Last week, we were sitting on support into the weekend.
While the market made new lows breaking the 2600 support towards 2585 ES –it couldn’t stay there as buyers completely reversed that drop by day’s end – and continued to go up Tuesday and Wednesday.
Even Thursday morning, it appeared the market would continue heading up – until the 10am to 10:30am timeframe when a quick rally to new highs was suddenly reversed.
So it appears within this wave 3 down, we had the wave 1 down –which made that low early Monday morning – but then it completely reversed in a wave 2 that barely retraced and just kept going up for 3 days until Wednesday. But the first significant sign didn’t come until Wednesday around 10am.
From there, Thursday began trickling down with multiple spikes up — each spike up would be sold down, consolidated, and then spiked up again. Each spike would last no more than 10 minutes.
This was a significant clue.
We found resistance right at 2820 ES — near the same area as the prior high. This is the 61.8% retracement of the initial leg down.
After the A-B-C wave 2 flat – we had a 1 down and 2 up — that challenged the 2675 one day on Tuesday, challenged the 2686 ES the next day Wednesday, and once again the 2675 ES level on Thursday.
2675 ES was the 21.4% retracement region (marked as the opposite of .786) –so the 23.6% might be represented by the higher 2686 ES level.
These 2 levels were tested 3 times over 3 days – Tuesday, Wednesday, and Thursday.
Overnight on Thursday, China reporting slowing growth of 5.4% industrial and retail sales — and the markets fall from 2652 ES region.
By Friday morning, 2618 ES was already tested. We bounced towards 2640 ES –failed — and then flowed down towards 2600 ES where we sit this weekend.
With us at 2600 – we are about to retest the lows from earlier in the week on Monday. I thought the wave 3 would follow through Monday, but it did not as the market may have staged a wave 2 rally up, which has since reversed on Friday.
So will the wave 3 happen this time? If it does not, we could perhaps form a smaller a-b-c- flat wave 2 with the c- wave to pop up. I believe if we stay in the 2570 to 2620 ES region into Wednesday, the Fed announcement could pop ups back to retest the 2675 ES before resuming wave 3.
Otherwise, it would be critical for wave 3 follow through to happen before the Fed announcement.
My prediction is simply based off of this diagram here.
The diagram simplifies what happens in real life. It appears the optimal place to short -is actually after the wave 3 begins–makes a new low — and that low gets bought –and we go back towards the midpoint of the A-B-C range — that may have happened this past week –as we tested that midpoint area — the fib retracement levels of 2675 ES and 2686 ES and then again 2675 ES.
It appears this midpoint of the a-b-c- range is the ideal place to short.
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