Where are we? Here is a chart of the Cash S&P that shows two options that have been presented recently. In black labels is the triangle that I proposed in an article last week and in red labels is the 5th wave scenario that is being bantered about. I have considered the 5th wave scenario, but I have a hard time with it because of the ratio of the proposed 4th wave to the a wave. This is called a Running Flat (when the C wave of a Flat falls short of the A wave) and it is very rare. It needs to be proven, never assumed. If we bust through the low and at least tag 777, then it has merit. The triangle has problems too. Neither the futures nor the NASDAQ are presenting a similar pattern because the a-b wave made new lows in all of them.

There are a couple of bullish scenarios too. If we go down to 885 and bounce hard, then an Expanded Flat should be considered, or a zigzag. Technically, I can get 5 waves out of what is labeled A-B-C on the first 2 charts as I am showing on the chart labeled zigzag.

Expanded Flat

Zigzag

A Triangle, Running Flat, Expanded Flat, or Zigzag. These are the options for a 4th wave and all of them are still a possibility. I have also seen expanded flats where the B wave is a double zigzag, so there is yet one more option! If price doesn’t go lower or bounces hard at 885 and turns up, then the Running Flat or Zigzag are candidates for consideration. If we go near the low and turn up, the Zigzag and Expanded flat are still possible, but the Triangle increases in probability. A clean break of the low accompanied by relentless selling, and the 5th wave scenario is a strong candidate. None of these are certain yet. Although we are only considering a handful instead of unlimited possibilities, there is enough uncertainty to provide serious damage if you are on the wrong side of a trade. The best option is one wave and one ratio at a time until a clearer picture emerges. TMD/DW The market detective provides personal market opinion based on sound technical analysis and research. However, no warranty is given or implied as to its true reliability. The market detective will make errors and mistakes. The market detective is not an investment adviser and is not making recommendations to buy, sell, or place orders relating to the futures contracts, ETFs, or stocks that he writes about. The responsibility for decisions made from information contained in this service are solely that of the individual subscriber. The individual must fully research and make his/her own decisions before acting on any information provided by the market detective. The market detective assumes no responsibility for subscriber investment or trading results.