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Elliott Wave and the XAO

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The XAO is correcting upwards forming the next smaller set of waves before the next advance downwards or the larger wave 2 is still forming (as shown) as a flat correction (3-3-5).

The recent push upwards looks more corrective than impulsive at the moment, providing evidence that this is a smaller wave 2 that has formed or is forming. The next few days should help clarify.


 
Since the DJI is correcting downwards in a final wave E of an expanded triangle, the patterns will be hard to follow as they will typically move in waves of 3 with smaller sub-waves showing up as 5's. It's these smaller waves of 5 that can help identify individual legs.

So far, the recent consolidation may be unfolding as a triangle as shown, but there are other interpretations as well. If the DJI hits the 'c?' as below and heads downwards, then this could be a clue to further short term action.
 
The DJI continues to follow the makings of a triangle with wave 'd' looking complete, a push up to complete wave 'e' at around the 26,000 level is needed - I wonder what tweet will 'cause' the market to react positively?

Breaking above the triangle a-c line could indicate a more complex correction is unfolding or a wave 2 is the right interpretation instead of a triangle.

The key atm is the 26k level, more precisely the 26,050 level is a 61.8% retrace of triangle wave 'd'. From there, aggressive declines could unfold in a 5 wave decline.
 
Is the XAO now poised for a series of aggressive 3rd waves down? Based on this wave interpretation an aggressive decline is now at hand that could take the index down to the 5950 level (161% of wave 1) to complete wave 3 down.

The alternative interpretations are: wave 2 is still unfolding as a more complex correction which would have further sideways moves to complete a double three correction (unlikely based on the current wave formations) or a triangle is forming that would provide an alternative wave pattern for the larger trend, but a lot more evidence is needed.
 
The DOW is also ready to decline after almost precisely hitting the 26,050 level as previously anticipated (61.8% retrace of triangle wave 'd'). Unclear what trump tweet 'moved' the DOW so precisely.

Now that the XAO and DJI are at levels that could see aggressive breakdowns, the boundaries are clear on both indexes (and this includes a break-up for an alternate view). Either way, for the DOW, breaking below the b-d line (or above the a-c line, unlikely) will provide clarity in the next wave action.

The next very small 5 wave decline looks to have unfolded since the completion of triangle wave 'e'

 
The XAO has broken out and higher to shed more clarity on the index that was moving sideways and looked more triangular in it's development. This action implies a larger wave '2' correction was unfolding.

The triangular activity is a (B) wave of a larger wave '2' flat correction. The expectation is now for a 5 wave rally up to the 50% or 61.8% retrace of wave '1' down and into the vicinity of the previous wave '(iv)'. As these levels are approached, be on the lookout for a significant break of the wave '(C)' trend line.
 
The XAO continues to move upwards and should move into resistance at the 6800 level (approx 61.8% retrace). At this level, a small wave (iv) may develop as shown before a final push up. Parallel trend lines are in place to establish a temporary boundary for this wave formation.

 
The XAO appears to be on track to complete a small wave (iv) triangle in the push up to the 6800 level and possibly just beyond. Once complete and under the current wave count, the index should fall. If a strong break down doesn't appear, then this may be a clue to something else occurring.

The good news is the index is operating within some very definitive boundaries, and when broken, should offer a clear view of the next move (which imo should be a hard fall below the 6500 level).
 
The XAO is still slowly moving into position for a what looks to be a final push up.

It appears that a small 4th wave triangle is unfolding (wave iv), before a push up above 6800 takes place. There is also a possibility that this small triangle is already complete and a final push up will take place over the next couple of days.

Wave (iv) appears to have unfolded as a flat correction and not a triangle.

 
The small wave 'iv' triangle looks complete with the index finishing above 6800. Technically, wave (C) could be complete and was driven by a post triangle small 5 wave push to 6801.7.

However, there could still be more upside with post triangle action regularly around 161% of the height of the triangle, thus taking the index to 6832 (and bumping into the underside of the (ii)-(iv) trend line).

Be on the alert for a strong break down

 
As discussed in the 31st Aug post, the XAO would most likely retrace into the vicinity of the previous wave 4's, this has now occurred and leaves the XAO at a critical point with wave 'C' up looking rather complete.

Wave '(iv)' has been relabeled to show a long sloping triangle as the sub waves support this interpretation vs what was previously shown. A subsequent 5 wave post triangle push (which is 100% of the height of the triangle) has occurred to mark the completion of wave '2' up.

The trend line now needs to be broken with a possible drop to around the 6750 levels for a pause and then downwards.
 
With the break of the trendline, a slight update to the short term XAO wave structure is below....an ending expanding wedge with a small 5th wave failure.

Need to see 5 waves down with force as per previous guidance.

 
Is this the beginning of the needed 5 waves that validates the next leg down for the XAO?

The XAO has 'paused' at the 6750 levels, an area of support. Should the XAO break through this level with force as expected with a 3rd wave (in fact wave 3 of 3 down) then this further validates the next moves.

Corrective wave (ii) is a flat correction (3-3-5) that fits nicely within a parallel channel. The full retrace of corrective wave (ii) up is made extremely quickly, indicating the next move down should be underway.

 
The XAO has completed or is near completion of corrective wave (iv) up. The next moves should be downwards to the 6570 or 6500 levels to complete wave (v).

As a point to note, the MACD was at an extreme as wave (iii) completed, giving indication wave (iv) was about to start. The MACD should become divergent as the XAO drops below the end of wave (iii), thus warning of impending corrective action upwards (possibly back up to the 6700 levels) as wave (v) down approaches completion .

The boundaries are identified and should the XAO traverse too far outside these boundaries, then some other action may be unfolding, esp if wave (iv) creeps upwards and overlaps wave (ii).

 
A short review of the DJI....the DJI has been consolidating over the past few months and has not declined aggressively as expected for wave 'E' of an expanding triangle (although the waves in an expanding triangle are always going to be hard to follow). Shown below are 2 potentials for a wave 'E' decline, the red labels show a '(b)' wave triangle that has completed with a push up to complete wave 'D' of the expanding triangle (maybe to the 28,000 level). Or, wave 'D' has finished and the decline is underway.

We will soon see which boundaries the DJI will break.

 
The XAO has continued to labour upwards indicating ongoing corrective action which could have completed at the wave '2' high. Corrective wave '2' is a flat correction (waves in the form of 3-3-5), however, there is still caution to be observed until a clear next leg down unfolds.

Breaking above the wave '2' high could mean something else is unfolding, possibly at a larger degree.

 
It looks like the DJI is taking the red option to complete wave D up (as described in the last post on the DJI).

A 5 wave push up is needed to hit a estimated upper trend line of the expanded triangle. Waves 1-4 look complete with the last push up consisting of a sub-divided wave 5 that is still unfolding. An approx target area is 27,600. Note that the MACD is at an extreme in a wave 3 of 3 position (red dotted line). The MACD becomes divergent on a stock chart as the last push up completes. Be aware of a strong break below the dotted trend line that could indicate wave E down has started.

So the detail looks like....

 
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