Missed the Wave - Are we Topping?

Yesterday, I posted "The Last Hurrah" - suggesting that perhaps we are in the final rally leg before a correction at 1061. I based my theory on macro retracement and a suspected 5 wave EWT that I thought was in the middle of wave 3 at the close. I also postulated that a gap up in the morning would further support the case (because the gap could be considered a continuation at the center of wave 3). So, we did gap up and quickly EXHAUSTED at around 1040. What gives! Open the chart in a new window.




Well, it turns out that we were not in the middle of wave three at the close, rather we were at the end of wave 4 - the counter trend wave before wave 5 to exhaust the rally leg. The opening gap was an exhaustion gap (though I immediately assumed continuation gap as my theory called for one). Notice how quickly the market ran out of steam and reversed course in a hurry? Before the end of the first bar we were reversing. By the third bar we were threatening what I thought was the high in wave three during the prior session. At that point I realized that we were actually on the downside of wave 5 - almost exhausted - and my my profits from the long entry eroding each moment that passed. Hoping for the price action to pop after hitting the gap, I held. Unfortunately, after a very brief moment of support, we quickly went down and I exited the long position - minus the fees.

Take a look at the actual EWT. I labeled the bottom of Wave 1, the top of Wave 2, bottom of the real Wave 3, top of Wave 4 and the POINT OF EXHAUSTION for Wave 5. If I were just a little smarter - I could have profited at the top of this wave.

Anyway, I did immediately drag a fib from the base of the rally leg to the top to see how we aligned. I also ran a horizontal trend line through the first line of price support - which went on to become the bisection of a symmetrical triangle which formed in the afternoon. The white line can be found in between the 38% and 50% retracement levels. I consider this location to be weak and decided that I would short if price action crossed below it - which it did on the second attack.

I found the price action to be very much in the hands of the sellers today. Look how after breaking support the price dived, first breaking the 50% and then the 62% levels with relative ease. I took this as a very bearish signal - but held off on adding to my short position. (I prefer to see a break at 1018 to step up my short line).

Oddly enough, after passing through the 62% level, we did not see a full retracement. Either I have my levels wrong, or who knows what...

I think the action was brutal from here on out. Lots of movement bucking off longs and shorts alike - culminating in a nasty coil again. The proximity of the coil to the 38% and 62% was really quite favorable. These serve as very good locations to consider exiting a short or exiting a long after a breakout. In fact, if you used the top and bottom trend lines of the triangle only - you would have been brutalized by the "end-around" that took place towards the apex. I labeled it for your enjoyment. The end around basically fakes an upward move towards the end of the coil, only to reverse and come around the nose. (I know it is not perfect on this chart as it doesn't quite get ahead of the nose - but you get the picture).

price action continued to process downward towards the end of the day until the magic moments at the end when all things get better and we manage to squeak out a positive week.

Anyway. The net of it all is that I am sitting with a very light short position - waiting to see what next week (and September) has in store for us. Keep in mind that though we reversed rapidly from the high today - it was in fact a new high... Do we have a double top? Time will tell.

I am watching for a break above 1040 or a break below 1018. All other levels and analysis still apply.

All the best - I'm done for the weekend!