The 78.6% retracement level (which is a fibonacci number, the square root of phi, 61.8%) has held so far. This number is peculiarly interesting in this bear market. Normally wave 2's retrace 61.8%, but in this post-mania market, most wave 2's have gone 78.6%:
> the first wave [1] to Sep00 after the peak was reversed 78.6% by wave [2] to Mar01
> the next wave (1) of [3] to Sep01 (post 9/11) was reversed 78.6% by wave (2) of [3] into Mar02
> the next wave 1 of (3) of [3] to Oct02 has so far been reversed 61.8% by wave 2 of (3) of [3], into Jun17, the recent peak
> the little wave (i) off the recent Jun17 peak has been reversed 78.6%, and that level has now held for several days.
One might think that after the Greatest Asset Mania of All Time, and a 75% drop in the Nasdaq, caution would be in order. Instead, Wave 2 psychology tends to be more bullish than the prior bull market. Thus, it should not be surprising that the wave 2's of the bear market following a mania would tend towards extreme reversal patterns.
What is most curious right now is the Jun17 interim top is *only* at a 61.8% reversal, rather than 78.6%. This at a moment of extreme bullishness not seen since the summer of '87, just before the historic crash. It could be the current wave 2 still has a ways to go, and we will see selloff end and new interim highs achieved. Note that a 78.6% reversal would take the Dow just under 10,000, so maybe we bump against Dow10k and then fall off. Surely that would spook the lumpen investorate, who watch round numbers. Or, it could be the wave 2 psychology is running out of steam, and the long-awaited 3 of (3) of [3] is soon upon us.
Yelnick stays with the summer prediction: whether we have peaked at Jun17 or will soon go to Dow10K, there will be a deeper drop in a wave [i] down and a strong reversal in a wave [ii] late summer rally. The failure to crack the 78.6% level in this recent wave (ii) increases the odds that wave 2 ended on Jun17 and we are in for a steeper drop through July and a final chance to get out (or short) in August.
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