Below is a weekly chart showing the entire bull market and the major rallies that have led to higher highs. The red rectangles show each major upleg and how the RSI behaved during each move. It is easy to see a pattern forming on the RSI as each rally leg matures. Note the blue and red arrows. The blue arrows mark the breakout area of each consolidation pattern and the red arrows mark the 1st reaction low, waves i and ii. To find out where we are right now compared to the other periods of this bull market we need to go to the last red rectangle, our current rally phase, and compare the blue arrows and red arrows with each breakout and backtest. The first 2 rally legs were only about 6 months long so they were to short to get our 5 waves up. Waves 5 of I and 1 of III were long enough to get a complete Elliot Wave count. Looking at waves 5 of I and 1 of III, the blue arrows show the breakout move and the red arrows show the 1st reaction low or backtest. Notice the distance between the blue arrow to the red arrow, that decline is our wave ii down, our current situation. The reaction down to our red arrow on the RSI is relatively short and hard and is over in a matter of 4 to 6 weeks. If you look at the last rectangle on the RSI you will see we are in the area where the previous declines ended and the wave iii up started. This correction, wave ii down, is alot closer to the end than the beginning and if you look further at the RSI you will see that this rally leg will take out the previous high on the RSI creating a wave iii top. One more small reaction from the wave iii high will give us our wave iv down, as shown on the RSI, and we will either make another new high on the RSI or we will fail to create a higher high on the RSI giving us a negative divergence to signal the end of our wave iii of 3 of III. If you study the RSI you will see the Elliot Wave structure comes in very clear and each swing within the wave is defined by the RSI. The RSI makes it easier for us to know where we are within the confines of each bull leg.
All the best…Rambus
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