Lower Low - Swing Around Day - Higher Close

Today in the daily ES futures made a lower low, primarily overnight, touching the lower daily Bollinger Band, then turned around to close higher. The lower low below the 18-day SMA continued the swing-line extension lower, but, according to Ira's method, it is not in a trend as it has a previous higher high, and then the lower low. It is in what he terms a 'vertical price break'.

And while the front-month or June futures contract - and the SPY cash - made the lower lows compared to the March 13 low, the roll-over futures contract did not. This raises the suspicion that on the short term, a triangle or a Flat wave is being made. That being the case, it is possible for price to revisit the 200-day SMA, although that is not required. Price could just break down and make a further lower low which might then be a fifth wave of the decline.

Interestingly, on an up-close day, the daily slow stochastic lost its over-bought status and is now neutral. There were a couple of ways you could sniff out the possible up day: 1) the weekend stock-market videos were almost solidly bearish - a potential contrarian indicator, and 2) today is the last day of the month and usually sees the typical sloppiness of the window-dressing from portfolio managers with tomorrow as the first day of the new trading month which might see inflows from the usual sources (401k's, retirement accounts, dividend reinvestment plans, etc.). Very often, the futures front-run those inflows, and that may well be what occurred in the latter part of the day.

Of course, over the next couple of days, additional tariff news will be announced, as will the results of the President's third-term election results (..just kidding, I think).

Have a good start to the evening,

TraderJoe

Could the Market Triangle? - A Long-Term Alternate

In prior posts (see LINK here) we have laid out the case for a potential expanding diagonal top, still in formation, or for a Primary Ⓑ wave top at the recent high. Those counts remain active, as we do our best to count locally. But the Principle of Equivalence can be a little more insidious in some situations, and this often requires that we pay close attention while suspending our judgement for just a bit. One thing is not this uncertain. In terms of absolute points (not necessarily percentage in some situations), this down wave is currently longer than all the prior ones since October of 2022. So, it does appear that we may well have had a true turn-of-degree by the definitions involved.

Still, when we back out and look at the two-weekly ES chart in close-only format, we see that we are still in a parallel since March 2020, as below.

ES Futures - 2 Weekly - Close Only

So, because we haven't overlapped anything downward yet, and because the wave (2), down, is a simple zigzag, The Fourth Wave Conundrum - that occurs of every degree of trend, and The Principle of Alternation say that we could get a very sideways triangle or flat - which does not overlap - to make a fourth wave, (4). Note that with 131 candles on this chart, the EWO, while declining, has not come back down to near the zero line, yet.

It is possible a fourth wave triangle could coincide with a FED rate-cutting cycle during a recession if one should occur. This may have the effect of getting the animal-spirits flowing again and keeping the market afloat.

Caution: there is virtually nothing that is guaranteed about this scenario. The expanding diagonal could still happen. And, if the triangle does happen, as above, there can still be a lot of down-side movement yet even from here. We are not yet down to 38 - 50% of wave (3).

We include this scenario for completeness, and because the up waves (1) & (3) are just messy enough in their counting to possibly allow it. Further, we have not seen a clear, massive, agreed-upon triangle on the weekly chart, though the daily triangle possibility at this high has been noted by several analysts, me included. So, this is just a scenario to keep in the back of your mind, even though the expanding diagonal and the Primary Ⓑ wave may agree more with the extreme market over-valuation and extreme, extreme long-term bullishness.

Have an excellent rest of the weekend.

TraderJoe

Lower Low, Lower Close (LLLC)

Today's lower open in the ES daily futures, combined with the lower close, allows the swing-line indicator to be continued lower today, as shown in the chart below.

ES Futures - Daily - LLLC

Despite the seemingly small size of bar, it was quite a whippy day and continued the trend of complex and confusing price action. In a way, the bar does represent the "battle at the 18-day SMA" with prices on both sides of it and a close near it. A possible tell is that prices closed in the lower half of the bar by the cash close (futures are still trading as this is being written). Further, the upper daily Bollinger Band is now under the 200-day SMA and should provide resistance to upward price movement. The daily slow stochastic at the cash close was still in over-bought territory.

That said, a break of either the last down (red) fractal or the prior up (green) fractal would help provide additional clarity. A break of price under that down (red) fractal - which is also below the 18-day SMA might set a sell signal for the algo's that use the band as a reference. This is not trading or investment advice - just describing what some algo programs might do.

From an EW perspective on the intraday chart, we counted three waves down, three waves up, and a close below the prior 'b' wave (see LINK here).

Have an excellent start to the evening,

TraderJoe

Back to 18-Day

On the ES daily chart, below, prices ran away from the over-bought condition we pointed out yesterday and they declined back to the safety of the 18-day SMA - as of the cash close - to decide what to do next. 

ES Futures - Daily - Back to 18-day SMA

This has the effect of temporarily at least turning the swing-line indicator lower. But the chart is dead neutral as price is at the 18-day SMA, although the daily slow stochastic is still in the over-bought zone. From an Elliott Wave perspective, the price action had the effect of overlapping the 'a' wave in the ES 4-hr channel, as below.

ES Futures - 4 Hr - Channel

So, now one must see whether the correction wishes to extend or not. In other words, is this just a 'x' wave down, or a 'i' wave down? It is again The Principle of Equivalence until the waves are long enough to enable a clearer count. However, if the channel broke lower, was back-tested and failed the back-test lower, then one would have more information to suggest that maybe the uptrend was over at the 50% retrace level. That is because 'usually' double-zigzags form a near-perfect channel, first, or a wedge, second. One negative sign is that price did not attack the upper channel line today. So keep that one in mind.

Have an excellent start to your evening,

TraderJoe

Continuation

On the ES daily futures, the early higher high allowed the swing-line to be continued up to today's bar as shown in the daily chart below.

And while this is in accord with the daily bias being higher, the daily slow stochastic tonight is entering over-bought territory. So, according to the methodology this should dissuade large amounts of new money from being committed here. Further, the upper daily Bollinger Band - after dropping down through the 100-day SMA (green crosses), risks crossing down under the 200-day SMA (the brown curve). So, in one way volatility is being sucked out of the market. 

For our part, we have noted lots of overlapping waves - some of them diagonals - and it may be emblematic of the reduction in volatility. Upward price travel is still in an upwardly sloping parallel which may indicate corrective waves. But even though price is having a rough time at the upper edge of the parallel, we have not yet concluded that upward price movement is over, or that the correction won't extend in another way. We watch for signs intraday - such as a triangle or larger diagonal.

One gap was filled to the upside today. Maybe another will fill. Maybe not. After the higher high, the news regarding the Conference Board Consumer Confidence (92.9% down from 100.1) came out and took some edge off of the upward progress. If people lose confidence and reduce spending, it will probably mean some tough going for the market unless government spending (Golden Dome, etc.) and other stimuli make up for it. So far, only marginal stimulus has been announced via the FED's reduction of the amount of QT noted in Chair Powell's press conference. And, yes, the tariff wild card still remains.

Have an excellent start to the evening,

TraderJoe

Daily Swing-Line & Bias Flip

Over the weekend, regardless of what you heard about tariffs, the President made demands to spend billions on a Golden Dome (see this LINK), and when the markets heard the words, "Billions more in government spending - and possibly space based" they went bonkers, gapped up, and kept on going into the close. From the chart, below, you can see price is closing over the 18-day SMA, and the daily swing-line has flipped to positive.

This suggests the odds of the continued down move have flipped temporarily in favor of the up move with the overhead resistance possibly shown by the brown 200-day SMA, the upper Bollinger Band and the 100-day SMA (the green crosses).

So, even though we were expecting upward movement since the Mar 13th low, it may have gotten out of the range of a fourth wave. It's unfortunate, but it places the wave-counter in the position of having to wait for a new lower low, or even a newer all-time higher high, before deciding on the best wave labels. 

Literally, and I mean this sincerely, one could try placing an ⓐ or a ⓘ at that low. And that is all well and good. But it is still of minimal help. In other words, supposing one is thinking a diagonal down is forming. OK. But will it be a contracting diagonal or an expanding diagonal? And is this upward retracement even over? Try to keep in mind, the algo's just got a typical buy-signal based on the Bollinger Band methodology.

Rather this is one of those times when one simply needs more waves, or more overlaps to try to gauge what is going on. Yes, the current up wave is in a channel. If it should break lower tomorrow, more power to it. But, if it doesn't?

So rather than propose multiple wave labels at this time, it is probably best to stand back for a bit and just observe whether the power continues to the upside or a break lower immediately occurs. There are other markets that seem to be counting a bit better at the moment (like Gold), and so maybe that is where some attention should go.

Have an excellent start to the evening,

TraderJoe

Neely Style Chart

I have written before how the zigzag indicator, properly configured, can be used to emulate a Neely-style wave chart which can offer some clarifying information on the current wave situation. The ES 4-hr chart is shown below, again using this technique.

With 132 bars on the chart, the current count looks pretty straight-forward. First, there is no overlap of wave (iv) with wave (i) to be a cause for concern. Second, the Elliott Wave Oscillator (EWO or AO) is still within the range of a fourth wave, and the wave (iv) price, itself is still within the 38 - 50% retrace of wave (iii) that would be expected of a fourth wave. This is shown by the Fibonacci ruler on the middle-right. Third, there is alternation between the forms of wave (ii) and wave (iv) at present. This would still be the case if wave four decides to triangle - which is does not need to do. It is optional. Fourth, the third wave down, (iii), is greater than a 1.618 extension of wave (i) so we are supposed to err on the side of a third wave rather than a (c) wave. And fifth, the third wave, (iii), is in a channel with an impulse count visible. 

All of this is only to say that the probability of a downside continued move is slightly greater than that of the alternate three-wave-count shown in red below the price bars. But I'd still only rate the probabilities as about 65-35%, but 35% odds events are not prevented from occurring in any manner.

The beauty of the zigzag chart is that it connects the actual price vertices when used properly to show the real wave terminal points, but it still eliminates a lot of the noise while confirming some or most of the interior wave structures. Further, the actual price bars can be hidden as above to allow the study of the movement without other distractions.

As a completely sidenote one can also observe that some of the sentiment indicators are dead neutral. These include the advance/decline statistics, the McClellan Oscillator, overall bull-bear ratios (not just the AAII sentiment) etc. So, the chart provides what it does, and the alternate structure is clearly indicated.

Have an excellent rest of the evening and the weekend,

TraderJoe