Looking For One More Decline
By
Avi Gilburt
In very simple terms, my primary count has the market within a wave 4 pullback. Since 4th waves take shape as [a][b][c] corrective structures, and the [a] wave in this count completed earlier this week just below the .236 retracement of wave 3, at which time I suggested we prepare for a rally to begin. We are now rallying in the [b] wave. Therefore, my expectation is that we should soon turn down in a 5-wave structure to signal that a [c] wave decline has begun.
During this rally off the 2022 low, I have often warned about turning bearish or trading the bearish side of the market too soon. Over the years, I have learned that it is safer to trade with the primary trend, and to only take a counter-trend trade if the market should provide to us a low-risk, tight set up for a decline. That would mean that the safest way to trade the downside is to allow the [b] wave to complete, and a 5-wave structure is seen in the opposite direction, as a [c] wave is most commonly a 5-wave structure. That initial 5-wave structure would be wave 1 of the 5-wave [c] wave. Therefore, if you want to trade counter-trend, then the safest trade is to trade after a 2nd wave pullback, and then place your stops at the bottom of wave 1. This would provide a low-risk, tight set up for a [c] wave structure.
So, if you are so inclined to trade the [c] wave down for wave 4, the safest way to take that trade is to allow an initial 5 wave decline take shape and complete wave 1 of the [c] wave, and then short the wave 2 corrective bounce thereafter, while placing your stop at the high we strike in the [b] wave, which is the starting point of the wave 1 down. This is a good example as to how to trade counter-trend, again, if you are so inclined.
Therefore, until the market actually provides us an initial signal that a [c] wave down is in progress with that initial 5-wave decline structure, it is wise to respect the bull market which has provided us with VERY strong extensions during this rally off the October 2023 low.
