In my prior post, I summarized the biggest opening drop of a New Year in history with this chart back in January.
I also posted this Nasdaq chart expecting Nasdaq to drop below 4000.
Indeed we dropped below 4000 before turning back up.
Where do we stand now?
Well, now we have had a 270 point rally from the lows:
As you can see, the decline from 2015 into 2016 completed what could be labeled as a 5-wave pattern as shown above.
Interestingly, the rally since the 1800 lows can also be labeled in a series of subdivided 5 waves as shown above — in which wave 4 never overlaps with wave 1 territory for too long — until now.
After hitting a high on April first – we have now (finally) overlapped wave 1 territory within the last 5th wave up – indicating the bullish momentum is starting to slow down.
Starting to slow down – that does not mean coiling up for a crash. In fact, I do not believe that we will be revisiting the 1800 lows anytime soon due to this monstrous non-stop rally.
Rather, we will be consolidating with in this 2000-2060 region and potentially aiming for new highs later in the summer.
In terms of structure formation, I am seeing this as a rally with multiple extensions and we are now in a 4th wave consolidation pattern.
Where To From Here?
I’m leaning towards a Complex Double Zig Zag Formation:
What this means is that we have already completed the first yellow “c/A” wave from the prior highs on April 1. We may be reaching up a little bit more to form the B wave high. If we struggle in that upper region to make new highs, we will likely turn down towards 4th wave support in a C-wave formation.
But make mistake – while it may feel like a crash is forming – it will reverse quickly back to the upside.
In terms of strategies – there may be a bit of volatile range-bound movement – so a wide Iron Condor could work in addition to nimble trading.
There will likely be some fakeouts in the coming weeks, so watch out!
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