This week's chart will be used to explain market correction in context of February's decline and the current pullback of last week. I'm very surprised by change in sentiment in only 4 days of trading. My perspective for expecting new highs has not changed, and is based on understanding the corrective process. The market seemed to hold up well on Friday despite unfavorable news (employment costs, tariffs, emerging market weakness).
Using a wave process beginning in 2016, my weekly charts have shown wave 3 ending in January 2018 followed by wave 4 ending in April 2018. A close look at wave 4 reflects a horizontal decreasing triangle with the widest part from January to February (SPX 2872 --> 2532 = 340). Subsequent waves decrease in size such that lines drawn across (lower) peaks and (higher) lows form a triangle ending in April (not drawn in this week's chart, but was in previous charts). So what next?
Triangle patterns in Elliott Wave analysis reflect a pause in trend. They are often present in wave 4 and exit (thrust) in the direction from which they were entered, as is the case here (up). Most importantly, the "thrust" size following a triangle approximates the triangle's widest part (being the 340 point move mentioned above). Adding that to the April low places the thrust's peak near SPX 2940. However, getting there won't be easy.
Using Fibonacci levels there is expected resistance at 2916, which was first encountered 2 weeks ago. The path after exiting the triangle led to that point, but is not expected to end the upward thrust and trend (wave 5). Instead, the eventual expected high is first 2940-2950 followed by 3083-3115, with the latter shown as Fibonacci levels in the chart.
In summary, last week's decline was expected, and anticipated, to be shallow in alignment as "lower degree" within wave 5 (in fact it appears to be within a lower degree wave 3 of 2016's wave 5 move following 2016's wave 4 triangle ended in April). On a percent basis 1.50% - 2.00% is likely for such a minor degree pullback. Support at the 20d sma level of 2871 to close last week (white line) was a healthy for an upward trend to continue.
Finishing the pullback process may carry slightly lower near term to 2859 or even 2846. I consider them good levels for positioning if the opportunity occurs early in the week. If so, proper risk management is always necessary. My personal preference is to be with the main trend, and I'm positioned accordingly while also taking into account expected time until wave 5's completion.
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Edit: The graph uses a 20d ema, not sma. Also, the text box reads "55day" and should read "20 day ema"
Thanks as always. The negative reaction to the jobs / employment report was a little odd to me. Sure, it solidifies the likelihood that the Fed would raise interest rates, but this was something completely expected.
In looking at the chart and trying to visualize a 5-count wave on the way from your (4) to your (5), I see the following: 1 @ 2800 on 12 June, 2 @ 2691 on 28 June, and 3 @ 2916 on 29 August. Wave 4 could be as low as 2800-ish and still be driving a valid 5-count on the way to your (5). Are you seeing something similar?
iamthewolf
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@satertrading, I think wave 3 of 5 still has more to go. Your estimate is not unreasonable and yes if we see 2802 or lower there is a need to re-assess. I'm still sticking with 2950ish for 3 to end, then wave 4 of 5 before a final upward move beyond 3000. Market will tell us where to measure using Fibonacci retracement.
traderhr77
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Thank you as always
iamthewolf
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@traderhr77, you're welcome and thanks for viewing.