Monday, August 6, 2018

SPX Update: Understanding Expanded Flats

One of the most common Elliott Wave patterns since about 2009 or so has been the "expanded flat."  I'm not sure if this is the result of the rise in popularity of algorithmic trading or what, but since roughly 2009, this pattern has become incredibly frequent at both short and longer time frames  Below is an illustration of the expectations of this pattern:

When we look at the current 5-minute chart of SPX, we can see that it certainly appears to be a textbook expanded flat:

Accordingly, I have no choice but to "trade what I see" and continue to favor the result that the current bounce that began at 2796 will reverse fairly directly:

In conclusion, due to the fact that the pattern appears to be a classic expanded flat, I have to give the odds to the result that SPX is still due for a trip south of 2796.  Of course, in the market, just as in life, nothing is 100% guaranteed.  In my experience, this pattern is reliable at least 75% of the time, but that likewise means that it's guaranteed to fail roughly 1 in 4 times, so it's always possible that "this is that time."  But the bottom line is, playing for the 25% is a long-term loser, so we simply have to favor the higher odds unless/until proven otherwise.  Trade safe.

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