- Daily update follows the explanations.
WAVE COUNTS SIMPLIFIED
- There are 3 peaks to a completed wave count. A reversal of trend takes place after a completed wave count of 3 peaks. Often times it’s as simple as counting 3 bumps on a chart . . . Other times, not so easy.
- In a downtrend the same rules apply except you are counting 3 valleys instead of 3 peaks.
- Each step must stay confined to a channel. Laying a pen or pencil on the chart will help you visualize the channel.
- As the trend progresses, all of the steps that make up the overall current trend will also be confined to a relatively larger channel.
- When the market breaks a channel (regardless of the perceived wave count), that step has been (1) terminated and the market has begun a counter-trend move, or (2) the step has sub-divided.
- A sub-divided wave means the trend is still intact but the channel has widened and instead of 3 steps, you will have 5 steps. (The charts will help you understand this concept.)
- Sometimes I will use the terms step and wave interchangeably, but usually a wave is considered to be larger than a step.
- Charts (wave counts) – Numbers of the same color represent the same wave. For instance, red 1, 2 and 3 are steps in the same wave. Different colored numbers represent totally separate waves. For instance, a red 1 occurs in one wave while a blue 1 occurs in totally separate wave (refer to charts for examples).
- If you believe that wave counting is voodoo, please read along for awhile and reserve judgment until later. Decades ago I had thought wave counting was too complex and had too many exceptions to be useful. But through the years I originated my own easy version of the wave count.
- Reading the glossary helps a great deal in the understanding of this blog.
- Glossary Link
- If the charts (or links) don’t work, please copy & paste the following address into your browser.
- https://stockmarketobservations.wordpress.com/
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- Short Term
- Uptrend
- August 9, 2011 To Present
- Step 2 . . . of Step 2 Is Underway (see chart)
- Action Status – Buy Signal On 8/29/11
The first chart shows my best estimate for the present wave count. If this count is correct, I would expect the correction that began today to run a bit longer and then rally into the 3rd step up. A larger correction would then follow similar to that following the peak on August 24th.
The lower line of the channel has an assumed placement. Lowest positioning of this line could emanate from the low on August 26th.
08-31-11 DJ INDUSTRIALS 5 MINUTE BARS
Referring to the second chart. If we make a significant break about the July peak, that would signify a move away from the bottoming area. The July peak is still much higher and the market remains skittish. But if all is well I would expect the market to break away from the bottom area before the termination of the third step up.
Not wanting to worry anybody, but things like the next paragraph always bother me. This “possibility” of unfinished business makes me edgy around market bottoms. If the possibility is true, I should be able to sniff out the situation before things turn radical. And if unfinished business does take place, there can be the satisfaction that the horror show is really over.
The labeling of the wave count in the following chart appears simple. The only mistake possible would be; Did the top occur in early March or early April? If the peak occurred in early April, we would have completed two steps down. The remaining step, step three would be the termination of the 2011 min-bear. If this is true we could be setting up a late September or the classic October conclusion.
More bear markets have ended in October than any other month.
08-31-11 TSX 60 MINUTE BARS
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