On Monday we saw a thrust out of the wave 4 triangle that has been building since late January. The Elliott Wave Principle says, that triangles always precedes the final move in direction on the underlying trend. The trend up to January 21, 2014 was clearly up. As the EWP says we have seen a break out of the triangle towards the upside.
Looking at the internal waves of the rally from the start of wave 1 at 4,973.92 on September 23, 2011. We can see that wave 3 became almost exactly 300% of wave 1 at 9,757.91, when wave 3 becomes an extended wave we should expect wave 1 and 5 to be equal in length, which gives us a wave 5 target at 10,867.48.
If we zoom in on the final part of the triangle and the last rally in wave 5 (see the chart below). we can see that we only are in the middle of wave 5. I will be looking for wave iii to end near 9,841.68, where wave iii will be 261.8% of wave I. Once wave iii is confirmed we should still be looking for wave iv and v to develop.
However, we have to be aware, that once wave v of 5 is in place a larger correction will develop. A correction that will be larger than any of the corrections we have seen since the September 23, 2011 low and maybe even bigger than any corrections we have seen since the March 2009 low.
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