Wave 3's are long and strong and unrelenting. They can be in either direction. When wave 3 is headed up, everyone is waiting for a pullback. That pullback never occurs.
When wave 3 is down, everyone wants a rally to either get out or get short. Those rallies either occur intra-day, or they don't occur at all.
Wave 3 of 3 is where everything you do is right -- or everything you do is wrong -- depending on whether you're long or short. Playing for countertrend moves is highly unlikely to be a winning move for anyone but the extremely nimble.
With that backdrop, here's a chart of the S&P 500 with the wave 3 of 3 "crash count" highlighted.
S&P 500 Weekly Chart
Click to enlarge
In Elliot Wave theory, "impulsive" waves trace out in patterns of 5 and corrective waves in patterns of 3. Note 5 clearly distinct waves down off the October 2007 high until the March 2008 bottom (the big red 1).
Wave 2 up, a corrective wave (the big red 2) peaked in May. When wave 2 ended, wave 3 began. In theory, wave 3 like wave 1 should subdivide into 5 clearly distinct waves. Indeed that is how it seems to be playing out.
Wave 3 of 3 Down
Wave 1 of 3 ended in July, Wave 2 of 3 ended August, and we are now in the unrelenting 3 of 3 down, where every attempt to play for a bounce has been like "catching knives".
I have a small blue 3 labeled, but that's not final. We don't know where 3 of 3 down finishes. Here are the implications.
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