- Wave 4 could currently be mature at key support and setting up for wave 5 now.
- The next key level to target is US$51,000.
In the 1 April commentary we looked at the impulsive wave structure from the mid-March low.
As you might recall, an impulsive advance is where price flows freely upwards in five distinct, non-overlapping stages: a take off move (1), sharp retracement (2), strong upward push (3), sideways rest phase (4), followed by another push higher (5). Wave 4 could currently be mature at key support and setting up for wave 5 now.
Sometimes, it’s hard to isolate an impulsive move early on, but a good way to do so at a later stage is to look for the wave 3 component. This is usually obvious as the one with the highest volume and momentum and a series of big up candles. Typically we do not see bearish divergence and momentum ends on a high note.
The market psychology of wave 4 is essentially disappointment and a waiting game. Bullish traders who missed the move resolve to jump in again as soon as price drops back a bit so they nibble at the offer for a favourable lower entry point. Bearish traders who think the prior move went too high and will collapse, nibble at the bid anticipating a move lower. Thus the sideways pattern as this dialogue between bulls and bears unfolds. Then comes wave 5 up, which is the final move in the set and in this case should target around 51,000.