Wednesday, March 2, 2011

The A-B-C Correction (2)

Five weeks ago here I suspected the Dow Transports was at the beginning of a normal Elliott Wave A-B-C correction that typically follows an impulse wave.
The correction will usually begin above the 50-day moving average with the A wave down breaking under the 50-day and stopping at support at above the 200 day MA. The subsequent recovery B wave fails to make a new high (swing failure) and the following down C wave breaks under support at the 200 day MA and the selling can get nasty. Sometimes the recovery wave B will exceed the beginning of wave A – see our Dow Transport daily chart.

According to Elliott Wave International, In a regular flat correction, wave B terminates about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A, as we have shown in Figures 14 and 15. Far more common, however, is the variety called an expanded flat, which contains a price extreme beyond that of the preceding impulse wave. In expanded flats, wave B of the 3-3-5 pattern terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A, as shown in Figures 16 and 17.