- April 30, 2012
- Posted by: Ramki Ramakrishnan
- Category: US Stocks outlook
You can observe the prior steep sell off has finished with a five wave downmove, and importantly the recovery from the lows has passed the reflex point at the fourth wave position of the last impulse wave down. Wave theory suggests that when a minor five wave rally exceeds a reflex point, we should get ready to buy on a pull back. There is a mild element of doubt whether this first rally from the lows is made up of five waves, but we will give ourselves the benefit of doubt.
The next chart is a daily chart of Bank of America, and it shows you how the correction has developed in a three wave pattern. The “B” wave retraced by 50% before the “C” wave unfolded in five minor waves. This is all clearly marked out for you in the second chart.
The next chart zooms into the fresh five wave rally that started from the lows. As you can see, the third wave was an extended wave, travelling 423.6% of the first wave.You will also see the guideline concerning alternation coming into play, wherein the fourth wave became a complex correction after the second wave was a simple correction.
The last chart I present you today shows the correction following the completion of the five wave run up is probably nearing the completion of an “A” wave. The possible end point for the correction is around 7.90. One could consider buying in stages from there, strating off with a small amount to test the waters. We should keep adding as the market moves in our favor. The target will be at a minimum the prior 4th wave of this “A” wave. If my current interpretation is correct, we will get a C wave down, so we have to really watch the speed of the recovery from 7.90 and the structure of the rally to determine when and where we should exit. If things work out as outlined, we will be able to rebuy BAC at lower levels, but let us cross that bridge when we reach it. Good luck. By the way, I will be away on a month-long vacation starting 10th May. I will try and post a couple of updates before that. I know many of you have requested posts on a variety of instruments. I will try and do at least some of them. Take care.