S&P
The chart below is the June S&P from the March 19 high to today’s low,
May 7. There are five-distinct sections. The fifth may not be complete.
Is this a five-wave impulse trend? Probably, but by no means clearly
defined. Typically the W.3 is the extended wave or the longest of waves 1,
3 and 5. As shown above, the W.3 is shorter than the W.1. If the April 30
low is a W.3 low, what is the rule concerning W.5?
Since W.3 cannot be the shortest of waves 1, 3 or 5, the price range of
W.5 should be less than the price range of W.3 so W.3 will not be the
shortest.
If the data so far is not a 1-2-3-4 what may it be? It could be a 1-2-1-2
which is a very bearish potential. I always prefer to stick with the simplest
and most obvious potential wave count unless there is compelling
evidence it is something more complicated or the market proves
otherwise.
Let’s see if the intraday data helps the on the 60-minute chart below.
The intraday data fits the wave count fairly well but not perfectly. The
best wave count for the data to date is shown on the chart above. At the
very least, the clearly defined ABC correction made into the May 2 high
and the probable five-wave decline from the May 2 high is the most recent
pattern information to work with. It clearly appears W.5 (of 5) is nearly
complete.
Now let’s break it down further and just look at the short term 15-
minute data from the last defined pivot, the May 2, W.4 high.
It appears this is an ideal five-wave trend from the May 2 high. If so,
W.5:5 has already traded below the W.3:5 low which indicates the W.5:5
is in a position to be complete. Could this be something other than a fivewave
trend? Of course it could. We have to make decisions based on the
best available evidence. Unless the market proves otherwise, the
assumption is the W.4:5 high is complete and a W.5:5 low is close at
hand.
The completion of a W.5:5 low would also signal the completion of the
entire five-wave decline from the March 19 high if May 2 is the W.4 high
as shown on the charts above. How would a five-wave decline from the
March 19 high fit into the larger degree pattern? That is a subject we will
take up in the regular reports this week.
Lessons Learned
Elliott wave patterns are not always clearly defined. Only use them as part
of your trading strategy if they are clearly defined.
One way to help identify if a pattern is correct is if it subdivides as it
should. This usually requires a breakdown to the shorter term data.
It is most important to identify if there are clearly defined fives and
threes and which direction they trend. This will help to identify the larger
degree trend. Unless a five-wave trend is the final trend of a larger degree
pattern such as a W.5 or W.C, the assumption is it is in the direction of the
larger degree trend.
If a market appears to be in a Wave-5, a reliable signal the W.5 is
complete is a trade beyond the W.4:5 extreme. An entry one tick beyond
the W.4:5 extreme would be followed by a protective stop one tick beyond
the W.5:5 extreme.
If a Wave-5 appears complete, and waves 1 and 2 in the opposite
direction appear complete, a trade beyond the W.1 extreme confirms the
W.5 should be complete. This signal may be made before the W.4:5
extreme is exceeded. An entry one tick beyond the extreme of W.1 would
be followed by a protective stop just one tick beyond the extreme of W.2.
Read next >>> keep in mind the Elliott wave
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