DJIA Futures: Five Waves Of Decline Suggests That Temporary Top Is In Place
US stocks futures extended weakness in the last few hours and now we have five waves down on DJIA futures from the top which means that temporary high is in place. Therefore, market will make minimum three wave retracement to the downside because that's the minimum structure of a contra-trend price action. With that in mind, be aware of more weakness in days ahead, but after a bounce in wave (b). This wave (b) could occur soon if we consider that price is already in fifth wave now of wave (a) down.
This type of a price action, like now on DJIA futures, is also interesting from a trading perspective, because we know that trading opportunities lie in wave (c) position. On the basic chart below of a zigzag you can see A-B-C move where wave C unfolds in five waves. Five waves are strong patterns, and that's where money could be made because of strong move in short-period of time. However, before traders may look for entries to catch wave C down is recommended to wait on wave B retracement for better risk/reward set-up which usually travels back to one of previous consolidations, wave four in A, or up to wave two in A.
The next important thing when trading C-waves is to know where the invalidation levels are, or where trader should cut the position if market goes against the trade. Based on the basic chart above, the invalidation level is at the start point of wave A, which in our case is 15657 on DJIA chart above.
For now wave B is still not shown on the DJIA chart so traders should wait on more price data and be patient. We will see how market will unfold, but its worth to keep an eye on it.