Wave II Correction: Don't fall in love with the downside!
Updated
As outlined in my previous post starting April 27 https://www.tradingview.com/chart/XRPUSD/wqwCDLwK-Correction-continues-as-predicted-Heading-to-support/, I have been anticipating a correction from near .965 that counts best as a wave II correction after a five wave impulsive wave up from a low in April near .45. In short, the evidence is growing that the strong bear trend that began in late 2017/early 2018 in crypto is over, and that a new intermediate bull trend is starting.
The next evidence needed to improve the strength of that case is a correction of the rally from early April that ENDS BEFORE PRINTING NEW LOWS. In other words, we need a correction ending at a higher low (wave II) and subsequent strong rally (wave III).
There are 24 corrective wave possibilities in Elliott wave. It is always a challenge to identify which pattern is exactly playing out in corrections until a good % of the wave is already done. I don't commonly trade corrective waves (nor do I recommend), but I do follow them closely to determine the best entry point for the next motive wave in the direction of the trend. I have been looking at the area between .61 - .70 for a potential end of wave II, and a prime opportunity to position for the upcoming wave III.
Could the market go lower? Yes. It can go all the way down to near .45 and the I, II could would still be valid. Could wave II end before reaching .70? Certainly, however after years following and trading elliott wave patterns in multiple asset classes, wave II retracements commonly end within fib levels 50% - 61.8%.
Stay safe out there. Don't trade more than you can afford to lose, define your risk and be patient. Let the market come to you.
The next evidence needed to improve the strength of that case is a correction of the rally from early April that ENDS BEFORE PRINTING NEW LOWS. In other words, we need a correction ending at a higher low (wave II) and subsequent strong rally (wave III).
There are 24 corrective wave possibilities in Elliott wave. It is always a challenge to identify which pattern is exactly playing out in corrections until a good % of the wave is already done. I don't commonly trade corrective waves (nor do I recommend), but I do follow them closely to determine the best entry point for the next motive wave in the direction of the trend. I have been looking at the area between .61 - .70 for a potential end of wave II, and a prime opportunity to position for the upcoming wave III.
Could the market go lower? Yes. It can go all the way down to near .45 and the I, II could would still be valid. Could wave II end before reaching .70? Certainly, however after years following and trading elliott wave patterns in multiple asset classes, wave II retracements commonly end within fib levels 50% - 61.8%.
Stay safe out there. Don't trade more than you can afford to lose, define your risk and be patient. Let the market come to you.
Note
Price action is adhering to the counts shown since April. Target is below .76 before considering positions. Let the market come to you.Note
Back from a backpacking trip into the wild... hope all are doing well. As outline on April 27th, price fell into the range outlined in my update and is finding some buying support here. Is wave 2 over? Has wave 3 begun? First evidence would be an impulsive 5 count wave off interim lows. The count off recent lows near .63 on 5/12 does not count in five waves and does not have an impulsive look... it looks pretty corrective to me.Bottom of the fib range I have outlined is near .62. If price breaks below that level, .786 fib level is .56 which also corresponds with a shelf of support.
Note that the lower green trend channel was broken by recent price action. This doesnt invalidate the bullish 1-2 count I am following, but it has grabbed my attention to the possibility that wave 2 is going to be a deep retracement or that an alternative count is in play. Will keep a close eye on developments here. For now, the count I am following is invalidated only if price breaks below the lows on April 1st.
Wave 2's are tough on the nerves. The nature of them is to convince most market participants that the trend has not changed from bearish to bullish. The risk levels are defined. Its time to let the market uncover the truth of the trend.
Note
Price weakness continues as expected. Downside targets posted in April have been met. Next support level down is near .56 as stated before. Wave 2 can end anytime now, but watch for confirmation at small degree timeframes of 5 wave impulse pattern to the upside for evidence of a reversal.Note
Price did break down below .62 as predicted in my last post and bounced from near the support level. The pattern of the bounce appears corrective. This implies that price has further to drop. Price has dropped almost to the 78.6% retracement level. Deep, but not too out of the ordinary for a wave 2. Support shelf below current levels is near the .56 level. If that level breaks, a test of lows carved out in March is imminent.This may present a low risk opportunity for a trade where risk is limited to the lows near .45... a price below that level proves the count I am following is wrong, another pattern is developing, and I will stand back, assess the alternative counts and let the market tell the story.
Note
Price broke through below .56 area over the weekend, but just slightly. The reaction from that level has been a short term rally overnight and into today (my time = PST). Volume on US exchanges was lower than usual due to the holiday in the US yesterday (Monday - Memorial Day). Coupled with the news/rumors about EOS/ETH, it made for a volatile day. Back to the charts...
We are looking for the market to make a higher low... somewhere above the lows near .45 printed earlier this year. Higher lows are constructive for the bullish count. If we break the low, then our counts start over and we shift to looking for an impulsive rally (5 waves ideal), and then a correction that leads to a higher low.
Not saying that I expect the market to break the lows, mind you... my primary count has the low near .45 holding, and is looking for the end of wave II before heading into wave III.
Full disclosure - After waiting patiently for a few months, I placed a small buy position below .56 yesterday and it was filled with risk limited to a break below .45. I will be looking for more entry points in the coming weeks.
Good luck to you all! Remember that in the long run, risk/money management far outweighs being "right". Most traders are wrong on more trades than they are right on... yet they still make money. The answer? Keep your losses tight, and let your gains grow.
Note
As expected, price rebounded from the support area around .56 and has rallied up to above .675 a few hours ago and is consolidating the move in the .66's. Ok, here is where we are at from an Elliott Wave analysis perspective:
The move up is in 3 waves so far, so would like to see it in a five wave move on shorter term timeframes (4H is most common) as confirmation. A break below .6259 prior to completing 5 waves (need a wave 4 and wave 5 from here) reduces the likelihood of this rally being a start of a new trend (it's likely then a bear trend rally which will be retraced).
Volume is somewhat muted for XRP, but the end of wave 2's and early stages of wave 3's are typically low volume.
RSI and Stoch are overbought on short term timeframes (4H), but have room to grow on 1D and longer timeframes.
We are in good shape for a decent sized rally starting from near the support area I have been describing for awhile now, and above the lows reached in early April. A break below before seeing a five wave rally .62599 warns of more downside below .545.
Note
(UPDATED in COMMENTS BELOW INADVERTENTLY) .62599 broke as noted in my last update, which did open the door to more downside below .545 (down to .503 so far). This count is still valid (looking for an end to wave 2) unless we break through the lows of early April, but wave 2 is pretty long in the tooth. Waiting for five wave moves up at least on the 45 min timeframe before considering that a change in bear trend is upon us. On a potentially positive note... RSI divergences showing up on both 4hr and 1d timeframes. This indicates weakening bearish strength on successive new price lows. It is common for these divergences to precede a change in trend, so if the bulls decide to gain a foothold soon, I would not be surprised.
Order cancelled
Pattern invalidated.
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