This trade setup was most frustrating part of trading $spy and the lesson learned is to wait for setups to develop. Here is is the evolution of the setup in the days leading starting on the 25thof July.
On the 1 hr time frame the top of yellow (iii) is reached and at that time it looked like the top of5 since I was expecting the ABC from December low to terminate at the trend line that started in March of 2019 not realizing it indeed was still part of larger degree wave 3.Since the purple 1 counted as a nice 5 wave move on a 5 min T Frame i went on putting in trades looking for a 2 wave termination in a abc fashion around 61.8% retracementand got taken for a ride with loos as that wave moved higher up setting a new high at $302.23 and now i am completly off my count and took that as the new high and that the yellow iii and iv were actually a and b and now the purple 1 is actually c and the end of the correction had come to an end.
Now on 7/29 I am thinking that we have to go down in abc to finish 2 on the downside and took short positions. To my disbelief turned out to be a abc to the upside and the trend line drawn from top of (my at the time wave 1) was bouncing off the trendline support and I professed that the 2 had come to an end and wave 3 was in the making after hours.
on 7/30 the pre-market drop in the morning set things in the right track that the actual yellow v in the larger degree is not over and it indeed looks like the termination point of this larger degree wave is at the top at around $305 where the trend line meets to make this whole wave starting in march of 2018 to end in an expanding triangle.
The actual count is a abc in yellow and c shown as C exp in blue. looks like an expanding triangle that should go past beginning of a !
We are at an interesting point in the stock market and that is always the case in any given day, although this one juncture is special. The $SPY, what was looking like a ABC correction all along turned into a 1-5 impulsive move when we breached the $282 if you are looking at the cash index or $2820 in the etf market. What was an ABC is now a 1,2,34 &5 upwards move.
The moment the turquoise line broke the previous highs the trend is broken and ABC has now turned into 1-5 impulsive wave.
$DISH weekly count says that it has finished a ABC zigzag correction has just ended and looking ahead to resume the larger trend move upwards. After the blue 1-2 move .
On the daily chart the wave count is an impulsive 1 and looking to see if the wave 2 develops!
Micron has been on a downtrend since may 2018 and I see a ABC decline of its high at $65. It looks like a 1-2 move on the large scale.
It is clear that this stock is looking to correct after a 5 wave move up!
The cycle starts from 1992 and a low of $42.81 to the current high of $293.94 is the end of wave 3 and we are in the middle of wave 4 correction more specifically what I call an equilateral triangle right now.
$SPY-Super Cycle Chart
On a traders perspective of the chart let us take a closer look at the day to day trading plan. Wave 3 ends at the 200% Fibonacci extension of the larger 1-2 waves. Since the wave 1-2 was a simple ABC pattern the wave 4 can be expected to be a complex correction that is what the theory of alternation suggests from Elliott wave. Just going by that i expect the correction to last quite a while before we break the all time high of 293.94 to break. My best guess is that we are going to be doing what I have drawn in blue to be doing before we break out of it. If you look at the weekly RSI it has room to run before hitting the ceiling at 60 RSI level suggests that this A wave as of 2/17/2019 has room to run. before dropping in a B wave. Where every other Elliott wave technician and I differ is that they say the market is going to surge after this ABC 3wave and another blue ABC 3 wave correction that we are going to complete the 5th wave . I believe this will be part of a more complex Ascending, descending, reverse symmetrical yet to be revealed.
When i think about high probability setup this is what i think. According to Elliott wave theory we are in wave5 of a 5 wave move up . Within the 5th wave there are 5 internal waves. What we just witnessed as of Friday 2.3-0 am was a running flat correction that completed or as conventional analysts call it testing the lows. Once that happens what ensues is a trend move of 5 waves to the upside.
The rip the face off move we saw overnight thursday the 24th to friday the 25th almost a $2 move was indeed a 3rd wave move. Gap up’s occur in the 3rd wave . This 3rd wave is 3(5) meaning that this leg up is the last wave in a 5 wave move up and it should terminate around the 272 area with the 200 DMA converging around the same target.
Pre market update for $SPY today the 1/28/2019 is that the (iv)3 just happened and we should see a move of sideways or get the move up to $272 today.
You can call it that the stock market has been on a tear sort of , since the new years! Christmas eve and the day after the Christmas the $spy did a sharp almost 1000 pts a day reversal since it $233 lows . Such bull runs are typical on a bear market, and what seemed a wave 3 ( still very well ) could be a wave 3 on the way down of a larger AB move. With the way the political climate is with government shutdown in the United States and he Brexit deal not seem like its going to pass. The retrace that happened on the 25th and 27th in December 2018 is a W3 reversal and that reversal should have retraced 50% to 70% as you can see the magenta lines show that the price has retrace a little over 70% of the past down move which looks like wave 3 move down. The RSI has pushed past the crucial 60% level but that can always be a fake out move and start falling anytime now.
Another interpretation :
This this is a raising wedge in traditional sense of technical pattern and this raising wedge pattern when combined with Elliott wave 3-3-5 wave sequence suggests that it has come to an end and the trend move which is down is about to happen. A lot of technical analyst are suggesting that this uptrend would end at $270 , but the Elliott wave suggests that this is the end of the road for this sequence UP and we are going down from here!
OK so the $SPY has been getting hammered lately and on the last trading day the on the 24th on Christmas eve. The 5 wave had completed on the 24th
Now on the 26th I saw the beginning of a wave 1 and 2 with a deep retrace after the initial move 237.90 and did a 70% retrace which set the stage for the all day 3 move , got some $SPY calls when the price action moved past the 1 and holding it overnight taht has topped out at 245.54 after market. Haven’t got the 4wave yet and 5 after that is still coming. The RSI is 36.38 and will hit resistance at 40 level around the 249-250 area and time to reassess !