up from this low unfolded as
an A-B-C, wave (W) of what should eventually turn out to be a double or triple three upward correction (see
EWP, p. 52). Today’s 83.78 low is just above the apex of the wave B triangle, which is approximately 83.45.
The area surrounding this level should offer initial support to the current decline, wave (X). However, it is too
soon to determine if this initial support will mark the end of the downward correction or if the correction will turn
more complex. The decline should ultimately be deep enough and/or last long enough to get everyone “beared
up” again with respect to the dollar’s potential, again believing that it is “inevitable” that the dollar must decline
further from here. So far the index has decline for just two of the past three days so my guess is that there is
more to go on the downside. Pushing back above 84.75 would instead raise the odds considerably that the
next leg up in Primary wave 2 (circle) was already underway. As we keep mentioning (to keep subscribers
properly focused on the intermediate-term trend), ultimately Primary wave 2 (circle) should retrace at least 1/3
of wave 1 (circle), which targets an initial level of 94.00.

http://www.elliottwave.com Financial Forecast Short Term Update 9

(February 14, 2005)
The [March E-mini EuroFX] carried above 1.2945 which means that a deeper upward correction is unfolding,
the same as the dollar index but in reverse. Initial resistance is 1.3050-1.3100. Only a drop beneath 1.2850
would suggest that greater short-term bearish potential was unfolding, probably quickly back to a new low
(beneath 1.2739).

http://www.elliottwave.com Financial Forecast Short Term Update 10

(February 14, 2005)
[April Gold] remains on track to achieve the first target of $430, the .382 retracement of wave (1) and a
previous fourth wave extreme. Odds are fairly strong that prices will push toward a subsequent and higher
resistance target before wave (2) is complete. There are several reasons for this, the first of which is that wave
(2) should unfold in a clear A-B-C pattern (“up-down-up” sequence), or some variation thereof. Since the rise
from the February 9 low ($411.50) is straight up, this move should only be the A portion of the A-B-C advance.
Still to come is the B wave (the “down” subdivision of the sequence) and then the C wave (the final “up”
portion). In addition, the rally should be measured in weeks, not days, so it is still too soon to consider wave (2)
as near completion. The next target is near $436 but this will change depending upon how the shape and size
of the B wave segment of the A-B-C pattern unfolds. We remain near-term bullish.

http://www.elliottwave.com Financial Forecast Short Term Update 11

(February 14, 2005)
http://www.elliottwave.com Financial Forecast Short Term Update 12
(February 14, 2005)
[March Silver] carried into the middle of the $7.29-$7.36 target area today, with an intraday high of $7.325.
Not only do the subdivisions of wave 2 up look complete, or nearly so, but history suggests that a sharp move
such as the one that has carried silver to its current level, is more often than not a precursor to a significant
trend reversal. Last Friday, silver’s daily continuation contract closed greater than 3 standard deviations from
its 20-period moving average. Since the November 21, 2001 low ($4.015) there have been only 5 previous
instances when prices closed this far from their 20-period average. Of these five cases, silver reversed its
trend on average 4 days later and 2.5% higher. The subsequent move in the opposite direction averaged 26%
over the following 15 weeks. Any additional push near term will run into resistance at $7.36-$7.39, where wave
c (circle) would be 1.618 times wave a (circle), and $7.51-$7.60, which includes the .618 retracement of wave
1 down. The extreme overbought condition, as noted by the relationship of price to its moving average,
suggests a wave 2 top is not far off. We will treat any five-wave reversal pattern as the start of wave 3 down.

http://www.elliottwave.com Financial Forecast Short Term Update 13

(February 14, 2005)
http://www.elliottwave.com Financial Forecast Short Term Update 14
(February 14, 2005)
The [HUI: Amex Unhedged Gold Stock Index] is very close to completing wave a (circle) up of an a-b-c rally
that should last several more weeks and likely push to the middle-to-upper end of the 210-229 target area. The
near-term subdivisions suggest that there could possibly be one more probe above this morning’s 211.66 high
to complete the initial wave (wave a (circle) up), but whether this occurs the next significant short-term move
should be a wave b (circle) decline to correct last week’s rise. Support is 202.50-206.00 at the moment. As
noted Friday, the index should not come anywhere near the 190.45 low, now the key level for the immediate
bullish case, in the near future.

Next Update: Wednesday, February 16, 2005

—Steven Hochberg, Editor.

http://www.elliottwave.com Financial Forecast Short Term Update 15

(February 14, 2005)