Exhaustion...

Sunday night I introduced the possibility of a 5 wave EWT. I thought that the Friday session represented the end of wave 3 and 4 and that wave 5 would play out today if we saw gap up in the morning. That we did. Take a look at the chart.



Despite a good read, I was unable to profit from this exhaustion phase. It was simply to tight a range to play and in retrospect, I should have sat out the action. Four of my trades were gunned out and only one (the short from 1034 to 1027) earned for me. The net was zero on the day - minus fees.

So to get any value from today, we have to do a post analysis. First, we draw a fib from the start of the rally to the top of the rally and see where the retracement levels land. The 38% retracement lines nicely with the support at 1024. Also note the bottom trend line in the rally. See how it was broke after the last intersection with this retracement level? Now we have this volatile finish, that seems to form a coil - gunning off positions with each turn!

It is important to note that each gap formed today was indeed closed. That is not a bullish sign for the rally. Further, the continuation gap - which aligns perfectly with the 50% retracement line has not been filled. The long support shelf at 1024 is the only thing holding up this retracement. It should be further noted that the gap aligns with the top of the prior 2B formation. If it is breached, the next level of support is 1015. This is indicated as the bottom white horizontal line of the graph.

At this point, I will review my setup for a retest of the gap at 1018 which I describe several posts ago.

I learned a painful lesson, which is "sometimes it is better to sit out the trade and find an entry with a greater reward profile."

Happy trading.