Since my first introduction (October) of the "abc" correction the question in my mind has always been "and then what?" Decreasing risk (positions, size) has been beneficial since October, but there is a time to reverse that process as the trend starts turning again. When is that expected as the decline's pivot begins?
Elliott Wave is excellent for anticipating wave duration and change. Unfortunately it is not precise, and is often poorly applied ( not by me :) ). However, it remains a major part of my analysis and personal positioning using trend movement. Sprinkle in corroborating technicals (Butterfly pattern, MACD, PPO, Fibonacci levels, trends) and a plausible picture is formed for planning risk levels and positions.
Throughout the correction the standard "abc" pattern has been used to target the decline's destination, whether the pattern morphed into a triangle, flat, etc. We now add a confirming Elliott Wave technique of wave "a" = wave "c" to target the correction's wave "c" end (a to b's bottom, then used with b's top to estimate c).
We now focus on wave "c" in progress (red) and target 2425 as a reasonable end. However, that is an ideal goal and not a certainty! Getting there includes hurdles at the lower trend line (yellow), and then the February low of 2532.
Adding risk and position size is a process, and I expect my initial loading to start at 2555. From there I will add more, whether we go up, or down. On the downside I expect to add more aggressively near 2425, while on the upside a cross of the 50d sma (red) or the 10d from below the 20d (not shown) will trigger adding to positions. In all cases the additions are at levels below the initial risk reduction during the correction's early phase of wave "a" in October.
Why here, and now? Risk becomes more favorable as the decline terminates. What follows is a higher degree wave as either "B" (not shown) after the initial lower degree "abc" (my primary read), or a new 5 wave impulse upward to new highs (not shown, alternate read). Both lead to an upward trend once the current "abc" completes. It is time to plan for a pivot as the current down trend concludes.
Lastly, I've done some housekeeping (thanks to reader comments) to move the top of wave "b" down to the actual recent high of 2816. I also tightened the zone for "Correction area for Wave from 11/2016" (green and yellow horizontal lines).
It is sobering how quickly this is happening. Thanks, Fed.
iamthewolf
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@satertrading, I didn't think it would be this fast, but in another way I'm not surprised. The machines and targeted support/resistance seem to accelerate the time to target.
satertrading
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@iamthewolf, I'm now considering whether it is time to start putting some cash back to work...scaling back in.
iamthewolf
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@satertrading, me too, but not in a hurry right now.
satertrading
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@iamthewolf, I think we are probably in for a bit more pain...SP& looks like just 2 percentage pts away from "bear" category. Iwas looking at some of the treasury ETFs (SHY, IEF) and they have hardly moved upward, despite the huge sell-off, although they were up some yesterday.
iamthewolf
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@satertrading, I'm following the plan outlined here. I could nibble at the yellow line. Even if that is the near term bottom I don't expect it to be the low for this correction. I do think it is a decent place to add for long term positions.
satertrading
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@iamthewolf, yep, agree, and have my shopping list all prepped and ready.
Thanks for the detailed chart and analysis Wolf. I been projecting 2525 with my own wave model and others (notably Humble Watcher) also look to the 2500-2550 box for a pivot. If real panic develops it could sure get a lot lower, just gotta be ready. Can you tell us what positions do you favor? Equites or ETFs? I get SPY/QQQ/DIA LEAPs calls and UDOW ETF when its time to climb, these no-brainers require no stock picking. Thanks for posting, keep it coming!
iamthewolf
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@DaddySawbucks, I adjust risk/positions primarily for long term. That means primarily index etf (a few, diversified) and risk off as short term Treas or Money Mkt. The most important thing is to assess risk and manage it. Over on Seeking Alpha I posted this hypothetical question today (you can add as many zeros as your account allows). The choice is between etf and 3x etf. I use ATR (Average True Range) for "N" days.
Question (an exercise): If you see the right indicators for RUT to go up, which of these 2 transactions would you enter? The figures are as of this past Friday's close 12/14/18.
Parameters:
Risk 2% of your equity of 10K, thus $200.
Max Loss (Stop) = 2ATR