Welcome, Readers,
I know that I have been a bit quiet of late. I’m still here
but have not been trading much this week as I no longer see immediate potential
to the upside or downside. I still maintain my swing short positions in the IWM
but fully expect my aggressive May short expiration positions to expire
worthless and that’s ok. I’ve made a few scalping day trades here and there but
nothing that was interesting enough to deserve a full write-up for educational
purposes. In truth, I probably shouldn’t have taken any of those scalp trades
as they were low probability setups. It is something I must work on going
forward, to only take the best-looking setups. With things picking up at my day
job, I will likely only be trading on higher timeframes for swing option trades
over the next few months (2-hour to daily chart levels) unless we see a
significant break of support as I will outline below.
This week, prices in the IWM and RTY continued to grind higher. To be honest, it has exceeded my expectations and have forced me somewhat into a “no man’s land”. The overall big picture through 2024 and beyond remains very bearish to my eyes, but I am not a perma-bear, just someone who wants to stay on the right side of the market and if they cannot stay on the right side of the market, to simply stay out of the market.
Yesterday, the RTY and IWM both ended just shy of their
April 1st highs. In accordance with the Elliott Wave principle, the
only rule for a wave (ii) retrace is that it cannot move higher in price than
the beginning of wave (i). It is also not unusual see a deep wave (ii) retrace at
trend changes, especially if the previous trend had significant momentum behind
it. So far, the wave (ii) count with downside potential remains in place on
this technical rule. However, the is an exceedingly deep retracement and it has
forced me to look for alternatives that show some potential near-term strength.
Attached is a four-hour charts for the IWM below.
In white, we have the count that I’ve been following the last couple of weeks. It shows the IWM having topped in the b-wave of this larger corrective structure at the end of March and a decline for what I have counted as wave (i) of (v) of the ensuing c-wave. Since then, price has retraced almost 100% of this wave (i) decline. Therefore, the purple count shows a potential alternative. It is possible that the decline at the beginning of 2024, then the run up mid-January to March and the ensuing correction were simply the a-b-c waves of a large and drawn out wave (iv) correction in a pattern called an “expanded flat”. Why would I entertain this as an idea? Well, the wave (ii) correction of the move off the low struck in October was almost non-existent, just a “blip” in the lager degree structure. If one correction in a five wave structure is simple and quick you can expect the other correction to be long and complex. This is Elliott’s guideline of alternation, and it is potentially in action as we speak.
So what would this new alternative allow and how will it change the larger degree picture? My answer is, not much… In short, the purple count would open the door to price striking a higher high in the 213-218 range in the IWM over the coming weeks before starting what I believe could be a large correction to the downside. However, we would need to see the IWM move above the high struck in 2021 (~245) for this larger degree bearish outlook to change, and I just cannot see that happening with the current price structure. So where does that leave us for next week? I'm looking down for a couple of days. Below is a chart of IWM price with both the 14-period RSI and composite index on a 4-hour timescale.
There are notable divergences with price and the RSI in the
composite index. This leaves the possibility for two routes. Either we start to
see support break indicating that we’ve topped in the entirety of this wave
(ii) correction, and we see accelerated downside movement as we enter wave
(iii) in the coming weeks/months, or we fill out the purple alternate wave 4
shown in the first chart. If we do see price come down and fill out the purple
4, I may look to take short-dated swing option positions and will post those
setups as I see them. Where could this wave 4 terminate? The RTY chart below
shows the current support levels as I have them drawn from Fibonacci confluence
zones. I like using RTY for support and resistance calculations as it has more data available for plotting Fibonacci confluence zones.
I will be watching price early next week to come into one of
these support zones on the RTY contracts and watch for the oscillators to begin
turning back up. I will note that we are currently at one of these levels now
and it is possible that the wave (iv) correction is over. It is also possible
that this could just be the first (a) wave in larger (a)-(b)-(c) for wave (iv).
Personally, after the run up the last two weeks, I’d like to see price chop and
consolidate at a lower lower level before calling it complete, but the market
will do what the market wants to do.
To see more immediate downside potential, I will need to see
price decline through the lowest zone in a move that can clearly be sub-divided
into 5 waves. Then, the ensuing move back higher needs to be corrective before
turning down and taking out the initial low. Only then will I begin to assume
we have completed the wave (ii) retrace shown in blue and that the larger
decline in price is now underway. Until that occurs, I am no longer looking to
get aggressively short in the immediate future without a proper break in the
support structure. Until next time, take care of yourself, manage your risk,
and always keep learning.
Best,
DW
No comments:
Post a Comment