“What the hell are you doing!?” Someone yelled a few minutes after I went short the euro. Luckily, he wasn’t yelling at me. He was yelling at the guy behind me who’d just gone long the euro.
“Why are you fading a C of C wave!” He continued on his tirade. “That’s like walking up a mountain during an avalanche! You’re gonna get buried.”
This “C of C wave” is a component of Elliott Wave Theory. It can be the most vicious phase of a corrective selloff.
I tell you this today… because we’re now in this very phase.
Looking at the chart above, the red bars show the first major wave down – the “A wave.” This impulsive wave has five sub-waves (labeled with lowercase a – e).
The “B wave” is in yellow. This is when the selloff takes a breather and prices go back up a bit. This wave is corrective and only has three sub-waves (a – c).
And then the “C wave” is in pink. This impulsive wave also has five sub-waves (a – e). Of these, the “C of C wave” is the one to watch out for.
If this pattern plays out in its textbook form, the S&P 500 is headed to 1,230 next. Then, after a small upward bounce, down to 1,200 or lower.
Stock buyer beware!
If you haven’t done so already read the Survive & Prosper issue on “Pensioners, Welcome to Ben Bernanke House of Pain“.
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