Trading What I See

For the last week I’ve been pointing out how important the Fibonacci A-B-C pattern is for finding turning points in the market. It almost looks as though the Russell 2000 wanted to emphasize the issue with today’s trading.

Yesterday I showed how the larger A-B-C pattern had just reached the 100% measurement (with a reminder that it “does NOT necessarily mean we will bounce on tomorrow’s open.“) But that was a logical level to be watching for a bounce.

We opened with a small pop to the upside and reversed to break yesterday’s low. Are we going lower? We’re still at the large 100% A-B-C shown yesterday, and if you check the measurements using the drop to the close as a smaller A-B-C, the market reversed at 162%. That low was also a 127% external retracement of the “A” to “B” move while setting up a nice divergence with the Stochastic.

That would be enough to take a long position at today’s bottom, but to give some added assurance, the entire formation set up a Wyckoff Spring reversal that I mention from time to time. That always translates into a close initial stop.

Measure another A-B-C move to today’s top, and we turn down at 162%. Add some more A-B-C patterns and the market has created a nice rectangle that contained prices for the rest of the day.

Many of you are probably wondering whether the A-B-C pattern is just an Elliott Wave correction. There is actually a theory that Elliott had it wrong, and that most market movement (even Elliott’s five waves) can really be explained by a better understanding of the Up-Down-Up pattern that I call an A-B-C.

I won’t take sides in that argument, but I often get Elliott counts wrong while A-B-Cs never change their structure. I developed much of this method from Tony Plummer’s book Forecasting Financial Markets. He recently came out with a new edition. Check out the link shown below.

Tony Plummer’s Forecasting Financial Markets