Wave B
Wave B is the second wave of a corrective sequence. It moves against the corrective trend, back toward the prior impulse direction. This is the trap wave. Wave B tricks traders into believing the original trend has resumed. In a bear market correction, Wave B rallies and everyone thinks the selloff is over. In a bull market correction, Wave B drops and everyone panics about a crash. Wave B always subdivides into three waves internally. In a regular flat, Wave B retraces about 90% of Wave A. In an expanded flat, Wave B actually exceeds the starting point of Wave A, which makes the trap even more convincing. Traders who enter positions during Wave B based on trend-continuation signals get destroyed when Wave C arrives. The best way to handle Wave B is to recognize it for what it is. Look for three-wave internal structure, declining momentum on the move, and positioning near Fibonacci retracement levels of Wave A. When you see those signals, prepare for Wave C instead of joining the crowd.
S&P 500 drops from 5,200 to 4,900 in Wave A. Wave B then rallies back to 5,180, retracing 93% of Wave A. Financial media declares the dip is bought and the bull market is intact. But the rally shows three-wave internal structure and volume is lighter than during the prior trend. This is an expanded flat setup. Wave C then crashes through 4,900 and drives the index to 4,650. Traders who bought the Wave B rally are caught in the worst part of the correction.