Is the Retracement Rally Already Finished?
The day’s action hasn’t closed yet, but I wanted to throw this chart out quickly and ask the question: “Is the retracement rally everyone expected already over?”
Let’s look at the DIA Daily Chart:
Not only have we already tested (and failed officially) at the 50% Fibonacci retracement from the August highs to the October lows (the 50% price is $98.61), but we have also came into confluence resistance just shy of the falling 20 period EMA.
We’ve rallied from $80.00 (Dow 8,000) to $98.80 (Dow 9,880 estimate) in three short days – is that all she wrote?
If so, that’s horrible. I’ll try to look at more charts on a closing basis this evening.
Be aware that this could be a possible technical development that has just occurred faster than perhaps anyone expected.
thx for introducing me to EW a few weeks ago. according to Bob Prechter and Joseph Russo of Elliott Wave Technology we are still in wave 3 of 5 of this bear market. and if you look at the chart it looks to me like last week was also wave 3 of 5 of this latest downturn in this bear. the rally since friday looks like wave 4 and i think we’ll retest the lows and probably go a bit lower and then wave 4 into next year and then wave 5 sometime next year
Alen,
That’s exactly the wave count we have at the firm but I’m debating whether or not to share that on the charts publicly or not. For what it’s worth, I agree strongly with that count and would also say we’re in a broader Wave C correction (5-waves down) which will take us to if not beyond the 2002 lows (provided it is an extended flat).
Prechter is great but history has shown him to be a bit more bearish than is called for. Prechter is THE resource on EWT today.
FWIW, if you take a daily chart from Sept 19th to today, you’ll see that the VWAP was sitting at/above the 50% fib retracement for most indices. Looks like people who’ve been adding the whole way down were desperate to get out at/close to break even.
Why you draw the starting line from August high? If you pick up a lower high, the Dow’s daily chart will be breaking the 50% already.
Great posts Corey. I seem to not be able to grasp EW very well. I do get Fibonacci but often don’t or forget to apply to my normal chart watching. Keep it up. Would love for you to share any EW counts or info on site. I need it.
Yang,
Traditionally, Fibonacci retracements are drawn off recent swing highs and lows and then a grid is generated showing the key retracement levels. The price swing down began (in hindsight) at the first of August peak and then was retested in early September, giving validity to this as a swing high in the market. The grid was drawn down to the October swing low to see what kind of retracement levels on the way up would appear.
Thanks, Tom!
An Elliott chart is (perhaps) coming soon for at least the NASDAQ but I have a tendency to want to keep these private (or at least a good deal of the details private). I like to stick with educational examples.