Professor’s Comments October 31, 2014 Update
Posted by OMS at October 31st, 2014
I received and email from a student saying that he was becoming discouraged about the wave 2 scenario, and wondered at what point should he throw in the towel? Here’s what I told him:
“As I mentioned in my previous comments, it is allowable for a wave 2 to retrace all of wave 1. Most of the time, wave 2 retracements stop at 62 to 75 percent of wave 1. But under unusual circumstances, a full 100 percent retracement is possible. Given that a major election is scheduled for next Tuesday, it certainly could be considered an unusual circumstance.”
However after looking at yesterday’s trading action, it is possible that something else besides a wave 2 retracement is occurring. If yesterday’s rally was NOT part of a wave 2, then it is likely that the Ending Diagonal has NOT finished. It is possible that what appeared to be wave 1 down was actually wave ‘d’ down within the Ending Diagonal Pattern. In this scenario, the current rally wave would be considered wave ‘e’ up. This wave could take the Dow several hundred points higher, possibly to the 17,500 level, before completing.
With a positive Dean’s List, positive PT indicators, and an incoming Tide, the wave ‘e’ scenario currently has about the same odds as the wave 2 scenario. Another big rally day would tilt the odds in its favor.
The thing to keep in mind is that even if the Dow does rally to 17,500, the likely resolution of the larger Ending Diagonal Pattern has not changed. Skyrocket rallies NEVER end well. Once wave ‘e’ completes, the next sequence of down waves should be substantial. Remember too that ‘e’ waves in an Ending Diagonal Pattern can and do truncate, so there is NO guarantee that 17,500 will be reached. At this point, the only thing we know for sure is that the market is undergoing some very unusual trading.
Watching.
That’s what I’m doing,
h
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
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Category: Professor's Comments