Going into the FOMC we are currently tracking a few short term ideas, although personally, I prefer the expanded flat idea as long as the current rally from the Dec 2018 low remains in 3 waves. The large divergence between some highly correlated US and major world stock markets failing to confirm the new highs on the SPX, INDU, and NDX, in my opinion, is a strong clue to suggesting that the current new high on the INDU, NDX, and SPX is probably a [B] wave of an expanded flat.
What is an expanded flat pattern?
An expanded flat is a 3-3-5 pattern, waves [A] and [B] are in 3 waves and wave [C] is in 5 waves. The difference between an expanded flat pattern and a regular flat pattern is that wave [B] is allowed to move above the origin of wave [A] (aka bull trap) before a move lower to test the low of wave [A] (see image).
If the current rally from the Dec 2018 low remains in 3 waves, then its a strong setup to support a reversal and move lower, although we would need to see some evidence such as a 5 wave decline on a smaller time frame (15-30 mins) to offer us an initial clue to suggest a peak is in place for wave [B] before we turn very bearish and look for short setups.
Some alternative ideas I am watching, is a possible ending diagonal (bearish wedge) from the Dec 2018 low, so a down-up sequence is still needed, as well as a ‘blow-off’ type scenario. Although at this stage, I am still torn between either an ending diagonal from the Dec 2018 low or a [B] wave of an expanded flat pattern for the current idea.
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