More on Time Frame Time Consideration Continued
Here I show a 15 minute chart of the results two days later. The 15 minute chart allowed me to get a better snapshot of the near term action. As you can see, the rally did, in fact, have legs, and confirmed my earlier forecast in November. When the OEX broke through my original trend line, I was in the market with some option call contracts to profit from the upside. You'll also see here that much more of the pattern is revealed, and I adjusted my original labeling to account for the wave action. I saw what appeared to be a wave 3 breakout, and the subdivisions of the wave appeared just as impulsive. If you remember from the first chart, the .618 retracement I calculated called for resistance at 731.36. Although it's not that clear on the chart, the index peaked at 732.79 and then reversed. I was happily out of the market at that point, having benefited from a 20 point index rise. Finally, I also calculated the potential length of what I considered to be a wave 4 pull back in progress. Using the Fibonacci ratios, I found support for wave 4 at 710 and then 707. If the index had broken below 707.46, it would have invalidated my count, since the 4th wave would have overlapped the 1st, violating one of Elliott's rules. It actually found support right in the middle, at 708, which kept the count valid. This also made wave 4 about even with the length of wave 2, and not surprisingly, just as wave 2 took 1 day to complete (Dec. 2 & 3 fell on a weekend) so did wave 4.
Here we see the last stage of this rally on a 30 minute chart. You'll note that wave 5 topped at 737.18, surpassing the wave 3 high, and falling a little short of the .786 retracement. It was, however, right in the range of the previous Minute Wave ii just above 736, which I had also considered a potential top. That, and the overbought condition of the technical indicators above the chart, told me the rally was running out of steam. Also, all the impulse waves (1, 3, & 5) were in relationship to each other by either the 50% or .618 retracement ratios, another head's up. Finally, you'll see the trend channel that I drew. Elliott stated that a parallel trend channel drawn from the peak of wave 1 through the base of a vertical wave 3 will often reveal the likely top for wave 5. That was certainly the case in this instance. In all, it was enough to tell me the rally had ended - right on December 12. My next move? Position for option put buying to profit from the imminent decline.