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<<I am trying to distinguish between two possibilities for the wave structure
of the Dow advance from its April lows:
Scenario 1. The rally from mid-April to mid-June is considered an impulse
wave.....
Scenario 2. The rally from mid-April to early-August is a corrective wave
i.e. a large B wave or an X wave...........>>
It's never easy. I'll add another scenario (slightly larger), and suggest
the entire move since 9/96 is a "very large" B or X wave. Moving backward,
the action from 2/96 to 9/96 was a "very large" A wave. The action prior to
that was the "size matching" impulse wave (12/94 - 2/96). Pretty big scale,
and not very useful in the short term.
Of your two scenarios, "Scenario 1" seems the most probable to me in the
shorter term. It is my favored view at the moment, with the last half of
June being wave "a". The rise from the beginning of July to early August is
an X wave, and as of early August, we have started (and "MAY" have finished)
the final move of this running correction. This sort of move is also known as
a double three, or a double combination, depending on the make up of the
final "three".
The first "three" (6/13 - 7/1) looks like a Flat to me. The X wave from 7/1
to 8/7 looks very corrective, the price action remaining very nicely between
parallel channel lines, and having plenty of price overlap.
The big question now is if the drop from 8/7 to 8/17 is ALL of the final
required "three". It certainly looks like a "three" "zigzag", and it has
lasted an acceptable length of time to match it with the first "three" (6/13
- 7/1). If this "double combination" is all there is, we will see new highs,
and a lot more, by the start of September. Any kind of "stall", lasting more
than a week, makes me think that three wave zigzag will end up being just the
first corrective wave of either a "flat", or continue on to develop a
"triangle". The final outcome of all these slight variations is very
bullish. The X wave being so strong, implies great "big picture" strength.
This of course is if this scenario is correct, and there are always other
scenarios. A clue that things are going wrong, will be if we start sliding,
and retrace most or all of the gains since 8/17. If we dawdle around the
price range of 8/17 to today’s highs (8/21) for two weeks, I get very
nervous.
An extremely short term opinion is that the move up from 8/17 has completed a
first wave extension impulse move, and we should expect a breather as a small
wave 2 develops.
<<How does one distinguish between these 2 vastly different scenarios, at the
present time?>>
One can never eliminate valid scenarios. Try to set trendlines or
retracement levels that will void one of the outlooks. Ideally a time will
come when both scenario call for a move in the same direction. Won't solve
the question of which remains valid, but will be profitable. Remember you're
dealing with longer term scenarios that will take many months to resolve.
Attention to detail "should" give amble warning or major errors in your
analysis.
Good trading,
Peter
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