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CURRENT MARKET TREND: Up 5/27/16 @ 2090
Stop-loss 2026






Tuesday, August 27, 2013

Fourth Wave Analysis

Wave 4's retrace relationships all pertain to waves 1,2 and 3. Most of the time I will use waves 1+3, wave 3 and wave 2 for analysis of the fourth wave. People are wrong to assume that 4th waves don't typically retrace more than they should and that's why most EWT analysis is wrong. In my research I've noted that 60% of the time, the 4th wave will retrace 30-50% of the third wave, which gives me slightly better odds than a coin flip (60 v. 50). But when it holds that level I consider it within the normal tolerance of a fourth wave. Especially if you look at something like the DJIA which had a weak relative bounce to the ride in the RUT, SP-500 and Nasdaq.

In my opinion, and I'm talking my book here since I bought SPY calls today, the SP-500 completed it's 4th wave at a perfect 50% retracement of wave 3, within the 60% odds range of 30-50% retracement of 3. Therefore, on my charts, it's labeled a 4.

Analysis: 15% has a 24% - 29% Retrace of 3
               60% from 30%-50%
               15% from 51%-62%
                10% Greater than 62%

Chart:


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