Two Plausible Counts

Today was a reversal day, lower, in the ES futures after the NVidia earnings came out and trading began in the cash markets this morning. Price initially traded higher, sketching out an expanding diagonal which we showed in the comments for the prior post. When the diagonal was complete, slightly beyond the 1.618 extension we cited, then price reversed lower hard and fast.

The Principle of Equivalence requires that I show two plausible and valid scenarios for this wave as in the two-block below of the ES 12-hr futures.

The first count is the expanded diagonal count which is valid in every sense since wave v is longer than wave iii and wave iv is longer than wave ii. If it wants to it can still break lower to 1.618 the length of wave iii. It is not there yet. It does not need to do this, but it might.

The second count is the nested (i), (ii), i, ii count which is valid because ii is less than (ii), and because i is less than (i), allowing degree labeling definitions to hold.

Today closed the gap in the ES futures contract from Fri 10 October. It took quite a while, but this target, target #3 was met. Each of the first three targets (lower Bollinger Band, 100-day SMA, and gap close) were somewhat higher probability targets. The fourth target, target #4, is the 200-day SMA. It has a slightly lower probability of being met, until the current Head & Shoulders on the daily chart breaks down. But, if it does it would be in reach of ⓒ = 2.618 x ⓐ subtracted from ⓑ in the Expanded Flat that we sketched out before.

And this might complete the Minor B wave if that occurs.

Any bounces from here should respect the 18-day SMA since price failed there today. And as the note on the chart shows, either count is free to just break lower if it wishes. Of course, there can be some backing and filling, especially after what we think is a five-wave diagonal we counted this afternoon. It may be a 5-3-5-3-5 diagonal, but some overnight waves need to be looked at.

Have an excellent start to the evening,

TraderJoe

Follow-through Day

U.S. equity prices, as measured by the daily ES futures contract, headed lower overnight and continued lower into the open until about 11 AM. At that point, as the chart below shows, the 100-day moving average was tagged, slightly below the 6,600 level, meeting our Target #2 price. And then there was a bounce.

As of the cash close, the bounce occurred in three-waves, missing a five-wave-move by fractions, and then price headed lower breaking the lower trend line of an upward parallel, and then price again closed below the lower daily Bollinger Band.

Price has not closed the daily futures gap yet (as Target #3), but it could. The market is still quite bouncy in the sense that there is a lot buying on the way down. We suggested whippy action, and we appear to be getting it.

With two closes below the lower daily Bollinger Band, the odds drop to about 4 - 6% that the next close will be below the band (not impossible, but lower odds). The greatest number of consecutive closes below the band as reported by broker Ira Epstein, is typically seven - and a grinding lower scenario like that cannot be dismissed out of hand.

The hourly SPY can still be drawn in a downward parallel, and readers of this blog are encouraged to perform that exercise. As long as it is in a parallel, it suggests downward continuation. 

Tomorrow is NVidia earnings after the close.

Can the bulls rescue the current downtrend? Well, at the moment, the wave down today from 13:30 to the close is longer in price and time than the wave down from 11:40 to 12:35. And the up wave from 12:35 to 13:30 is longer than the prior one this morning. This suggests the primary up path would be by a low probability expanding diagonal. However, keep an eye out if price gets below 6,614 either in the overnight or tomorrow as such a diagonal would invalidate below there. If it busts it would not surprise me in the least. Again, no amount of downside selling would truly be unexpected at this point.

The daily slow stochastic is in over-sold territory, and that bears watching. If price has "latched on" to the lower band, it may force the stochastic to embed. But we are a way from there at this time. So, a word of caution is worth its weight at this time.

Have an excellent rest of the evening,

TraderJoe

Outside Day Down

Today's ES daily candle made a slightly higher high before the open, then traded down in seeming expanding diagonal (or expanding triple-ZZ) fashion to make a new lower daily low coming within three points of the Nov 7 low.

This price action keeps the daily bias to the downside. As of the cash close, the close is below the lower daily Bollinger Band, and this happens roughly only 5% of the time. The daily slow stochastic is also now in over-sold territory, and this is not a condition that generally attracts new short money. In fact, some of the Smart Money may be covering some of their short positions here.

So, this could still be a situation where conditions are ripe for whippy trade. The next two targets, should the market decide to trade lower, are the 100-day SMA (green dashed line) and the prior gap close (purple dashed line).

With today being an outside day down, the outside day guidelines apply: "if the market takes out the high of an outside day down within the next two trading sessions, then it can be a trap for the bears." Otherwise, the bar could indicate continuation lower.

IF the market takes out the Friday Nov 7 low tomorrow, then it will have done it with more speed (that is, more impulsivity) than the prior down leg. And a daily expanded flat as a Minor B wave can still result. But there is no certainty that this will happen as of this time. We can get a lower degree flat, up, wave to form first, or a larger daily triangle can still be in the works.

Have an excellent rest of the evening,

TraderJoe

Not in a Hurry

The first target we cited last week of the lower daily Bollinger Band was hit and exceeded somewhat as seen in the ES daily futures chart, below.

 

After hitting the target and the band, price staged a turn-around to close nearly unchanged or slightly positive. The daily slow stochastic is not over-sold. Price did still close below the 18-day SMA so the daily bias is lower as of this time. We additionally note that the speed of the three-day decline was (sic) obviously faster than the speed of the seven-day decline into the prior Friday's low.

This means - if it comes to it - that this prior Friday's low and the wave leading to it can be a sub-wave of a further decline. Now the question is will any upturn respect the recent Wednesday high, and will it take less time? Currently, the wave count can still be seen as the Expanded Flat in progress. Alternatively, even if a minor new low is made below this recent Friday, a triangle might still be in the works.

Either way, whippy trading can be expected. And we know what that means (flexibility, patience, small size, etc.) until further information is available.

Have an excellent rest of the weekend,

TraderJoe

Gap Close

Yesterday, we counted only three-waves-up to a lower high in the cash market. This suggests a leg of a triangle or diagonal. After some initial price moves higher for the futures last night on the re-opening of the U.S. Government, prices subsequently headed lower, and down through the 18-day SMA. The daily chart of the ES futures is below.

The close of today's bar will likely be in the lower fourth of the bar - which represents weakness. During the session a prior cash gap up was closed. Still, by the end of the day we could only count another three-waves-down. So, a lower low would likely be needed in the next two days in order to claim an impulse formed lower.

IF prices continue lower, then the lower daily Bollinger Band is still a target, and, if that is significantly exceeded lower, then the 100-day SMA would be the next target.

With today's three-waves-down, there is a low probability of a triangle to this point since all the legs since the high on 09 Oct can be counted as three-wave sequences. But the look and the measurements are not the best for a triangle. Still, if that's what happens, we'll accept it. Otherwise, we continue to count downward.

For now, the daily bias is still down, and that should be respected until and price closes over the daily 'line in the sand'. Intraday, the market has not even yet closed up over the 18-period SMA on the half-hour chart.

So, this could be whippy action requiring patience and small positions (if any) until the market makes a few more local decisions.

Have an excellent start to the evening,

TraderJoe

Local Degrees and Count - 2

For the ES futures today, we were expecting further up movement today both because we have counted a five-wave-down sequence on Friday, followed by one up wave, and because there appeared to be some movement on the government shutdown talks, let alone renewed called for direct government subsidies to individuals for tariff-caused inflation. Up movement did occur with a gap-and-grind scenario that left the market at the day's high in quite a strange manner. The wave in cash doesn't channel from Friday, it wedges currently.

The oddity of the wave, and the lack of retraces only suggested an alternate to the second wave up scenario and that would be the fourth wave, (iv), of a diagonal as below.

Please note that some of the terminals used to draw this potential diagonal are different than those used to draw the impulse. I need to note that this pattern has its significant drawbacks which is why it is only an alternate at this time. Some of those draw backs are the following:

• Wave c of (i) looks like three waves, but the 4-hr bars might obscure five waves.
• Wave (iii) is much longer in price than wave (i) when usually in a diagonal they are often very close in price.
• Wave (iv) is a very, very deep wave already.
• We don't know that upward price movement is over.

We show the pattern for completeness, and because the EWO was on a low on Friday's low. Hopefully, price movement will either validate it or invalidate it soon.

Have an excellent start to the evening,

TraderJoe

Local Degrees and Count

Yesterday, we suggested that a short position might find "bad positioning" being initiated too low in the wave count - except for the ultra-nimble. By the close that seemed to come true. Today, using the ES futures we'll show again what we think the local degrees are, and what the wave count is. First, here is the scenario from the Minor A wave high, using the ES 8-hr futures, as shown below. The minute ⓑ wave high is at the 150% level on minute ⓐ.

ES Futures - 8 hr - Minor B Overall

Overall, we are trying to complete minute wave ⓒ of Minor wave B. Friday's down wave portion may have completed minuette wave (i) of that wave. There should be five sub-waves of minute ⓒ, and they should be (i) through (v).

The local down count of minuette wave (i) appears to be a non-overlapping impulse, but one that is a complete mess because waves ii & iv formed in reverse order of typical with wave ii as a long-in-time complex Flat wave, and wave iv as the relatively short sharp for alternation. So, that count appears on the ES 2-hr futures chart, below.

ES Futures - 2 Hr - minuette (i)

Because it is very clear that waves v and iii are clear impulses, I assume that wave i was also and it can be counted that way. Wave v is the longest in the sequence, followed by wave iii, followed by wave i as the shortest. The waves do not channel exactly, but that's what we expect from an impulse. Further, wave Ⓒ of ii was a true diagonal as its low was exceeded in less time than the diagonal took to build.

I have looked at the cases for both contracting and expanding diagonals, but they wound up not following the rules or guidelines. Wave two in a diagonal simply may not be a Flat, or the rules are broken. It 'must' be a zigzag. To me the down waves of the Flat are what I call guard bars in that they actually prevent overlap with wave i by acting as resistance against the up move. I won't break the rules, first, and the guidelines are applied secondarily.

Yes, I too initially thought we were making some kind of diagonal downward. But the market had a different idea in terms of price lengths and formations. Specifically, the up-wave portion of Friday's move is the largest up wave in the sequence thus far, and, hence, it may represent a turn of degree.

The impulse does suggest that we will eventually go below the low of the minute ⓐ wave of the overall larger expanded flat wave - and perhaps substantially so (i.e. 1.618 or 2.618 x from the minute ⓑ wave).

Have an excellent rest of the weekend,

TraderJoe