Friday, June 11, 2010

Anatomy of a Five Wave Structure.

The structure of the advance or decline is an important tool to use in attempting to anticipate what path a market will follow.In addition to looking for harmonic time-price relationships in the waves, indicators such as the VIX and the CBOE Equity P/C ratios can be helpful in dissecting the structure.

In the chart below the pattern of the VIX indicates that fear reaches its apex during the third and usually the most violent of the primary waves. The option ratios, which reflects market consensus, often imitates the pattern of the VIX--both coinciding with the wave count.

This analysis suggests that the market has just completed a five wave structure which because it was a decline suggests strongly that another 5 wave decline will follow after a a-b-c pattern corrective rally. There are two harmonic points in the remainder of June that may coincide with the completion of a corrective rally: June 14th and June 25-28th (wknd).

No comments: