In the backlink I modeled that we were working on wave 4 of a larger downward trend. While today rallied hard, my current EW count suggests that it is still a correction to the horror of that monster 3rd wave down and that more pain and even more panic awaits the markets. This move still looks corrective to me and if it hasn't peaked already then it likely will within the blue circle. It could turn back down at the open but more likely I think it could hit the 61.8 fib or even close the gap just above it before turning down. A move above 4950 puts this model on notice that it will bust and a move into the region of blue 1 says that it has indeed busted.
I found it interesting that, despite being down 20% premarket, UVXY closed up 5% even though the major indices were up a massive 2.25%. This is waaaaaaay out of character and it strongly suggests that downside insurance is back in vogue. I have to view this as bearish divergence for the broader markets. UVXY could fall to $50 or $51 in the AM to complete an E wave throwunder but it is not required to do so before blue 5 begins.
This is a very, very critical time for the bearish model. While there are ample signs of initial panic and while a top level wave count does support a massive correction, we cannot really be sure of this based simply on only seeing 3 motive waves down in the markets so far. True fear will only be present IFF the markets put in 5 clear waves down.
IFF that plays out, and it is currently my primary model that it will, then we will retrace blue 5 with another dramatic 3 wave rally before seeing the markets go into virtual free fall as cycle level wave 3 plays out.
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