Looking at the chart of the Moscow Exchange index, that is, at the fall that went from the level of 3520.66 points to 3268.52 points, it immediately became clear that it passed in the form of a five-wave.
Thus, I have two news for you – good and bad…
Good lies in the fact that after a five-wave decline, we are expecting a corrective upward zigzag, which has already begun. Most often, after the first decline, the market can rebound by 61.8% or even 76.4%. But we’ll talk about growth goals a little later.
Bad the news is that the five-wave is never alone. A five-wave decline is an impulse, impulse waves are waves A and C in the ABC downward correction zigzag, or the impulse was a lead-in wave (wave 1) in a large downward wave (1-2-3-4-5), that is, a “bearish »Trend.
Before identifying potential targets for a rebound, I propose to understand the waveform.
So, wave 1, in my opinion, went from 3520.66 to 3426.11 points and amounted to 94.55 points.
The rebound to the level of 3491.93 points was wave 2, the correction was just over 61.8%.
The decline of 3491.93-3362.01 points was wave 3, it amounted to 129.92 points. Wave 3 is never the shortest.
The rally to 3425.78 pips and the triangle formed was wave 4.
The decline of 3425.78-3268.52 points was wave 5, it amounted to 157.26 points, by the way 5 gave an expansion of 161.8% to the wavelength 1, the target of the descent was the level of 3272.80 points.
What is also remarkable, the last wave of the descent – wave 5 took the form of a descending “wedge”. This helps a lot in identifying it, the resistance line of the model has already been passed upward, which allows us to expect a return to the beginning of the formation of the pattern, that is, growth to the zone of 3395-3425 points.
At the same time, a 50% correction to the traversed descent indicates a mark of 3394.59 points, and a 61.8% Fibonacci level at a mark of 3424.34 points.
What can serve as the final confirmation that the market has entered a corrective phase?
There are several landmarks.
First, on the H4 format chart, you can already see how the RSI oscillator has broken up the resistance line of the downtrend. The index itself has just approached resistance, but as you know, oscillators give leading signals, which means we have reason to expect a breakout upward.
Secondly, in the last wave of the descent, which can also be decomposed into 5 sub-waves, the signal for a reversal will be a breakdown of its extreme sub-wave 5 (5), which began at 3359.10 points. That is, consolidation above will confirm the change in mood.
And finally, the very closing of the day, in the event of a reversal combination, can become an additional argument in favor of opening or holding previously formed buy positions. Today we can get the “morning star” on the daily chart, if we are lucky.
Among other things, it is worth paying attention to the oil market, where Brent crude oil came out of its consolidation the day before, in which it was from 13 to 29 January. Quotes are trading above the level of the fast moving average EMA21 the other day, below which they have not dropped since November 9, 2020.
The consolidation height is $ 2.93, the target of the increase is the area of $ 59.20-59.30 per barrel.
In my opinion, it is the growth of oil prices that will support the upward correction in our market.
However, do not forget about the bad news, the market will not repeat its highs, and after the corrective zigzag, it will be necessary to wait for a five-wave down again.
We will talk about its goals separately, but in terms of time, since the decline took 15 sessions, then the upward correction may take 10-20 sessions. That is, in the second half of February or closer to the end of the month, you already need to be on the lookout.
Scavo (Ignatenko) Anastasia