Study of Waves (Educational)
Today is December 9 and I believe that today the SmallCap stock hit a very major Fibonacci level 3.0 if measured off the low in 2002. To be precise, the 3.0 level is 1936.39 (the green fibs on the Primary chart) and the stock hit 1936.80 and reversed. At the same time, the stock bounced off the upper boundary of an 18-year long channel. I view that these two events would define the stock’s path for the next several months and possibly years.
Certain observations hinted me to re-examine the waves that index made in the last two years. I am almost certain that the wave that supposedly completed today has been a corrective wave (marked B on the primary count). The main reasons are the counts, the fibs, and the character and the look, supported by some TA and candles.
After looking into the wave that ended on February 2020 (marked A on primary), I was not that certain. It has qualities of both motive and corrective waves and I outlined the primary and alternative counts based on two possible assumptions for this wave.
1. Main hypotheses:
– wave (c) of A – motive;
– wave B – corrective;
– wave C is about to start or has started already.
2. The targets for wave C of 4 can be projected based on the length of wave A, marked by the red fibs/rectangle on the Primary chart.
– minimal 1457, which is 0.618 of A (running flat);
– normal 1326-1160, 0.786-1.0 of A (regular flat);
– stretch 948, 1.272 of A (expanded flat).
3. Another way to project the targets for wave 4 – retrace 0.236-0.382 of wave 3. In this case wave 4 could end at 1411-1207, as marked by the purple fibs/rectangle on the chart.
4. One more projection can be done by the support at wave (iv) of a lesser degree – 1296-943, as marked by the green fibs/rectangle.
5. The end of wave C can also be projected by Golden Section – either 1320 or 940, the yellow fibs.
6. The long-term counts would be invalid if the wave falls below 856.48, but I think this is very extreme and would not happen.
7. Note: in this count wave B would be less complex than wave A. This type of alternation in the corrective waves is rarer than the other way around.
I think that the most probable level for this count would be a retrace in a motive fashion to 1320-1330. If the retrace is not motive, this would hint that either an alternative count is taking place or wave B will be expanding further.
– wave marked B-C (red) is corrective, making it 4 consecutive major waves corrective
– the whole correction is a triangle.
Alternative 1 – expanding triangle, marked by red lines/counts.
Target for wave E – 940, support at the bottom of wave (iv) of lesser degree and by Golden Section.
Alternative 2 – contracting triangle, marked by blue lines/counts.
Target for wave C – 1321, support at the top of wave (iv) of lesser degree, and by the channel line and/or Golden Section.
If the current retrace evolves in a corrective fashion, I would be viewing the expanding triangle as more probable at this point. This expectation could change once the lengths of first completed waves are known.
The Last 2 Years chart provides a very detailed view on the waves that the index made since the beginning of the correction. The counts are greatly supported by the fibs and ratios between the waves. The wave off the March 2020 low breaks nicely into a zigzag, followed by a flat, followed by a motive wave that is possibly a diagonal as the width of the channel narrows. This is a text book example that is well supported by multiple fibs and ratios.
In summary, in the next several months (possibly weeks) I am expecting a sizeable decline with a minimum target in the area of 1450-1420.