Your best bet is to pick up a copy of the Wall Street Journal, and find the Dow chart in the market section. From there, measure down from the 7128 level, that's minor wave (MW) 1. The ensuing rebound, which was close to a 50% retracement, label MW 2. The steep selloff thereafter is MW 3. The next recovery, another 50% retracement of MW 3 is labelled MW 4. The final decline to 6356 on Monday is MW 5 of intermediate wave (IM) 1. That's an initial labelling that you can use. As you might guess all this labelling can become confusing when you start getting a number of sub-waves. To alleviate this, the experts use (1), II, numbers circled, large letters, small letters, etc. Following the above reasoning, IM 2 should be no more than a 50% retracement. Using cash SPX, which is what I trade from, I'm looking at 770-775. On the Dow it would be around 6720. You'll notice that is also in the area of MW 4, which is no coincidence. This is referred to as terminating at a wave of one lesser degree. The rally should be a clearly divisible 3 waves. I'm theorizing that we have seen wave (a) terminate today, leaving (b) and (c) to occur over the next week. I'm looking for (b) to terminate around 748 by Friday, and a final rally in (c) to the 770 level. This makes wave (a) and (c) nearly equal, which is a frequent relationship. (If you go back now and compare MW 1 & MW 5, you'll notice the equality of these impulse waves, which is also common). As the next few days unfold, we'll see how I do on the construction and pattern of the waves contained in this corrective rally. Best regards.
Dale |
