5 waves down never come alone
The last drop following the SEC announcement to delay a decision about the CBOE ETF to late September disturbed the elliot wave count of the current correction. While it was already unrealistic to count 3 waves (ABC correction) in the last leg down, now it became unfeasible. This makes it more likely that we just finished wave A of a ABC correction.
The plan therefore changed to a slight recovery (wave B) followed by a even more violent move down (wave C). Using Fibonacci ratios I drew target areas for the end of wave B and potential targets of wave C. its never accurate so just look back and find support in the past. in a away it would be good to not take the last low out in the 5700 area. In general wave B should be at least a 50% retracement of wave A, but in practice it can retrace the wave A to 99.9% - I assume 50% to find the start for wave C. this gives me two areas of overlapping Fibonacci targets, resulting from the overlay of the retracement of wave I (5700-8400) and projections from the expected top of wave B down. The rule is that the length of wave C is related to wave A in a Fibonacci ratio - most likely its about the same length, sometimes its 0.61 or 1.61 times wave A.
That last sentence of me made me think about that 1.61 target. thats the rule but I forgot about it. So I went back to the chart and added that target as well. It would make sense to take a drop to the 4000-4300 area into account. This would give us the long awaited V-shape drop with a following recovery. If you go back to the last bottoms it always boiled down to a V-shape low with a sudden spike in volume. We have not seen real volume coming into the market and this seems to stop us on every move higher as the bulls power always dries out quickly. What a relief would a drop to 4000 be!
This theory should find some support from Fibonacci levels. So if the anticipated low around 4000 can finish the correction of the move from 100 to 20000 from 2015 to 2018, then we should hit some Fibonacci level. I drew the extension from wave (A) to the top of wave (B) from the larger correction move and end up having a 38% level around that same area. That would mean wave (A) from 20000 to 6000, wave (B) recovery to 10000, wave (C) drop to 4000.
Not the most typical ratios but I bet there is some literature out there that gives you a probability of this move of > 1. The next lower Fibonacci support would be around 2200-2800. I don't dare to think about that one, but keep it in mind if you are leveraging so that a spike there would not kick you out. In practice this forbids any leverage higher than 2x to catch the low, since our original target is double that. What a pitty! Another thing to note is that the low mostly came in mid of September, which we are approaching rapidly. Get your cash ready guys. If this think bottoms out you want to have as much fiat on the exchanges as possible to catch the knife!
To sum up:
Another side note to myself would be that while Fibonacci levels are a very vague indicator as they leave a lot of room for alternation and you more often miss that exact level than you hit the targets, I recall that in the past the targets to the upside where mostly missed. That made a lot of people who are trading these probably very disappointed. This favors a still bearish sentiment and indicates a slightly higher probability for extended targets to the downside.
The plan therefore changed to a slight recovery (wave B) followed by a even more violent move down (wave C). Using Fibonacci ratios I drew target areas for the end of wave B and potential targets of wave C. its never accurate so just look back and find support in the past. in a away it would be good to not take the last low out in the 5700 area. In general wave B should be at least a 50% retracement of wave A, but in practice it can retrace the wave A to 99.9% - I assume 50% to find the start for wave C. this gives me two areas of overlapping Fibonacci targets, resulting from the overlay of the retracement of wave I (5700-8400) and projections from the expected top of wave B down. The rule is that the length of wave C is related to wave A in a Fibonacci ratio - most likely its about the same length, sometimes its 0.61 or 1.61 times wave A.
That last sentence of me made me think about that 1.61 target. thats the rule but I forgot about it. So I went back to the chart and added that target as well. It would make sense to take a drop to the 4000-4300 area into account. This would give us the long awaited V-shape drop with a following recovery. If you go back to the last bottoms it always boiled down to a V-shape low with a sudden spike in volume. We have not seen real volume coming into the market and this seems to stop us on every move higher as the bulls power always dries out quickly. What a relief would a drop to 4000 be!
This theory should find some support from Fibonacci levels. So if the anticipated low around 4000 can finish the correction of the move from 100 to 20000 from 2015 to 2018, then we should hit some Fibonacci level. I drew the extension from wave (A) to the top of wave (B) from the larger correction move and end up having a 38% level around that same area. That would mean wave (A) from 20000 to 6000, wave (B) recovery to 10000, wave (C) drop to 4000.
- Wave A = 10000 USD
- Wave B = 4000 USD (around 38% wave A)
- Wave C = 6000 USD (around 61% wave A)
Not the most typical ratios but I bet there is some literature out there that gives you a probability of this move of > 1. The next lower Fibonacci support would be around 2200-2800. I don't dare to think about that one, but keep it in mind if you are leveraging so that a spike there would not kick you out. In practice this forbids any leverage higher than 2x to catch the low, since our original target is double that. What a pitty! Another thing to note is that the low mostly came in mid of September, which we are approaching rapidly. Get your cash ready guys. If this think bottoms out you want to have as much fiat on the exchanges as possible to catch the knife!
To sum up:
- We have a chance to complete a beautiful ABC correction pattern that stops higher than 5700 and is a good chance to start a new rally
- The event that everyone (and his grandmother) seems to be waiting for is that famous V shape recovery which would find support in Fibonacci ratios currently.
- The best bet I can imagine is to short the 50% retracement of the current downswing indicated by that orange box and see which one of the
Another side note to myself would be that while Fibonacci levels are a very vague indicator as they leave a lot of room for alternation and you more often miss that exact level than you hit the targets, I recall that in the past the targets to the upside where mostly missed. That made a lot of people who are trading these probably very disappointed. This favors a still bearish sentiment and indicates a slightly higher probability for extended targets to the downside.
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