Monday Holds The KeyLet’s recap what was expected from . Based on specific historical wave data for waves ending in 2BC2, Intermediate 2 had quartile retracements of 33.44% (1st quartile), 60.60% (2nd quartile/Median), or 77.87% (3rd quartile). These levels are depicted on PATH TWO in the chart above. Wave 1 ended 2 days after the analysis was posted and the adjusted potential retracements respectively aligned with 4048.89, 3950.94 and 3888.67. A lower trendline which has provided support also aligned with a potential floor for the activity ranging from 3920-3960. Intermediate wave 2 was expected to last 8-12 trading days. The lowest point achieved thus far is 4049.35 from the final hour of trading on April 26. This could be the end point of Intermediate wave 2 as it was nearly consistent with the projected first quartile drop or it was the end of Minor wave A inside of Intermediate wave 2.
The close on Friday has presented an interesting crossroads and an argument can be made for the short-term bear case and longer-term bull case. PATH ONE above will displays what should happen next if Intermediate wave 2 has ended. PATH TWO displays the likely end of Minor wave B inside of Intermediate wave 2 and the final leg down to conclude Minor wave C and simultaneously Intermediate wave 2.
The Case For PATH ONE:
Here is the likely internal wave for Intermediate wave 2:
Two wave 3 indicators were present on the 30 minute chart at Minute wave 3 (green) in Minor wave A (yellow) on April 20 as well as Minuette wave 3 (orange) inside of Minute wave 3 inside of Minor wave C on April 25. I like to see the “wave 3 of 3 of 3” indicator when confirming locations and April 25 displayed exactly that.
Wave 3 Finder:
The wave 3 indicator normally identifies all wave 3s along with the end of corrective waves (2, 4, & B). The daily chart did not provide any wave signals for a wave 3 or the correctives, however, the 2 hour and hourly charts identified the end of Intermediate wave 2. The hourly also found the wave 3s identified in the 30 minute snapshot above.
This is a strong case for Intermediate wave 2 being complete.
The Case For PATH TWO:
Here is the likely internal waves for Minor waves A & B:
The wave 3 indicators still remain in the same places although the April 20th one aligns with the end of a wave 1 which is not common. The other still highlights “a wave 3 of 3 of 3”
Intermediate wave 2 would have lasted 6 days IF PATH ONE IS THE CHOSEN COURSE which is about 24% of the length of Intermediate wave 1 which was 25 trading days. Wave 2s inside of 2BC waves tend to be at least 31% the length of wave 1, however, 22% of the time they have been less. This 22% occurred in macro waves (which this is not) and consistently stayed between 18-19% of wave 1. In fact, the median wave 2 length is half that of wave 1 and the third quartile is the exact same size as wave 1 (100% length). I do not expect wave 2 to last 25 days, however, something closer to 12 always seemed possible. Although statistics and historical references are not perfect, this could indicate Intermediate wave 2 is not done yet.
While walking through this analysis I can believe either one is viable, although PATH ONE may be the winner if one must be chosen at this point.
WHAT SHOULD HAPPEN NEXT:
PATH ONE:
Based on waves ending in 2BC3, the quartile movement extensions are 110.75%, 302.37%, and 371.04%. This means the median movement could see a top for Intermediate wave 3 which is 302.37% larger than the total movement from Intermediate wave 1 which was 360.62. This highly unlikely (I feel very comfortable calling this impossible) top would be at 4899.267 which would be a new all-time high for the stock market. The models lack a majority agreement on length in terms of trading days long as they fluctuate at 17, 21, 24, and then 72 days. These data points are too wild, next data is based on waves ending in BC3. The quartile movement extensions align with 4323.64, 4691.69, and 4752.97. The trading days to reach these levels are all at or longer than Intermediate wave 1 (meaning 25 trading days or more). There is a strong resistance trendline that tops out at 4392 if Wave 3 was 31 days long. This would mean wave 3 moves very slow for only 150-200 points. Wave 3s typically have a punch and multiple large periods of upward momentum as seen the past two trading days. The past two trading days are in fact looking more like a wave B instead of the beginning of a wave 3. This schedule would also place wave 3 topping in early June and the final market top in early July. Last set of data is based on the much broader set of waves ending in C3. Most models agree on 18 or 25 days long while the first quartile of all days is at least 25 days in length. Even if the top is set to occur within 16 trading days from the close on Friday. This would be a slow gain of 180-230 points over 3.5 weeks with the Fed and a CPI reading (May 10) in the middle of it which is likely market moving events capable of gains of 50-100 points in a single day.
PATH TWO:
Based on waves ending in C2C, the quartile movement extensions (light blue levels on the left side of the right chart) are 100.27%, 113.095%, and 132.02%. This would mean the first quartile movement of Minor wave C inside of Intermediate wave 2 would be 100.27% of Minor wave A’s movement. Basically, Minor wave C could end just below the Minor wave A bottom of 4049.35. The models strongly agree Minor wave C could last 3-6 days (day 1 would be this Monday and day 3 would be when the Fed speaks on Wednesday). Based on waves ending in 2C, the movement extensions (yellow levels) are 110.45%, 133.13%, and 154.44% and strongest model agreement is at 3 days in length. The bottom of Intermediate wave 2 would likely be around 4000 at the lowest instead of 3950 as originally projected. This would push the end of Intermediate 3 into early- to mid-June and the final market top to mid-July (which aligns better to most probable debt ceiling crisis as the catalyst for the projected major market downturn greater than 1800 points)
FINAL ANALYSIS:
There are zero powerful economic reports prior to the Fed that would drop the market 100-200 points from Friday’s close before the Fed speaks on Wednesday. Short of a geopolitical event over the weekend (Iran and the world’s oil supply / China / North Korean shenanigans / Russia-Ukraine war), PATH ONE is the most likely. PATH TWO appears the most likely ONLY because the anticipated wave 3 is far ahead of where it should be per PATH ONE analysis if the top is only 150-200 points away from Friday’s close and spread out over 6 trading weeks. The levels and length for Intermediate wave 3 does not change no matter what wave 2 did. However, a bottom for Intermediate wave 2 around 4000 which occurs within the next 3 trading days would give Intermediate wave 3 nearly 350-400 points to gain over 5-6 trading weeks which is much more reasonable
