Here is a chart of IWM, an ETF for the Russell 2000 (an index of small cap stocks). It looks like a 5 wave pattern, as I have penned it in, is likely complete. There are a couple of reasons for thinking that. First, we recently had a dip in the MACD that only produced a shallow setback. We noted that the first dip in the MACD is usually Wave 4 in such a pattern. The second dip in the MACD generally gives us a bigger setback and signals the 5 Wave pattern is complete. In order to confirm this is so, this market would need to drop under the 157 level.
The second reason one would suspect that the 5 Wave pattern is over is that today’s setback was larger than what we have seen in some time. Still, that move would need to accelerate to the downside from here to confirm this is so.

So, what happens if a 5 Wave pattern up from the October lows is complete? One of two things is likely to happen. The bullish outcome would have the market give back about 50% of the 5 Wave pattern, with some vicious gyrations in a “W” shape that would take at least several weeks. Then, the market would make a new 5 Wave pattern to a new market peak.

The most bearish outcome would have this market make an important inflection point, in which case it would likely be back at the October lows in a jiffy. After a rebound, another leg down would blow past the October lows and keep going. Right now, this seems far fetched but I try not to have a view here. Let the market do what it wishes to do. This much is certain, though, when a large 5 Wave pattern is complete, the market will let you know rather quickly that this is so.

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