Tuesday, September 13, 2016

Uh Oh Equities (and everything else)

The precipitous fall Friday was clearly the beginning of something as opposed to the end of something, ie a correction down.
This is the most important factor at the moment for Elliott Wave analysis. It will color the interpretation of developing sub waves and their implications going forward.

Why was it clearly the beginning of something ? Volume Friday in the SP was about 50% higher than it has been running, and breadth was heavily broad. Additionally it decisively took out all the previous lows over the last 2 months.  This followed a month of weak attempts at new highs capped off by the Thursday Sept 8 Key Reversal Day (including overnight trading); a higher high, lower low, and lower settle.

click to enlarge
Note the repeated RSI negative divergence.

All the above paint a picture of an exhausted up move, and a hot move down.
It is very very seldom that an initial impulse wave in either direction is NOT followed by AT LEAST 
one more significant wave of Fibonacci relationship to the 1st wave down.  And it if it is a 3rd wave (rather than a c wave) it can be expected to be a multiple of the 1st wave, ie 1.618 or 2.618 of the initial move. AND this has the potential of being the beginning of a move lower of MUCH higher degree.

click to enlarge

The above bounce is likely a 2 wave which is often a deep retrace of the 1st wave, it could well have another leg up, for an abc structure (or not).
Risk of an accelerating move down is high in this scenario, and extreme care should be taken.

If an Elliott Wave 5th wave of primary cycle degree is complete, even a normally modest .382 retrace will be dramatic.
BTW chart opinion only NOT a trading recommendation.



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