Likely More To Go

Analyzing the market is a process.  And, I want to take you through my process today as to how I determine primary versus alternative wave counts in our current situation.

With the market striking the bottom of our target/resistance box, and then turning down, the primary question we have is whether we have begun the (c) wave down, or if the market is providing us with a deep (a) wave, and a (b) wave is yet to be seen?  And, with the market bottoming thus far in between the .382 and .236 retracements of the prior rally, it does not offer much in the way of guidance from that perspective.  

So, we are left with analyzing the decline to see if there is anything we can glean from it.  

If you remember, I have been toying with the ideal that the corrective bounce we just completed today was actually wave 4 in the c-wave of the (a) wave.  But, I am viewing that as a lesser likely option for two reasons.   First, the 4^th wave in that count came up higher than standard 4^th waves.  And, second, the 5^th wave is almost exactly the same size as waves 1-3, which is quite rare and unusual.   Normally, when the market moves beyond the 5^th wave being more than .764 the size of waves 1-3, then it is usually signaling that it is something other than a 5^th wave.   But, for now, that is my alternative count, as presented in yellow on the ES chart.

The count that seems to be pointing to the highest probability path is that today’s drop is wave 1 of the   (c) wave down.  That means that we should now be respecting the wave 2 resistance box I have on the ES chart.  As long as that box is respected, I am seeking another impulsive decline, which would be wave 3 of the (c) wave.  And, take note that due to the potential size of the wave 1 of the (c) wave, it is likely that we will be projecting deeper into the (c) wave box below.

Of course, should the market move through this resistance, then I will be forced to adopt the yellow count, even though it does not seem to be the highest probability path based upon my analysis above.

I want to address something that I am sure is on some of your minds, which I posted in the trading room earlier.  Some of you probably are upset that you did not get an entry for this decline today.   But, if you are, then I believe you are being very myopic.  

When you take this market into context, you MUST realize that the market has not been kind to shorts for a number of years. And, in order to enter a low-risk, high probability short trade in a market like this, you MUST adhere to risk management and only short on a 1-2 structure in the (c) wave.  Sometimes the market does not provide that set up.  And, that is when you have to put your big boy pants on and realize that if a low-risk, high probability trade is not there, then you move on to the next opportunity.  

Those that have tried to short this market without a low-risk, high probability 1-2 set up in a c-wave have lost a LOT of money in attempting to short.  While you may miss shorting opportunities, it keeps your money safe and from shorting too early during a bull market.  That is what risk management is all about.