This week the market pulled back a bit more than expected, even touching 2736 ES before rebounding, but then challenging 2748 ES once again, and then at the close on Friday 2756 ES
From a daily chart, we could view that overnight drop as a C-wave of that 4th wave. L ast time I marked the previous drop to 2765 ES as “4/A” — it turns out the 4th wave was not complete yet as the next bounce was sold as as a B-wave top at 2780 ES down all the way to 2735 ES.
So one would imagine the bounce after that should start the 5th wave, but the action has been a bit sluggish. We have 3 and a half candles since that overnight drop – yet we weren’t able to close strong for the week.
In order for the 5th wave to have any credence, we would need to have some consolidation Sunday night inot Monday morning with some signs of a move up.
Last time I mentioned that the Nasdaq is at risk of a pullback more so than other indices. That seems to have been the case.
As much as I’d like to stay bullish, the charts are saying otherwise. But if the Nasdaq rolls over, it’s unlikely that the S&P will make that 5th wave higher. So kind of in limbo right now.
Meanwhile the Dow hit a historic 8 consecutive down days – longest in history since decades.
It had that 1-2 setup, but clearly was a failed wave 3. So what I can count is an a-b-1-2-3-4-5 structure down during this 8 day decline, and one would imagine there should be some kind of bounce, which we got on Friday, but it remains to be seen how strong of a bounce we can would see.
If the Nasdaq, the strongest index is positioned to fall, then how likely would it be for the Dow to stage a strong bounce? So I would like to be bullish after this historic drop, but the only way would be if there’s a rotation money out of tech stocks and into Dow/S&P stocks. I’m just not sure how likely that would be.
If we can see some strength on the Nasdaq early into Monday, that would make me more comfortable on the long side for these other indices.
Lastly, the only discernable pattern I can see is if I zoom out – then I can see a 5 wave pattern to the down side. This is the only way I can make sense of the last two failed rally attempts. With this structure, I can’t tell if the 5th wave will be truncated – and not necessarily make a lower low below 5500 — or whether it would briely go below 5000. But this is the only structure that makes sense to me.
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