Over the past several weeks the S&P 500 has been in a consolidation phase. This market has been slowly tightening between the downtrending resistance line and the uptrending support line illustrated in the chart below. Today, we are beginning to see that uptrending support line fail and the price action beginning to move into some lower retracements. While the setup is clearly not a Type 1 Trade due to the fact that the Wave 4 Channels and PTI have gone beyond the reasonable thresholds, we should now be looking for some evidence of support to kick in around the areas I’ve illustrated.
While the price action is clearly labeled a Wave Three, we need to be aware of the possibility of a change in the wave count. If we begin to move significantly lower, it would not be unreasonable to see the price action be labeled a Wave 2 as long as it doesn't exceed the extreme low of the current Wave 5.
Here are some general statistics regarding the nature of Wave 2’s.
Approximately only 12% of Wave 2’s hold the 38% retracement of Wave 1.
Approximately 73% of Wave 2’s retrace between 50% to 60% of Wave 1.
Approximately 15% of Wave 2’s retrace below 62% of Wave 1.
A large part of being a successful trader or investor comes down to one's ability to construct multiple models of what to anticipate. Over the next few sessions, we will begin to gain some clarity about the overall market's intentions.
Trade Smart
~Duane Gott
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Posted by: Elliptical reviews | November 29, 2011 at 01:46 AM