Squawk Morning Briefing: Elections, Breakdowns and Bounces

A bounce on Monday wasn’t unexpected. The fact that the DJIA was able to print below last week’s range before the bounce serves to add to the bearish possibilities even if the it only made lower lows by a slim margin. However, the extent of the subsequent bounce in the DJIA on Monday, especially once the overnight continuation in the futures is added, is more than one would expect in an emerging third wave. This ambiguity is often something we have to live with prior to confirmation. We want to emphasize again that we need to see a five-wave move down and a completed corrective bounce before starting to confirm that a change in trend has occurred.

Until we get that confirmation we can adjust probabilities and anticipate moves based on short-term patterns such as how we anticipated the opening pop then drop on Friday. There isn’t a clear short-term pattern going into today so we can’t anticipate whether action is more likely to take out the resistance levels we’ve been watching in our videos or more likely to take out support so we need to watch those carefully.

There seems to be an emerging view among traders that the the trend will be established once election results are known. That may be the case, but we know that five-wave moves are in the direction of trend, so we wait to see that indication whether it comes following the election or at some other time.

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