Stocks About to Explode, Play the Breakout; Euro Dropped in 5 Waves

The market did nothing today as far as price action goes as it continued to consolidate in a tighter and tighter range, typical of a triangle pattern.  Volume also continues to decline as the range in price gets tighter, also typical triangle behavior.  Other than that, nothing of note to report.  The price action and internals suggest a triangle is finishing up and will result in a sharp breakout.

Above is the 4th wave triangle I talked about yesterday.  This scenario now seems more likely after today's very tight range on light volume.  It's certainly not the perfect triangle, but more subdivisions in the coming hours/days may make us adjust the labels a bit.  But the end result will be the same, i.e. a sharp thrust to higher to a new high on the year.  Adhere to the levels I mentioned in yesterday's post for my opinions on guidance to trade with.

Learn Elliott Wave Principle

EWP states that triangles only occur in 4th, B and X waves.  Since I've already discussed the 4th wave, and the X wave is almost impossible here, I thought I'd show the B wave triangle.  Here we'll see a sharp thrust lower for wave ((c)) which will probably end the downward correction and lead to new rally highs eventually.   I'm unsure how this fits into the bigger wave count so I'm not considering it yet.  But it is something to be mindful as we move forward, just in case we get a sharp downward move, those of us waiting for a big 3rd wave here should keep this count in mind in order to keep us honest while trading.

Again, the 1-2, 1-2, 1-2 count is still on the table but less likely.  We should soon get a sharp thrust in either direction and it will help us eliminate one of the above counts.  But the tightening action of price and volume suggest a big breakout either up or down is about to occur, so being setup to take advantage of a sharp move in either direction seems wise here.  Option players might want to think about a "straddle" here.

The euro followed my forecast yesterday for one more new low to give us a nice 5 wave decline from the high.  So far my gut instinct has paid off and now we have solid EWP evidence a top is in.  I'm a seller on rallies as long as 1.4035 remains intact.

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.