One More Variation to Bookmark

This is just for the geeks who want to keep track of the different possibilities available to us.

I will briefly discuss one final variation that may also happen. In this post, I discussed the difficulty of counting this pullback we’re now in as a “4”: namely, that since “2” was “simple,” “4” should be “complex,” such as a flat. And since this decline was looking (at the time) like an impulse wave down, such a flat could not begin like that. However, since this move may now end up having been a 3-swing move, we no longer have that problem and may put a big 3 back up at the 8/16 high, instead of the “B” of a flat.

Since this move down—were it to stop here—now looks like 3-waves down, it could be the first swing of a flat (Green A). And flats can get really weird and difficult. One variation of the flat is the “expanded” flat, which is a widowmaker for everyone involved. Most folks don’t expect them and get caught somewhere. An expanded flat makes a low (maybe today), then goes on to exceed the origin of the first drop (making a new, “false,” high [Green B]), but then collapses and exceeds the original drop [Green C].

I have drawn one such structure below:

SPX

It is possible that this drop was the “A-wave” of such a flat. And if so, we may get a powerful rally that takes out the 8/16 high, breaks out of the down trend we’re in, only to then collapse in 5 waves right back under today’s low, before promptly reversing again and breaking out for real. You can see all the traps that could be involved.

At any rate, it’s possible. And if it does happen, I should be able to detect it based on the Green B. I think I know what that would look like, as a 3-swing move, and if I see that, I’ll say so loud and clear.


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