During the last several months the ASX 200 was going sharply up and down by 200-400 figures in each direction. Unless you have an incredibly strong stomach, these swings could easily make you feel sick. Should we expect this “roller coaster” behavior to persist or the Australian stock index is finally going to find a direction? Let’s see if the Elliott Wave Principle could help us find the answer. The chart below shows all the price action since the August top of 5680.
The fast and sharp declines and rallies are making the labeling a little tricky. However, the most probable assumption suggests for more weakness ahead. It appears there is one pattern shown twice on this chart – the 5-3 Elliott Wave cycle. First we have a five-wave impulsive decline for wave I, followed by an expanding flat correction in wave II. Then, there is another impulse marked with (1), which seems to be followed by the same type of retracement. Wave II has already found resistance in the 61.8% Fibonacci level of wave I. Wave (2) is about to touch the same proportion, based on wave (1).
If this is the correct count, the ASX 200 might be ready to start falling in the face of wave (3) of III. This means the support zone around 5120 should finally give up.