Monday, March 22, 2010

Elliott Wave Trade Example #2 [3/23/10 10:35 AM PST Update]

[3/23/10 10:35 AM PST Update]

The case is growing stronger that this may be a minute [iv] flat and still possible triangle...
[3/23/10 7:40 AM PST Update]

I'm adding the 3/23 update to this post to keep the charts together so we can track the progress.

As one can see the structure began to morph out of that ending diagonal and alternate (in my head) counts had to be adjusted on the fly.

The top chart in this post will be the most current for the call.

This trade example is hanging on a thread. The stop is getting close to triggering. We'll see if the top chart count holds.

SPX on 3/18/10

SPX on 3/22/10

The second chart is a continuation of the trade setup I posted last week. See here for the chain of posts.

Let me start out by saying this is a potential setup for a wave (c) of minuette degree down. It is not meant to be held for more than 1-2 days. Though it is not a wave 3 down, wave Cs are almost the same since it is the third wave in the structure and it should count as a 5 wave structure. For all I know, we may get lucky and this turns out to be a wave 3 down if the top is in.

By EOD on 3/18 I suggested that it was most likely a better bet to exit the trade since we did not see a wave 3 down as suspected. Though I mentioned that I expected a little more downside, which we got because it turned out to be a small scale wave c, we saw a bounce since. Technically, the previous trade has not stopped out yet either so if one had chosen to hang on, one should not necessarily be in too bad a shape, especially if there is a larger downside move in store. The stop never changed.

I created the first chart above on 3/18 suggesting that we may be seeing a leading diagonal as a potential. Though it was way too early in the structure to really tell that this would be a leading diagonal, the overlapping/converging pattern that existed at the time, coupled with where I thought we may be at the top, lead me to anticipate this structure.

A leading diagonals is either a wave 1 or A. Both are first waves that have a 5 wave structure to it. Naturally a 2nd wave would follow, which in this case would be a bounce up. After that, a wave 3 or c is expected down and hence the opportunity for a possible trade short.

So sometime tomorrow, as price approaches the top of the converging trendline, a short position may be taken in anticipation of the reversal down to start either wave (c) or (iii).

The target below are set by the Fibonacci ratios wave 3s and Cs have to 1s and As. Either thru equality or 1.618. In this case, we are looking at potential targets of 1151-1141. Notice I did the exact same thing with this setup. Look how wave (c) just about hit the 1.618 Fib level.

If this turns out not to be a leading diagonal and is instead a triangle , we will see the 1169.84 high taken out before seeing a more substantial move down. This is where our stop would be anyway. Be aware that a triangle formation is still possible here given one of my larger counts viewing this move down as a minute [iv]. Refer here again to the larger scale count.

Now without throwing in too much confusion, price may still take out 1169.84 and still be a considered a wave (b) up before a wave (c) down follows. This structure would be called an expanded flat. However, it is probably safer to play it as a regular flat and stop out if 1169.84 is taken out.

Once again, this example is more so for the purposes of applying the EW principles of wave counting, Fibonacci ratios and utilizing support/resistance to enter a trade. The wave degree in this example, though small(and hence a small scalp), may still be applied to a larger degree wave for a longer and more profitable trade.

We'll see what happens tomorrow.

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