Just a Bounce?

Monday saw another downtrending price bar on the cash S&P500 index and I raised my stop on the open Investopedia SH trade to 58.61. The difference from Friday’s downtrending bar is that Monday was a reversal bar. The downward moving price pulse from 1564.74 on 10/15 is over as a new upward moving pulse began at yesterday’s low. After overshooting our Gann & Fibonacci cluster at 1497 (the low was at the 1490 dynamic Gann line) the market has bounced. The question now is whether this is just a bounce or the start of a trend change.

If we are at a trend change then our Elliott wave iv’ down is most likely complete as a zigzag. It would have alternated nicely with the wave ii’ flat. The bothersome thing about this interpretation is that there is no technical “buy” signal in place on the daily chart at this time – just the reversal day bar pattern. On the other hand, we are in the time period where I was expecting a short-term (or greater) turning point. If a reversal is in the low should come by Wednesday.

Is a tradable low in place? Maybe, but I can’t act on it yet within my trading system. The price action has formed a reversal pattern but not a technical buy signal. What about the current short (long SH) trade? Since we are in a turning period time frame and we have had a reversal bar I will move my stop on half my position to 59.50 (just under yesterday’s low) and keep the stop where it is on the other half.