Trend Reversal, $SPX Daily

In our mentoring classes we teach the concept of after a Wave 5 we should see either a major market correction or a complete change in trend.  One of the techniques I use to determine which we will see is to use the False Bar Stochastic in conjunction with the Elliott Wave. The reason I like to combine the two is that they complement each other very well, the Elliott Wave shows us the long term count of the chart and the Stochastic is keeping track of the shorter term trend cycles in play.

In the current chart of the $SPX we see the classic Wave 5 that indicates a change in trend is coming. From here I take a look at the False Bar Stochastic and draw a 61.8% retracement from the last swing low to the current market high.  This gives us a level of 1295.  If the market can hold that retracement and we get a re-rally it is more likely that we are seeing a correction instead of a reversal.  Since we have gone below 1295 odds say that this market is heading for a complete change in direction which would give us continued selling to our next MOB at 1220. If we were see a small rally from this stage you must consider it a profit taking rally and a potential Wave 4 with a high probability of new lows.

Ron Wheeler

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