Everyone Raise their Hands

This is the question that literally everyone knows the answer to: When wave three is shorter than wave one, how long can wave five be? Don't everyone raise their hands at once. Of course, it should be (for a valid Elliott Wave count) that wave five should not be longer than wave three. That is because in any count the third wave is never the shortest wave. So, in the daily chart, below, a measurement is possible.

ES Dec Futures - Daily - Measurement

Thus, in the lead month futures contract (ESZ2026), if the count above has the third wave at the August high, then the fifth wave simply should not exceed 8,093. Yup, that is the question everyone knows the answer to. We know that today the NQ futures and cash S&P500 and SPY did go on to make higher highs. Interestingly, the ESZ did not, as you see above.

But the question a few more are hesitant on is, "what if the third wave is still in progress"? If there is a misinterpretation that the late-July, early-August up wave is actually a "5", and not a "3", then perhaps price is making a diagonal "(c)" wave of minute-iii, ((iii)), or circle-iii. That is possible at this point.

I've seen diagonals do a lot of freaky things to try to stall before the inevitable. This one might also - given that index pricing could easily be driven by a large leveraged bet in a high cap name. If that is so, then a third wave could become longer in price which might drive the fifth wave to a higher high than shown.

So, while there are quite a few ways price could take a steep plunge from here - that we are on our toes for - there are still ways for the market to delay, to frustrate, to whip, and to mislead. We will not be surprised if the market does that.

And we are calm, patient and flexible, not only until an ending count can be determined but also until there is decent confirmation of a turn. We remain vigilant if a truncation should occur. We continue to follow the local technicals as we did today, paying keen attention to prices being over the upper daily Bollinger Band in an over-bought condition on the daily slow stochastic. And we are monitoring the intraday wave-counting-screen (IWCS) to give clues to more immediate price direction. But at the moment, price is still well over the 18-day SMA, so the daily bias is up at this time. That could change. There could be an outside reversal bar at any time, but until there is, there is mostly the "hard right edge of the chart".

What else is there? Well, there may be a time when the right question becomes, "what is a good time to build a core position for a turn lower?" Don't everyone raise their hands with the answer.

Have an excellent rest of the evening,

TraderJoe

So far ...

Prices have come soooo far since 1932, since 1974, since 1987, since 2001, since 2009, since 2021, and so far, prices still have the right look for both a larger and smaller contracting diagonal. We have shown the larger two-weekly one many times, and it has the right look on a log-scale chart. The daily one is below is shown, and it has the right look currently on either scale.

The initial B - to - ((ii)) trend line was broken in what may be the underthrow for the overlapping fourth wave. And a fifth wave may be in progress. The PPO indicator currently diverges on each subsequent peak, and has touched the zero line twice since June. The upper trend line has multiple touch points. The only item that would be nicer would be if the retraces for the second and fourth waves were closer to 62% or more.

On Friday, the Payroll report gave prices another lift higher, but then they stalled. It seemed like an ideal time to take prices over the prior high, but they just wheezed. We're not making too much of it. We're just remaining calm, patient and flexible pending short-term technical developments. The NQ futures did go over the high again. Still, the four hour chart can give one some markers, as below.

At the moment, the odds slightly favor the uptrend in force. But one needs to watch the recent trend line and Thursday's low for a presumptive invalidation of the uptrend should it occur this week (with better confirmation below 7,575). The prior high is certainly a target for a continued move higher. If slightly higher highs are made, it may wind up only be the minuet (a) wave of minute ⓥ with a (b), and (c) to follow.

But, make no mistake, ES prices are stretched to inanity, and declines should not surprise. I say that because so few stocks and or indexes are participating in the rally. The NYSE Advance/Decline line is clearly not at new highs at this time.

Sentiment is also stretched to an extent not seen before - with my proprietary bullish sentiment indicator indicating more consecutive weeks over 60% bullish than at any time in the past. It's not the highest reading ever, but it is more sustained than in prior runs. People are rotating from "Good news is good news", to "Bad news is good news". In other words, they want to see economic weakness to drop interest rates some to lift stocks more. This has happened in many prior cycles too. It may be a sign of hope developing. And remember, a bear market skids on the slope of hope - should one begin.

One can argue that the Dow and the Russell 2000 have begun significant declines. If so, the Dow especially would just be validating the longer-term two week contracting diagonal. It had quite a few days down, which might indicate  a turn of degree, but one would want to see a greater price extent.

Have an excellent rest of the weekend,

TraderJoe

Outside-Day-Down

Today, we were counting downward for the potential Ⓔ wave of a triangle representing the end-of-month and end-of-quarter window-dressing. We warned that the current scenario supported multiple counts, and we got one which broke the triangle lower in the futures - after the cash SPY had broken yesterday. The selling into the close was sufficient to make an outside-day-down, after we had counted three waves up. So, the conditions of the chart, below, are now an outside day down, and a swing-line indicator with a lower high and a lower low, and a close below the 18-day SMA.

ES Futures - Daily - Outside Day Down

The daily show stochastic is no longer over-bought, it has 'worked-off' that condition, but it is also still above the 50 level, and so, it is not over-sold. So, an analyst like Ira might give the advice that "until the high of the outside day is exceeded higher, then price might try to make a run for the 100-day, the lower daily Bollinger band, or - even possibly - the 200 day SMA."

And any low below the low of 16 Sept might set off the potential truncated top shown by the red asterisk *. So far, it looks like if we go up, it might be by diagonal, and if we lower there is one way it might be by impulse, but there are insufficient waves to show it yet.

So, tomorrow is the first-of-the-new-month, and the first-of-the-new-quarter. We'll see how many money managers want to fire all their bullets at the first of October, and who want to keep some powder dry. Since, a truncated top is a real possibility, no amount of downward movement should be perceived as out of the question. The question is whether further upward waves can be made or not. If they are, we have one count for that, but it would invalidate below that 16 Sep low.

Have an excellent start to the evening,

TraderJoe

Stuck at the 18-day SMA

Five of the last six days have at least seen prices touch the 18-day SMA in the ES Dec futures, just the lead month, as below.

Today made a lower low in the SPY cash ETF. It did not in the ES Dec futures, and instead price just scampered back to the 18-day SMA to close near there. The market currently is quite sideways. The Elliott wave counts we posted yesterday, and have been following for months and years, allow it.

This is just a reminder that tomorrow (Wednesday) is the last trading day of the month & quarter, which often sees window-dressing and portfolio adjustment. And then Thursday is the first trading day of the new trading month/quarter which often sees the typical inflows from passive investing, Corporate bonuses, 401k rollovers, dividend reinvestment schemes, pension fund contributions, etc. So, step gingerly - if at all - through that and remember, some very large corporations have announced huge stock buy-backs, which the retail trader might be swamped in (Nvidia announces $150 billion buy back on Sep 28th, the largest in Corporate history according to Yahoo! Finance) should the buy-back become 'active'.

Have an excellent start to the evening,

TraderJoe

Roll-Over Beethoven

I said that if prices made a new high in the ES futures contract I would address the possibility of a third wave as an alternate. Well, like the NDX, the ES rollover month contract has done that - made a new high. So, the current count and best alternate fit like the ES! daily chart below.

ES! Futures - Daily - Rollover Alternate

Unfortunately, neither cash nor just the lead month contract can be counted in this (alternate, red) way because the new high needed for circle-iii, minute-iii, is just not present for them yet. To count them as a diagonal would be in the current count with a potential failure if price can not soon establish new all-time-highs. Please remember there is an end-of-the-month and end-of-the-quarter scenario ahead to be followed by the potential of the first-of-the-month, first-of-the-quarter passive inflows on 1 October.

Have a good start to the day.

TraderJoe

Whippy

Today was whippy - as we warned. The news background fosters it. The brokers love it. The odds are all in the middle-of-the-road here. Play at your own peril. There are only certain markers that will establish new wave counts: higher than the prior all-time-high or lower than the prior two-day fourth wave low, below (use OHLC for the exact number). Simply said, nothing in the last couple of days has changed the progress of this wedge.

It really is that simple. You can make more of it or less of it as you like. IF the new high is made and there is not the failure, then it might also be possible that minute wave-iii, circle-iii, will get an extension. But the new high remains to be seen first. We'll address any extension later. Things are already incredibly overlapping in the ES futures - which tends to indicate some exhaustion going on.

Have an excellent start to the evening,

TraderJoe

Oh, No! Not Again!

Once again in the SPY cash index, the Kennedy Channel technique is not quite applicable (this is also  known as the "base channel" technique by R. N. Elliott). As you can see from the SPY 15-min chart below, a parallel channel drawn around waves i/a, and ii/b does not afford the result of a third wave popping out of the upper channel boundary to announce itself. Maybe it will tomorrow, but it hasn't yet.

And, yet, in about 106 candles the EWO is darn-near down to the zero line: certainly enough to be in fourth wave territory. So, The Eight-Fold-Path-Method says the two sets of labels are equivalent until something comes along to distinguish them. We need to see if a valid fourth wave can hold up without overlap, or we need to see if wave three stops downward travel here and extends, or if the fourth wave busts as so many have done in the past.

The odds are only ever-so-slightly in favor of the impulse because the third wave is slightly longer, but just. Again, in a situation where the odds are nearly even it is either pure guess-work or near-gambling to test those odds with ones own money. My approach is simple, "we need a bit more information".

Have an excellent rest of the evening,

TraderJoe