Always Be Aware of the Big Picture
We must continually be aware of the probable larger degree pattern
position to keep the short term in perspective.
S&P – Is a corrective rally over?
The current position of the S&P as of the end of today (July 30) is in a
position for an important Elliott wave lesson. First, let’s take a look at the
15-minute chart from the July 24 low.
Today’s high appears to have completed a text book three wave
advance from the July 24 low. Is it a 1-2-3 or A-B-C? From just the data
shown above, there is no way to tell. We don’t have to guess. We can use
the simple EW guidelines and let the market let us know. What could the
market do to signal which it is?
A W.4 should not trade into the range of the W.1. If the S&P declines
below 854.50, the W.1 or A high, it signals the high should be a W.C.
Does that mean a corrective ABC rally high is complete and the trend
should continue to new lows? What do you think?
There is an important Elliott wave guideline that will help us answer
this question. First, we have to move back and review how this potential
ABC fits into the larger degree picture.
The next chart is the daily SPX from the March high.
The assumption is July 24 completed a W.3 low and the rally is a W.4
correction, not the beginning of a bull trend. Today reached the minimum
of the W.4 retracement zone at 902-942 (SPX).
Is the W.4 correction over? Today’s high could have completed an
ABC, the most typical corrective wave structure, at the ideal W.4
retracement zone. However, today’s high is probably not the end of a W.4.
A W.4 will typically last longer in time than the W.2. In this case, W.2
was eight trading days and so far, the W.4 rally off the July 24 low has
lasted just four trading days. Let’s consider the short-term pattern on the
15-minute chart again.
A W.4 should not trade into the range of the W.1. If the S&P declines
below 854.50, the W.1 or A high, it signals the high should be a W.C.
Even if this were to unfold, it is unlikely the W.4 correction is complete for
two important reasons.
Firstly, Wave-2 (May 7-17) was a simple ABC (see the daily chart
above). If we consider the guideline of alternation, if W.2 is a simple ABC
W.4 will typically be something other than a simple ABC. A decline below
854.50 would indicate the decline should be either an X-Wave, or today’s
high completed an abc:A of larger degree. A Wave-A may be an ABC
itself. In either case, the S&P would continue the correction for at least
several more days and probably test or exceed today’s high. The Elliott
wave guideline of alternation clearly warns that a Wave-4 high should not
be complete today.
Secondly, W.4 should have at least several more days to go to equal
or exceed the time range of the W.2. While this is not an Elliott wave “rule”
or “guideline” it is a high-probability time relationship with W.4 and W.2. A
W.4 is rarely shorter in time than a W.2 so we always anticipate it will
equal or exceed the time range of W.2.
Short term traders should be aware that today’s high appears to have
completed a five-wave advance from the July 24 (W.2 or B) low. As long
as the S&P has not taken out today’s high, short term traders should be
prepared for a day or two of sideways to down trading.
If the S&P declines below the potential W.1 or A high at 854.50, it
should not signal the end of an ABC.W.4 which should then continue in
some form of complex correction.
Lessons Learned
The Elliott wave rules and guidelines help us to not only determine the
high-probability pattern position of a market, but what the market can do to
confirm or invalidate the most probable position.
It is very important to keep aware of the big picture and how the shortterm
pattern may fit into the big picture. Simple price and time factors will
often help to clarify the pattern position.
While no thing is for certain in the markets, the pattern position at least
gives us the high-probability position and what to anticipated for any
potential market activity.
Read next >>> To the beginning
|
