Every Five Wave Up Rally is Followed by a Large A-B-C Pullback

Every book about the Elliott Wave theory focuses on the look of a completed five wave up or down structure. In fact, upon completion of a five wave up trending move what follows is a great volatile A-B-C pullback:

That A-B-C pullback in majority of cases retraces at least 41.4% of the preceding rally and quite often erases 50% of the preceding move up.

There is a repeating pattern behind that three wave corrective move.

There are two natural targets for that decline:

(1) The target 1 is the low made by the previous pullback made by a wave 4 of one degree lower.

(2) The target 2 is the low made by the subwave -b- down of wave -iii- up.

We can outline the following rules:

(1) Upon completion of a the full five wave up rally the first leg down in a wave A tends to retest the low made by the wave 4 down, the low made by the previous pullback; and

(2) the second leg down in a wave C tends to make a lower low and stretch down to the low made by the subwave B down of the wave 3 up.

Note that those two targets / magnets for the moves down can get slightly undershot by bears before bulls step in and push price back over those support levels.