Over the past few weeks I kept you abreast on the different possibilities the market had. See here and here. Some of you “complained” those were “too many options”, but I don’t make those options, the market does, and any Elliot Wave practitioner worth his/her salt will report on the market’s options because EWT is all about having and understanding the different options the market has: there’s always an alternative! This is also why trying to trade based on wave counts only does NOT work. EWT should only be used to gauge where the markets are and what to possible expect next. What you need to trade with, instead, is a system that reduces all these possibilities into only two signals: an entry- and exit signal. That’s it. Please read my “System Trading” page: HERE for a detailed breakdown on why system trading gives market-beating performance and how I can help you get started.
This is also why I suggested to my Premium Members to place long stops on a trade and/or close below the indices’ 50-day (S&P, DJIA) and 20-day (NAS, NDX) Simple Moving Averages already two weeks ago, and none were therefore caught on the wrong side over the last few days because the stops already triggered last Monday 🙂
This brings me to this week’s charts and price action, as I was able to eliminate these different counts 1-by-1 through logical deduction, which is the proper and only way to come to the final conclusion on what the market is doing and will likely do next. The standard impulse was eliminated first, then the triangle, followed by the diagonals. With Friday’s price action we are now left with the Zig-Zag on the S&P, DJIA (and an irregular flat on the NAS/NDX). Indeed, the Zig-Zag was my least favorite option because there are now two different types of corrections ongoing, which is odd, but what I prefer is not necessarily what the market always gives. I simple follow.
A simple and most common wave-c = a relationship targets SPX2462, but there’s no guarantee this extension will be adhered to by the market. Shorter term there are Fib-extension and symmetry targets for SPX2565 and SPX2540. Let’s see how the market reacts from these levels. Please note market breadth, as per the McClellan Oscillators, is now extremely oversold (The NDX-MO made its 3rd lowest weekly-close reading in its 19-year long history; see here), which most often means the markets will first see a relief rally (aka bounce), followed by a lower low, and than a multi-month rally.
Thank you for reading and Trade Safe!
Arnout aka Soul
BONUS: Last week I showed the possible triangle forming on the DJIA, and had a red and a green arrow showing which direction price most likely will follow on a break down or break out, respectively. See last week’s DJIA chart here. Clearly we got the break down and the DJIA is now following that red arrow. The chart below shows the anticipated price-targets for a bottom.