Another strong move up on Friday that surprised most I'm sure. For today I'd expect a continuation of that move up into the 2681-2700 area, which could be a wave 5 up if you count the small pullback into the close Friday as a wave 4 down? If this is a 5 wave pattern it might be suggesting that we are close to a breakout point to the upside and the current low is in for awhile. And if the 5 wave pattern is just some larger wave 1 up for example then an ABC pattern wave 2 down is likely to start as early as Tuesday.
How low could it go? Great question. I'd say that it could go all the way down to just a few points above the start of the move up, which is about 2591 or so. A likely target (should it really drop that hard?) would be the falling aqua blue trendline pointing to around 2600, which is also an even number target. It would then make a nice "inverted head and shoulders" pattern with that low being the right shoulder and the 2591 level being the head. The left shoulder would be the 4/5 low of 2611. That would be a nice move down to follow a nice move up last week. We also have that 5/1 low of 2623 as a possible left shoulder to?
Either way it suggests an IH&S pattern is coming with another drop in the market midweek. After that... who knows? The pattern would suggests a breakout to the upside with a target of at least that gap fill area in the 2750-2755 zone. And that move up would be a wave 3 of some degree, which should also breakdown into 5 smaller waves like the recent move up from the 2591 low has done. All in all we should have another exciting 5 days of trading this week. We just need a small wave 4 down today and then a rip higher into the close to end the 5 waves up.
If we don't get that move down and up then that would suggest we aren't ready to breakout to the upside just yet as the move up from the 2591 low would then just be a 3 wave pattern (ABC) and that's usually just a corrective bounce pattern, not the start of a new up trend. There's no way to know until after the pattern ends. It is May after-all and the market might just not be ready yet for that super strong rally? Maybe we stay range-bound for another month and breakout (or breakdown?) in June. I don't know but that's too far out to predict. For now I'll just be looking for that high target area today or tomorrow for a short.
