The first part is a comprehensive recap of the basics of Elliot wave. If you don't have time, you can skip down below to my charts: from https://school.stockcharts.com/doku.php?id=market_analysis:identifying_elliott_wave_patterns
Impulse Waves
The Impulse Wave is the type of wave we have used so far to illustrate how the structure of Elliott Wave is put together. It is the most common motive wave and the easiest to spot in a market. Like all motive waves, five sub-waves: three motive waves and two corrective waves. This is labeled as a 5-3-5-3-5 structure. However, it has three unbreakable rules that define its formation. If one of these rules is violated, then the structure is not an impulse wave and one would need to re-label the suspected impulse wave.
The three rules are:
Wave 2 cannot retrace more than 100% of Wave 1.
Wave 3 can never be the shortest of waves 1, 3, and 5.
Wave 4 can never overlap Wave 1.
The goal of a motive wave is to move the market. Out of all the various types of motive waves, impulse waves are the best at accomplishing this. Wave 4 does not cross into the price territory of Wave 2, nor does Wave 2 correct below the beginning of Wave 1. Also, see that Wave 3 is not the shortest. Wave 3 can never be the shortest wave; it is usually the longest of the five waves and the most likely to extend (which is covered in the next section). Sub-wave 3 of an impulse wave will always be another impulse-type motive wave. Wave 2 cannot move below the beginning of Wave 1. Wave 2 is often known to retrace much of Wave 1, but if it retraces it completely, it is not a Wave 2. A break in price below the low of Wave 1 would invalidate the suspected wave-count and imply that one should look for an alternative way to label the pattern.
Wave Extensions
In the majority of cases, impulse waves will exhibit what is called an “extension” to their normal pattern. This means that one of the impulse wave's three motive sub-waves will be an elongated impulse with exaggerated subdivisions. This can happen in either Wave 1, 3 or 5, typically happening in only one of said waves.
At times, the subdivisions of the extended sub-wave look almost the same in amplitude and time duration as the four other waves in the higher degree impulse wave of which they are a part. Instead of having a wave-count of 5 for the impulse, it is tempting to count 9 waves, as it may not be clear as to which wave is the extended wave. However, it does not really matter in the long run as the technical significance would be the same, even if one had assigned the wrong count.
If you run into difficulty seeing the extended wave, try your best to label the overall impulse and move on. A small guideline may help in this situation: if the potential Wave 1 and Wave 5 of the larger degree impulse look equal in length, then it is most likely Wave 3 which is extended, as it is the wave that most commonly does so.
As an extended wave is also an impulse, extensions can occur within extensions. You may have a few degrees of extensions within one impulse wave.
Types of Corrective Waves
When markets move against the trend of one higher degree, they do so with an apparent struggle. This resistance prevents the pattern that forms from developing a motive type of structure; the patterns that do form are more varied than in the motive wave type. An analyst must exercise patience and flexibility when dealing with corrective waves. There are two styles of corrective waves, the “sharp” correction and the “sideways” correction. The sharp corrections move steeply against the trend of one higher degree, while the sideways correction appears to form a flat type of structure that often goes back to the price of where it began before ending the correction. More details on these are given below, broken down into four main categories. Please keep in mind that although corrections are often seen as declining in price, the reality is that the market can correct up or down, depending on the trend of higher degree.
Zigzag Corrections
A single zigzag is a three-wave corrective structure that is labeled as A-B-C. The sub-wave sequence is 5-3-5. We have seen this above in our expanded corrective wave pattern. The A and C waves are motive waves (with 5 sub-waves), while the B wave is corrective (often with 3 sub-waves). The zigzag is known to form a sharp style of correction and, in an impulse wave, usually shows up in the second wave position. Zigzags may also form in combination and form what is called a double (or triple) zigzag, where two or three zigzags form connected by another corrective wave between them. More detail on the rules for these are given below when we talk about combination corrections.
Flat Corrections
The flat correction is another three-wave correction where the sub-waves form a 3-3-5 structure. Like the zigzag, it is also labeled as an A-B-C structure. In this case, both Waves A and B are of the corrective variety and Wave C is motive (with 5 sub-waves). It is called a “flat” because the pattern moves in a sideways direction. Within an impulse wave, the fourth wave often has a flat while the second wave rarely does. Most flats, however, don't look as neat as this, but are variations on the theme. A flat that has the B wave terminate beyond the start of the A wave and the C wave terminate beyond the start of the B wave is called an expanded flat. This is actually more common in markets than the normal flat shown above. A running flat, which often occurs in strong trends of one higher degree, will have Wave B terminate beyond the beginning of Wave A, but Wave C will fail to reach the beginning of Wave A. This is a rare case, but it has been known to happen and usually forms in strong trends.
Horizontal Triangles
The horizontal triangle is a pattern that consists of five sub-waves that form a 3-3-3-3-3 structure, labeled as A-B-C-D-E. Unlike the motive wave, which also has five waves, this pattern reflects a balance of forces and travels in a sideways pattern. The sub-waves are corrective and form patterns of threes. The horizontal triangle can either be expanding, where each following sub-wave gets bigger in amplitude, or contracting, forming a wedge. The triangles may also be categorized as symmetrical, descending or ascending, depending on whether they seem to be pointing sideways (as in the above example), up with a flat top and rising bottoms (ascending) or down with descending tops and a flat bottom. The sub-waves may be composed of complex combinations, not just of zigzags (shown) or flats. Although it may look easy in theory to spot a triangle, it may take a little practice to become familiar with them in the market. A triangle may extend by having its fifth wave also be a triangle of lesser degree. Instead of Wave E being a three-wave structure, it will be another horizontal triangle. This just demonstrates the level of complexity that Elliott Wave Theory can reach. One thing to remember about horizontal triangles is that they always appear in the position prior to the final move of the pattern, or as the final pattern in a combination (described below). This means that they will appear as Wave 4 in an impulse wave or as Wave B in a zigzag. This one fact can help alert an analyst to a change in trend.
The July Soybean chart rallied to the top of the range from last June on Friday's report. This chart represents the daily of the weekly chart also - hope that makes sense.
Soybeans will either break higher this week or be stifled by resistance in the 1550 area. We will have to see how Sunday night and Monday trade for direction. Check out July daily soybeans.
December Corn almost tested the May 18th low during Friday's trade on the bearish report data - Price came within 3 cents. If this low is not breached, the down leg still represents a wave 2 correction leg.
If the May 18th low is tested or taken out then we either have a double bottom or further selling. Friday's report was quite a shock to the corn and soybean markets, so we will have to get some guidance from Monday's trade for direction on how these grains will proceed.
