Wednesday, March 17, 2010

3/17/10 - DOW EOD Update and An Example of A Trade Setup Using Elliott Wave [10:50 PM Update]

[10:50 PM Update]

How you like them squiggles? Just to confirm that this 5 wave impulse down works.
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[9:10 PM Update]
SPX Trade Setup


I completely forgot that my initial example was with the SPX. Here it is with additional comments.
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[8:05 PM Update]

I added a few more things to the trade setup chart. I added what may potentially be an H&S pattern and some projections for wave (iii) or (c) given known Fibonacci relationships between waves 1 and 3.

So lets say if tomorrow price splits the 50 and 61.8% retracement levels and tops out to form a right shoulder, I am able to project potentially where wave (iii) or (c) may head based using the length of wave (i)/(a).

Wave (iii)/(c) may = (i)/(a) at:

.618 = ~10703
1 = ~10680
1.618 = ~10644

Notice that wave (iii)/(c) would come very close to the H&S target if it were 1.618 x (i)/(c), which is a very common Fib relationship of a wave 3 to 1.

Let's see what tomorrow brings.
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[5:25 PM Update]
I forgot to add my SPX chart. It is at the bottom.

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DOW 60 Min


Dow 3 Min



SPX Trade Setup


SPX


It is quite possible the DOW has reached it's extreme, at least for this leg up. I show a nice possible throwover for minute [v] and now a backtest of the ascending trendline in red.

The backtest has returned to the trendline in a nice almost picture perfect Elliot Wave impulse. There is even a nice looking alternation between waves ii and iv. The question now is are we looking at a new move down in a wave 1 (most likely subminuette/micro degree) or is this a wave 'a'?

Obviously we won't know until the structure is complete. For now, it is a clean 5 waves down right to the ascending trendline. Price bounced in what appears to be a wave 2 or b.

We'll have to see what Fib retracement it wants to hit (61.8% being typical for 2s). Of course we'll have to take the look of the structure into consideration as well. Wave 2s typically retrace in a zigzag fashion, i.e. a-b-c or 5-3-5 structure.

If the top is in for now, I would then expect a wave 3 down to follow 2 and smash through the ascending trendline. A good sign of that strength would be a gap down through the trendline.

We'll see tomorrow.

The bottom chart is that of the SPX. This is an example of using EW for a possible short trade setup. I'll add more charts later on this with additional notes. I didn't want to add to much on one chart or it'll be too busy to read.

Forgot to mention. This structure on the third chart is similar to the larger one at play (1576 - 666 on SPX) but at a smaller degree. The search for P2. It's no different.

As written on the chart:

****OBVIOUSLY THIS IS NOT A RECOMMENDATION TO TRADE.
THIS IS AN EXAMPLE FOR EDUCATIONAL PURPOSES ONLY. TRADE AT YOUR OWN RISK****

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