Last weekend I updated my count indicating that
the market had now completed Wave 2 from 666.79 at 1538.57, which turned out to
be an inverted corrective wave, and leaving open the possibility that the
market had also completed Waves 3, 4, and 5 from the 666.79 low. This week the
Wave 2 low was confirmed, and the fact that we are still in Wave 3 became
clear.
Although my model is based on wave counts, I will
once again point out that it is not Elliot Wave Theory. If you are looking at
my counts from an EW perspective they will look odd, but they are based on
mathematical relationships between waves. There have been a lot questions
concerning my model, and up to this point I have been reluctant to go into
specifics. There are several reasons for this, some obvious, some not so
obvious. However, I feel the time has come to share at least the basics of my
model. Some of this is for the sake of credibility; some is based on the fact
that in order to advance my theory I need a certain amount of feedback, both
positive and negative. The scientific method if you will.
The 5 Wave Model is based on a surprisingly simple
principle. That is, in a given 5 Wave sequence, waves 1, 3, and 5 share a
certain proportionality. The endpoints of these waves are highly dependent on
their starting points. Throughout this post, I will point out this relationship
through examples.
I will start today with my long term count from
666.79. As I have stated previously, the market is now in my Wave 3 from that
point. Wave 1 terminated at 1370.58, with the 5 waves breaking down as
666.79-956.23-869.32-1219.80-1010.91-1370.58. If you plot these waves as
points, (666.79, 956.23), (869.32, 1219.80), (1010.91, 1370.58), you will find
they have a correlation coefficient of .997. I use certain threshold correlation
values to determine wave end points.
Wave 2 began at 1370.58, and terminated at
1538.57. It was an extremely complex wave, and what I call an “inverted
corrective wave”. This wave broke down as 1370.58-1074.77-1555.74-1562.86-1538.57.
These points have a correlation coefficient of .994.
With Wave 2 ending at 1538.57, the market is now
in Wave 3. This wave appears to be forming a rather complex wave. Several 5
Wave sequences have completed, but those 5 Wave sequences have not yet
completed a subsequent 5 Wave sequence. I have identified 5 Wave sequences from
1538.57-1561.56, 1561.56-1545.90, 1545.90-1564.91, 1564.91-1546.22,
1546.22-1563.95, 1563.95-1551.90, and 1551.90-1570.28. My interpretation is
that the first four sequences identified can be Waves 1, 2, 3, and Wave 1 of an
inverted corrective wave, or a series of 1’s followed by Wave 1 of an inverted
corrective wave. This is what I call a nested inverted corrective wave. Both of
these interpretations imply higher prices. One other possibility is a Wave 1,
followed by Waves 1, 2, and 3 of an inverted corrective wave The next three
sequences appear to be Waves 1, 2, and 3 of a lesser degree wave. I have
identified the first four sequences with an “X” on the 15 Minute chart.
In order for the wave from 1538.57 to complete, we
must first see Waves 4 and 5 from 1546.22, followed by a minimum of one more
move higher, depending on how the other waves resolve. Wave 4 should terminate
at 1563.50, or 1557.40, which then gives a Wave 5 projection of 1576.40, or
1583.20. Using several other relationships, 1557 for Wave 4, and 1576 for Wave
5 seem to be the best fit.
Once Wave 5 is completed, the market should move
lower. I would expect this correction to terminate at either 1554, or 1547.
Those prices would fit the possible patterns I alluded to previously. This move
lower should give us a better idea of the Wave degree of the first four
sequences from 1538.57.
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