Is this the end of wave 1 of the bull run? That is possible, and it fits all of the rules for the Elliot wave theory.
Wave 2 retraced 38.2% of Wave 1 and did not retrace more than Wave 1. Wave 3 is 2.618% of wave 1, which is a standard extension target. Wave 3 is not the shortest wave. Wave 4 is an expanded flat correction—retraced 38.% of Wave 3. Wave 5 is a 1.618 extension of Wave 4. Because Wave 3 is longer than Wave 1, extended wave 5 remains valid per the Elliot wave theory.
How would you play this?
1. Short SPY using the 1.618 level as a stop loss or 2. Wait until the price re-enters the rising channel, then enter a short position.
Either way - R/R is hard to pass up on the short side.
My assumption is this is wave 1. Wave 2 common pullback target is 0.50-0.618 of Wave 1. (shaded blue area)
Nice wave count, there's a few things to note; the second prior weeks candle is a bullish engulfing, the body of this weeks candle opened above the prior bullish engulfing which indicates relatively strong institutional buying, and it looks like a megaphone is forming from the beginning of the year that points to the 3600s on the downside, we will have to see what happens over the next two weeks or so and maybe identify bearish divergences
TradeAlchemy
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@TNasr Thanks! You’re right about the bullish engulfing candle. It may continue up from here hence my stop loss at the 1.618. It’ll be a tight stop loss.