A Secret Path for a Bear Market Rally

Many analysts say it’s impossible to predict where a corrective rally in the stock market will top and what path it follow. Let me show you a repeating fractal that can help you to trade corrective rallies!

In my previous article I showed you the most common fractal that can help you successfully trade almost every squiggle in the course of a corrective pullback:

You may have heard from Elliott Wave practitioners that its almost impossible to predict a path for the middle section of that fractal labelled as wave ( b ) up. That is what pundits call “the Bear Market Rally”.

It normally comes after the first -a-b-c- leg down off the top. That move starts with an overlapping consolidation around the bottom of wave ( a ) down. At first, that bullish reaction looks quite muted and greeted with a lot of skepticism.

Very often the first leg down in wave (a) concludes when the prevailing sentiment gets very bearish. This is why first squiggles off the low made off the bottom of wave (a) down looks like a minor consolidation before another plunge.

Look at 240 min chart of ES mini showing structure of the decline in Jan-March 2022:

After completion of the first three wave down move labelled as -W- you can see a messy shallow consolidation labelled as subwave (a) up followed by a subwave (b) down.

The most counterintuitive thing about the way how price moves is that every big move starts with small squiggles and the closer it gets to its point of completion the stronger it gets! When price drops to lows in a micro wave (ii) down of subwave ( c ) up its almost impossible to believe that the next move will be a strong rally in wave ( iii ) up!

What I am going to do in that post is to show you two other corrective structures with almost identical micro structure of wave ( b ) up!

Below you can see a 30 min chart of ES-mini showing a micro structure of the pandemic panic in Feb-March 2020:

ES-mini 30 min chart, Feb-March 2020

That decline was shaped as the Triple Three corrective structure. That structure is composed of three A-B-C structures interconnected by two technical waves labelled as -X- and -XX-.

You can learn more about each type of corrective patterns in my video course for beginners:

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We are going to study the structure of the first pullback that followed the first A-B-C down structure off the top made in early February 2020. That structure is marked up with a yellow rectangle on the chart shown above:

ES-mini 30 min chart, Feb-Mar 2020

That first A-B-C down structure was almost 600 points. In the previous post I noted that in majority of cases a corrective wave (b) up or (x) up manages to retrace 41.4%, 50% or 66.7% of the preceding decline in wave (a) or (w). That particular bounce in wave -X- up topped at 3,053 on 3 March 2020. And 50% retracement of wave -W- down was located at 3,041. That bounce pushed ES mini up by 284 points and that rally stopped right at 50% retracement fib! Now let’s zoom in further:

We can clearly identify three main subwaves: (a) up, (b) down and ( c ) up.

Note that subwave ( c) up stopped right at confluence of 161.8% ext of subwave (a) up and 50% retracement of the preceding A-B-C decline!

Now I want you to pay attention to that ugly structure of subwave (b) down.

Price was moving up and down in seemingly chaotic way. But that structure is in fact a repeating pattern called “Expanded Flat” structure:

Now look at the micro structure of the bounce in ES-mini in April 2022, two years later:

ES mini 30 min chart, March — April 2022

The very same three wave down -a-b-c- decline is followed by a tree wave -a-b-c- bounce. Look now at the very same Expanded Flat micro structure of subwave -b- down in the red rectangle!

In both cases, subwave -c- up was stronger than subwave -a- up and had a clean impulsive five wave up structure. In the previous article I noted that in any corrective A-B-C structure we should normally expect the final segment in wave C to be bigger than the first move in wave A.

ES 30 min chart, April 2022

In April 2022 subwave -c- up topped at 138.2% ext of subwave -a- up.

In March 2020 subwave ( c ) up topped at 161.8% ext of subwave (a) up.

Now lets look at the five wave up structure of the subwave -c- up.

In April 2022 the micro wave v of -c- up topped at 250% ext of a micro wave i up.

In March 2020 the micro wave -v- of ( c )) up topped at 223.6% ext of a micro wave -i- up:

Now let’s look at the very same fractal played out by ES-mini in January — February 2022:

Note that subwave ( c ) up topped at the very same 138.2% ext of subwave (a) up!

Note that subwave ( c ) up has a clean five wave up structure where the micro wave -v- up topped at 200% ext of a micro wave -i- up.

Let’s look at one more example that shows the very same fractal on 60 min of RTY futures:

60 min chart of RTY futures, April 2022

On the chart you see a corrective wave ( b ) up that is composed of -a-b-c- up. That structure has several distinctive features:

(i) subwave -b- down was shaped as the Expanded Flat structure (highlighted with the yellow rectangle), and

(ii) subwave -c- of wave ( b ) up was shaped as a five wave structure,

(iii) subwave -c- up stopped at 138.2% ext of subwave -a- up,

(iv) the whole -a-b-c- structure of wave (b) up retraced 50% of the preceding five wave down move in wave (a).

I hope I convinced you that you can successfully predict and trade micro waves inside corrective rallies in wave B up.

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CastAwayTrader Market Analysis

I trade and teach others to trade with Harmonic Elliott Waves. Follow me on Twitter and read my analysis on www.CastAwayTrader.com