Wow - what another surprise today’s final hour of trading brought us.  I’m sensing a pattern developing here.  Let’s see the 15-minute chart structure and observe the divergence that preceded the action, and then see if we can count a completed 5 wave impulse - complete with mini-fractal waves - of the final potential wave of the devastating Wave 3 down we just experienced.

DIA 15-min (divergence):

I didn’t want to spend too much time on this chart, other than to point out the major short-sell signal (two bearish dojis at key EMA resistance) mid-day Thursday which preceded a stunning collapse in the market that pushed us to new lows on a double-swing momentum divergence that preceded today’s end of day rally.  Remember the goal here is to build your pattern recognition skills so that you can perceive and act on developing price structures in real-time.

The new lows set this morning occurred on a positive momentum divergence - it was a “flat-line” divergence which carries less ‘weight’ than a strict positive divergence, but it was a clue nonetheless.

The more powerful signal came as price came into new lows about the 2:00pm hour which clearly (and unmistakably) formed a positive swing divergence just prior to price skyrocketing into new highs on the day thanks to some end-of-day good news and oversold technical conditions.

I actually wanted to draw your attention mainly to the potential that the final fractal wave of the current large-scale Wave 3 (which has devastated investors endlessly) might be ending, meaning we could (I underscore *could*) be ready to begin a corrective Wave 4 back to the upside which would certainly be welcome news to battered investors.

DIA 60-min (focus on Elliott Wave 5):

Check out my earlier posts “Elliott on the Dow” and “Elliott on the S&P 500” for the larger, weekly (and even monthly) structures.

That being said, let’s focus on the current fractal wave 5 down.  It appears now (at the close) to have completed a full, five-impulse Elliott pattern, which - if official - would finally put an end to the selling short-term and end this most vicious large-scale Wave 3 (perhaps of a large-scale corrective ABC pattern) for the time being.

Wave 1 took us from $96.00 to just above $86.00 which was painful.

Wave 2 formed a typical and straightforward “ABC” Corrective pattern that retraced just over the 38.2% Fibonacci retracement of Wave 1.

Wave 3 was brutal, as most third waves are.  Price formed a complete fractal 5-wave impulse, though a questionable one - from $91.00 to $80.00 which was a near “measured move” or 100% projection of the prior Wave 1.

Wave 4 was quite violent and puzzling, but that fits in with Elliott principles because Wave 2 was calmer and less ’severe.’  Applying the guideline of alternation (if Wave 2 is flat/calm, then Wave 4 will be sharp/violent), we could argue that Elliott’s principles played out in real time yet again for us, with the only questionable action being that Wave 4 slightly nipped into the price territory of Wave 1… but also keep in mind this whole structure is a fractal wave.  Wave A was steep and stunning; B retraced a near exact 38.2% retracement of Wave A; Wave C stopped as wave A did at the falling 200 period SMA.

Wave 5 most likely has just terminated into new price lows (and on a divergence as well), having formed its own 5-wave Elliott impulse as you see above.

Consult your own analysis before making trading decisions, but it *could* be a low-risk trade idea to buy in for a potential large scale swing trade while placing a stop beneath the $75.00 level.  The ultimate Wave 4 price target *could* take us all the way to $100.00 on the DIA or beyond (10,000 Dow). That’s about a $20.00 target with a $5.00 stop or 4 to 1 reward to risk.

Take it day-by-day, but realize that sometimes price structures offers irresistible risk/reward conditions, knowing that the ‘edge’ will bear out long-term if you properly manage your trades in terms of price structure and risk-reward.