I would like to revisit $JNK briefly. After producing a terrific impulse wave, it then began a pullback that was consistent with a wave “2” (here). And instead of finding any support, it fell apart—and worse—even took out its 5/18 low.
The vast majority of the time, when one sees a good impulse wave off of a low, it’s either a “1,” or an “A” wave. Meaning: even if one were bearish, one would still expect a second move in that direction, i.e., even if the rally is countertrend, and is doomed to fail, the pullback will be a “B” (instead of a “2,”) and one would expect to see a “C.” And of course if one is bullish, one would expect that anyways as well.
In other words, the vast majority of the time (as in probably almost 100% of the time), one would expect one of these:
However, by collapsing instead, there’s only one possibility that I can see. Because it was a clear impulse wave, and since it wasn’t a “1” or an “A” (because there was no “3” or “C” going up), then it must be a “C” Wave, the final leg of a 3-wave correction (which can be impulse waves). And so, using that, we can reverse engineer the entire count from the 2021 high, and it would look something like this:
Starting with that internal green “C” (our impulse wave that failed), we know then that the low it originated from (the May low) must have been a “B,” and the decline that led to that an “A,”, etc. And walking that all the way back from the inside out, we end up with one big 3-wave structure (the orange A-B-C).
The big question of course is: is the orange “C” complete? Given the bullish divergence on the daily RSI, I would say it is certainly possible. But, we of course now will have to wait for a new impulse wave off the low to confirm.
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