[DJIA] update: wave 3 down could begin very soon.

Here is the backlink.  As you can see from the lower (60 minute) chart there as compared to the current snapshot below, the general shape of the DJIA played out within reasonable expectations.  It broke down the lower rail of the HT on E of 4 and then put in one final wave up to break the top rail (which is the minimum usual requirement) before turning down.

Since the peak, we see 5 clear and perfect waves down with wave 3 taking out the lower rail.  Then the back test on wave 4, again very typical. Then a final 5 wave movement down before a bounce to about the level of the prior 4th.

Zooming in, I count today's big rally as WC 2.  In other words a 2nd wave which was formed by a wedge and thus a C or a 3.  In this case, a C.  If this model is correct, and I suspect that it is, the selling should begin at the open tomorrow and then get worse over the next week.  Once WC breaks out the top rail and then back into the channel, that is usually a strong indicator that the count is correct.  IF it breaks the lower rail tomorrow very early in the trade, so much more so.

If this is really going to break down into a 3rd wave starting tomorrow then I would stick with UVXY early on.  It is the only thing that is pretty much guaranteed to go up if the DJIA goes into collapse mode and the short term gains could be substantial in percentage terms.  We could see a 30+ percent move in one day if the DJIA does a 500 point break down.

Having said that, if this does not begin to sell off right form the open, get cautious with your shorts quickly because WC is very unlikely to break back out that top rail.  Thus, if it does it is likely forming something else that would be far less bearish than an AM breakdown of the lower red rail. If that breaks down I will be into UVXY on max margin but with tight stops.  Again, I don't often use margin but if I suspect a big 3rd wave might be in play then it begins to make sense because they move quickly and the wave count is generally easier to read than 1st and 5ths.