DJIA Futures: Five Waves Of Decline Suggests That Temporary Top Is In Place

By: Gregor Horvat | Mon, Sep 23, 2013
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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.

Five Wave Decline Puts High In Place!

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.

Wave B Pull-back is opportunity for shorts

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.

 


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Gregor Horvat

Author: Gregor Horvat

Gregor Horvat
www.ew-forecast.com

Gregor Horvat

Grega is based in Slovenia and has been involved in markets since 2003. He is the owner of www.ew-forecast.com, but before that he was working for Capital Forex Group and TheLFB.com. His feature articles have been published on: SafeHaven.com, FXstreet.com, Thestreet.com, Action forex, Forex TV, Istockanalyst, ForexFactory, Fxtraders.eu, Insidefutures.com, etc. He recently won the award on FXStreet.com for Best Forex Analysis in 2016. At www.ew-forecast.com he helps clients and educate them about the Elliott wave prinicple and how to label and track unfolding patterns in real time.  His approach to the markets is mainly technical. He uses a lot of different methods when analyzing the markets such as candlestick patterns, MA, technical indicators etc. His specialty however is Elliott Wave Theory which could be very helpful especially if you know how to use it in combination with other tools/indicators.

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