Well the Dow has certainly bounced very strongly yesterday and has followed the script. However I now feel it necessary to post these charts as we find ourselves at a crossroads where 1 of 2 scenarios look quite likely and equally possible (although I personally favour the first of the two).This strong bounce is clearly part of the wave 2 bounce we were expecting, the question is whether it has simply completed waves 1-2-3 of A, thus still requiring a completion of wave A and waves B and C to come...or whether it has completed in an A-B-C pattern already and is looking to sell off hard (!)The chart below shows the case for the first scenario, requiring a further wave 4 and 5 of (a) before wave (b) and (c) come into play further on.
As you can see, there is a clear 5 wave internal structure to what I am arguing may be wave 3 of (a). The decline is quite sharp and in good contrast to the wave 2 sideways drift, this looks good for alteration which is a well know Elliott Wave guideline.Now here is what is key. For this scenario to stay alive, the market must NOT breach below 10325 (wave 1 of (a) high) BEFORE getting above 10480 (wave 3 of (a) high). If we do get below 10325 waves 2 and 4 will overlap... this is not permitted and thus the scenario becomes highly unlikely and void.One more pop to the upside will look good to complete a wave 5 of (a) and will be in the face of MACD divergence. There is a MACD Histogram displayed at the bottom of the chart with a clear huge momentum indication during our wave 3 of (a). A small move above 10480 for a wave 5 of (a) will be very likely to show MACD divergence and thus weakness.Following a 5th wave things will look very comfortable for the (b) and (c) to play out. Although 1 word of caution, beware trying to trade wave (b) to the downside as it can take one of many forms (simple 3 wave down or triangle or 2/3 zigzags etc).The chart below shows the second scenario of a possible already completed wave 2 in the form of an A-B-C.
As you can see on the chart, we got just into my green target box and turned around near the 50% Fibonacci retracement and the bottom of the box (10470). As you can see in this scenario wave (c) is what was wave 3 of (a) in the previous chart, and as with all wave c’s it has a nice clear 5 wave structure.However I should note that if wave 2 is now complete as this scenario suggests we should see some very sharp selling now. The problem is that wave 2 looks rather short in terms of time and there is still options expiry on Friday which I suspect should keep the market afloat until after options expire. Thus I personally favour the first chart scenario.But as was outlined, we need to see a wave 4-5 of (a) complete without overlapping the suspected wave 1 of (a). Failure to do so may be an early indication of a sharp selloff around the corner. So be mindful that we are in a bit of a tricky spot.However, by the end of the week the picture should be clear, so let’s just hope we don’t miss the train on this one.
Market has been like soft clay in my hands lately...
Just hope we get the first scenario play out so I can build a nice, bit short position and take the Dow down about 800 pips :)
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Market has been like soft clay in my hands lately...
Just hope we get the first scenario play out so I can build a nice, bit short position and take the Dow down about 800 pips :)
hehe !!
thanks max !!