Time to Consider the Options

While we seem to have begun that rally I noted I wanted to see last night, the market has still not made things exceptionally clear.  You see, I have 3 potentials I am tracking, with the larger green b-wave still being my primary count.  But, the question is how does that b-wave complete.

As I noted yesterday, should the market make a lower low, I will have to move my labeling to the right.  Since we saw a lower low overnight, and a double bottom today, I have to assume that this was the completion of the larger degree a-wave.  Based upon this structure, we are only now beginning the rally for the (a) wave of the b-wave – with today’s 5 wave structure off the lows being the a-wave of the (a) wave.

But, since it is not common for a-waves to be a 5 wave structure, it makes us consider a second possibility as to how this larger degree b-wave takes shape.  That is the yellow count.  While seeing such an expanded flat, as represented by the yellow count, is not terribly common either, I cannot say that I have a high level of confidence in it, nor would I place a high probability upon it.  But, it would explain why this rally was 5 waves, as it would be interpreted as a c-wave rather than an a-wave under the yellow count.  And, the only way I can adopt this count would be by a break below today’s low.

This brings me to the final alternative, which also is not a high probability at this point in time.  This is the blue count, which suggests that wave ii has completed.  The fact that we have 5 waves off the recent lows does put some color into this count, and does give it a little more probability, but I would not view it as high at this point in time.  But, nonetheless, I have personally stuck to my own plan and have bought certain stocks which seem to have been bottoming of late.

In conclusion, the picture leaves me still expecting lower lows, but still unsure exactly how we get there.  And, since we did have a 5 wave structure off the lows, I have to keep a sharp eye on the impulsive pattern, should it develop into a much larger 5 wave structure up towards the alt 1 count in blue, signaling that wave iii of (3) has likely begun.  But, we are a long way from that right now.

Avi Gilburt is founder of ElliottWaveTrader.net.