Tonight I am going to go out on a limb and say that I think we will see at least the 1280’s and potentially lower by tomorrow morning. In fact, I would not be surprised to even see the 1230-1245 region by the 19th of the month.
Based upon our current chart, while it is still "possible" that we have bottomed in a green wave ii – which, if you noticed, I took off the chart this evening — I think that it is a much lower probability than as of this afternoon. Rather, if a wave 2 is going to bottom, it would be at a much lower level. Of course, if the market is over the 1321 level by tomorrow, it clearly tells us that we are heading up to 1352, but I don’t think that is the most likely scenario into tomorrow. But, this is the overnight risk I mentioned earlier, and is why I suggested to be hedged tonight if you remained short overnight.
I think the reasonable expectation is that either red wave (1) has bottomed at the close of today’s session, or we will still have a 5th wave down to complete wave (1) this evening. However, assuming wave (1) has bottomed, the wave (2) target region would be the 1312-1314.50 region, which represents the .500-.618 retracement of this decline this afternoon.
For those that remember our Fibonacci Pinball, as applied to 3rd waves, we normally target either the .382 or .618 extension first in a wave (1) – which we seemed to have completed – and, after a wave (2) bounce, we then target the 1.00 (or 1.236 in a strongly trending market) extension for wave (3) of iii. In this case, that would be the 1276 region.
But, there is a lot more to this pattern than meets the eye. As I mentioned over the weekend, everyone and their grandmother is looking for this inverse Heads & Shoulders pattern to play out. In fact, if it does, it would likely stop at the 1286 level, which is also the .618 retracement of the entire move up off the lows and the .764 extension. Therefore, what we have to be VERY mindful of a possible c-wave that develops in 5 waves down to the 1286 level, which will then cause us to exit shorts and potentially go long until 1351.
However, if the 5 wave pattern is projecting lower than that, and ideally to the 1265 or 1276 level, then we can exit shorts at one of those projected levels, and watch the bounce to make sure it remains below the .618 extension in a corrective fashion (per our Fibonacci Pinball), which would then give us another entry for a short at the 1293 level, with a target of 1259 and then 1248, the 1.382 and 1.618 extensions. Ultimately, a break below 1276 will have us targeting levels over 30 points lower, and most likely finding a bottom by our next turn date around the 19th, at which point, we may very well be going long for at least a month long trade.
Originally published on ElliottWaveTrader.net.
