Last week’s analysis expected the Dow to move lower to a target of 12,520. Price reached down to 12,458.04 before turning back upwards. Thereafter, analysis expected a deep correction and favoured the 0.618 Fibonacci ratio of the previous impulse. Price has turned back upwards for a very deep correction exceeding the 0.618 Fibonacci ratio.
I still have two daily wave counts for the Dow. We may know early during Monday’s session which is correct.
Click on the charts below to enlarge.
Main Wave Count.
If wave (2) black is complete then upwards movement to end the trading week is another very deep second wave correction. The key question has to do with the downwards wave to start wave (3) black: is it a five or a three? Unfortunately, it is ambiguous and may be seen either way. This main wave count looks at it as a five.
When this second wave correction is complete the next wave down should be a third wave within a third wave. Downwards momentum would increase if this wave count is correct.
Cycle wave a is an expanded flat because primary wave B within it is over 105% the length of primary wave A. An expanded flat expects a C wave to move substantially beyond the end of the A wave. At 9,537 primary wave C would achieve this and would be a typical 1.618 the length of primary wave A.
If the movement from the low labeled (i) green within i pink, to the high labeled (ii) green within i pink is seen as one correction (a double zigzag) then downwards movement is in a five wave structure and upwards movement is in a three wave structure. The key to seeing which hourly wave count is correct is the wave within this movement labeled here x orange within (ii) green. On the 5 minute chart this movement has a corrective count of 11 which favours this main hourly wave count.
It is significant that (so far) upwards movement has failed to make a new high above the start of wave i pink at 12,898.94.
Wave ii pink is an expanded flat correction with no Fibonacci ratio between waves (a) and (c) green.
Within wave (c) green there are no Fibonacci ratios between waves i, iii and v orange.
At 12,167 wave iii pink would reach 1.618 the length of wave i pink.
Wave ii pink may not move beyond the start of wave i pink. This wave count is invalidated with any movement above 12,898.94.
Alternate Wave Count.
If we move the degree of labeling within wave (2) black down one degree we have an alternate wave count which sees only the first structure in a double complete. This alternate expects wave (2) black is not over and will continue further sideways and higher as a double zigzag or double combination.
Downwards movement for wave X blue would likely be over and would have to be seen as a three wave zigzag.
Wave (2) black may not move beyond the start of wave (1) black. This wave count is invalidated with movement above 13,339.66.
I think we must seriously consider this alternate because of the brevity of the intermediate degree correction of (2) black on the daily chart, which is only 11 days in duration, when compared to the impulse of wave (1) black which lasted 23 days.
If we see the movement from the low labeled a pink within X blue to the high labeled (ii) green within c pink of X blue as two corrections then downwards movement is seen as a zigzag.
The downwards wave labeled (i) green within wave c pink of X blue must be seen as an impulse and on the 5 minute chart this movement has a corrective wave count. It is possible that it is an impulse though, as it is a little ambiguous.
Wave W blue was a zigzag and wave Y blue is a flat correction. This means wave (2) black would be a double combination correction. The purpose of combinations is to move price sideways and take up time. We may expect wave Y blue to make a slight new high above the high of W blue at 12,898.94, but not to move significantly higher.
At 12,944 wave c pink would reach 2.618 the length of wave a pink.
Wave (2) black may not move beyond the start of wave (1) black. This wave count is invalidated with movement above 13,339.66.