Squawk Evening Update: We Were Right and Wrong

It appears that we were right to express caution on seeing only three waves down in the DJIA. We said that there was nothing that would prevent price from going straight up from Monday’s close and that is what ended up happening.  The wave structure allowed for the possibility since we had only seen three waves down and therefore could have been a completed correction and we needed to make readers aware of the possibility.

However cautious we might have been, it would be dishonest to say that we didn’t have our sights set on a continued down move.    However, the wave structure did tell us that we needed to see an extension to five waves have confidence in continued weakness.  Just as it told us what we needed to see for confirmation, wave structure tells us when we’re wrong ad our alert this morning pointed out the levels which would invalidate the view for more down.  After taking out those levels, prices continued to new highs.  It would be nice if the wave structure always told us precisely what would happen, but when they can’t, at least they can let us know clearly when we’re wrong.

Part of the attraction of the Euro trade we discussed this morning was that the point of being wrong was so close and risk was contained.  We saw what appeared to be five waves down, followed by three waves up.  It counted reasonably well and had good Fibonacci proportions.  We were in this trade in our own accounts and were stopped out, losing the amount established as our defined risk.  We’ve kept the rest of our powder dry for another setup.  Even though this trade didn’t work out we would take a similar setup in a heartbeat.

In our briefing tomorrow we will identify any key levels should we find them.  Although, we’ll say now that today’s action has left things murky.  Perhaps overnight action will clarify the current situation, but more likely we’ll need to see a few more cards turned over before we’ll be able to assess the current situation.