Our model is based on the relationship exhibited between waves. We mainly use the relationship between the 5 waves in a trending sequence. There also seem to be other relationships among waves; one is the relationship between waves in a counter-trend, and the waves in the previous trend. With the termination point of wave 5 from 1422 pretty open ended at the moment, we have analyzed this secondary relationship in order to get a better picture of what’ s happening in the market.
Since we believe this is a corrective sequence of the 5 wave sequence from 667-1422, we started with that wave. This secondary relationship does not project all waves in a series, but seems to project either waves 1 OR 3, wave 2, and wave 5. Using the aforementioned trend sequence, we get a projection of 1238-1276, with 1258 being the optimum, for the termination point of either 1 or3. Wave 2 should carry the market back to between 1277 and 1322, with 1299 being the optimum. Wave 5 should then take the market back down, somewhere between 1238 and 1164.
Since this would also be a corrective sequence from the 1075-1422 trend wave, we also analyzed the waves using that sequence. The first projection was near 1332, this being for wave 1 or 3. We have wave 3 from 1422 terminating at 1348. Wave 2 projected at 1412, with our wave 2 being 1415. Wave 5 should terminate between 1297, and 1266, pretty much where we are now.
With our projection of 1276-1238 for wave 1 or 3, we could continue lower from this point, until we enter that target range. This would terminate wave 1, we would see a rally into the 1277-1322 target range, and then a 3-4-5 sequence into the 1238-1164 target range.
We could also rally from this point, or somewhere near this point, keeping the market below the 1322 maximum wave 2 target, and then have wave 3 carry into the 1276-1238 target zone. Wave 4 would fall short of the wave 2 peak, and wave 5 would bring the market into the 1238-1164 range.
In our mind this method is slightly less accurate than our primary relationship, but it does add value to our analysis. We continue to be in wave 5 of the downtrend from 1422, and so could see a rally at any point. As we have shown above, we still believe there is risk to the downside. With the market being as oversold as it currently is, it would not be surprising to see a rally from here, or after another move to the downside, but we do not believe the correction from 1422 is quite over.
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