Shredder ?

The Eight-Fold-Path-Method, the featured post on this blog (in the upper right-hand corner of the page under Purpose and Ground Rules) has 133 candles on the two-weekly chart of the S&P500.

At the moment, it is awfully close to that fourth wave signature of +10% of the third wave peak on the EWO. The actual value is +78.8, compared to a peak reading of 748.8; awfully close - maybe "good enough for government work" as the saying goes. Maybe not.

What it tells us is we may have entered the fourth wave, and it may not be completed. Note that wave Intermediate (2) is a sharp wave, as A,B,C, down. And non-overlapping wave Intermediate (4) down is an even faster wave down. 

As with all fourth waves, because of The Fourth Wave Conundrum, we can not promise that this fourth wave will hold up. We can only say it has some good probability of doing so. There are two ways that could happen given the shape of the second wave. It could be that a triangle is forming. We have covered this case before. It would be a real shredder on accounts as triangles are very whippy and difficult to trade. But if we only made three-waves down from the wave (3) high, then this is a violent wave which fits the characteristics of the Minor A wave down of a triangle, as in contracting triangles, the A wave is usually the longest in price and most violent or shortest in time.

But we could, with lower probability I think, hobble up over the top in short order and make a flat wave. The problem with that scenario - even though it provides alternation - is that if there is a lower low as the eventual result of a flat or an expanded flat wave, then it would very likely overlap on wave (1).

But, if overlap were to happen, the alternate wave red (4) would have to be considered for the expanding diagonal.

Another advantage of the triangle is that, in the Dow, which has a shorter wave up to Intermediate (3), it has already overlapped downward in a longer wave. That scenario does not meet the rules for any diagonal scenario, contracting or expanding. However, triangles are measured to their wave E's, and this could both eliminate the overlap in the Dow, and the too long measurement of the down wave.

So, we'll take it a step at a time, but the bottoming tails and the ferocious daily gaps are suggestive that we perhaps are in a triangle, and we need to act appropriately. A last advantage of a triangle is that they often give that pesky Elliott Wave Oscillator (EWO or AO) time to come back to the zero line.

Have an excellent start to the evening and the weekend.

TraderJoe