The Elliott Wave Principle (EWP) tracks the progress of financial markets via what Elliott called "waves." Waves are market moves in any time frame, from seconds to years to decades. The underlying principle is that markets are governed by human emotion, generating waves of fear, greed, hope, despair, and other feelings. Each wave reflects social/investor sentiment changes, and the form is repetitive and thus predictive.
These market moves are mostly made up of a five-waves movement in price, followed by a three-waves step in either direction, up or down. They are the most efficient way for financial markets to progress in time.
Since financial markets are fractal, i.e., self-similar, in nature, these waves appear on any time frame. Several weeks ago, I applied this reliable tool to the 1x ETF (Exchange Trade Fund) of the iShares Russell 2000 ETF (NYSE:IWM) to determine the bigger picture.
Figure 1 IWM hourly candlestick charts with detailed EWP count and technical indicators.
The Russell 2000's ETF, like many other indexes, bottomed February 24 on the news that Russia had sadly and unfortunately invaded Ukraine. From that low, the IWM rallied for two days in what counts best as five waves up (grey, minute waves i, ii, iii, iv, and v).
Besides, wave-iii counts well as subdivided into five smaller waves (orange, micro-degree, 1, 2, 3, 4, 5). The index then declined in what counts best as three waves lower and three waves back up. Then it declined in five waves lower, adhering to a textbook Fibonacci-based impulse pattern and a classic 61.80% retrace—nothing out of the ordinary here. Indeed there is a mathematically precise method to the madness, showing the market moves at the beat of its drum following universal, well-known, pre-described patterns.
Once the five (orange) waves lower were completed into the ideal 5th wave target zone yesterday, the market took off, and the IWM so far retraced -once again- 61.80% of the decline that started on March 2. Door A will have the indexes rally back over the March 2 high and kick in a rally to at least $210+/-5, but ideally to as high as $225+/-5. Door B will have the indexes drop below yesterday's low and target, in this case ideally ~$180. At this stage, it is up to the markets to decide what's next.
The market's direction depends on what information will become available over the next few days and how all market participants will interpret that. Regardless, thanks to the EWP, we have clear if/then scenarios and thus know what to expect when the market decides to step through either door. For now, and in straightforward terms: as long as the February 24 low holds, bulls are in charge, believe it or not.