The recent price action we have seen this past week, potentially has the makings of a reversal in progress. Some world stock markets are showing an outside weekly bar reversal pattern, which is a strong pattern to support further weakness.

Looking at a number of highly correlated markets, they are showing a very similar pattern. I favor an impulse wave (5 wave decline) is in progress, an up-down sequence is still needed to develop a 5 wave decline from their respective swing high. If we can count 5 waves to end an impulse wave from last weeks high, a bounce thereafter in 3 waves would support a move lower and offer a selling opportunity.

If the advance from the Dec 2018 low ended at last weeks highs, then far more weakness is expected. So going into next week I am looking for the initial completion of a 5 wave decline on selected markets that are showing the cleaner price structure such as SPX & USDJPY etc. Bounces in 3 waves can be sold with a clear risk control point (origin of the 5 wave decline).

If the markets have transitioned into a “risk-off” environment, then the trade will be to sell rallies until a time the market reverts back to “risk-on”.



HSI (Hang Seng)

Note: It’s important for the bears to develop a bearish reversal clue such as an impulse wave. To date, we don’t have that clue, but with the potential for a 5 wave decline as well as the weekly outside reversal bar patterns on many world stock markets, this has the makings of a market that has ended its rally from the Dec 2018 low and moving lower.

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