Brutal Counting

Today we counted down a likely third wave with two, not one, expanding diagonals at different degrees of trend. The wave counting is brutal. The intraday trading subsequently difficult. There can be no question that our diagonal target was met. And it raises the point that this monthly count may still be on the table for the S&P and the NDX. The ES futures are shown here to be representative.

We have shown the skeletons of this count many times. It is the diagonal count to a Primary ⑤th wave that would end Cycle V. Now, finally, on the downside, there is something to work with. Wave (3) is just barely longer than wave (1) in price, and it is clearly longer in time.

We made a notation on the chart regarding possible potential alternation in wave (4). Interested readers should view it. Please keep in mind that I have sketched out an idealized wave (4). Like all fourth waves they can get much crazier than this. Sometimes in a diagonal, wave A comes very down near the trend line before the bounce. Sometimes there is a triangle in the middle of the fourth wave to slow things down and cause traders to lose money fast. Sometimes the Minor B wave bounce is 90% or very nearly there to confuse people with a flat.

But first things first. Overlap on 4,808.25 would first be expected. Then, after overlap, wave (4) must hold above wave (2) to avoid invalidation. Often the fourth wave takes more time than the second wave. So, that's the way we've shown it. And it often retraces 62 - 82% of wave (3) in price. So, the Fibonacci ruler is shown as a guide.

Careful readers might note that the Minor A wave of Intermediate (3) is shown as an expanding diagonal itself. This is what is known as a fractal of the larger pattern if it should play out as shown. It is the only way I can count the wave to observe degree labeling requirements.

Keep in mind this is a monthly bar chart. So, this pattern can take a very long time to come to fruition. To novice technicians it might look like it is forming a large head & shoulders pattern which then fails to play out. 

And if it does invalidate? Place a Primary ⑤ and Cycle V at the high of 2022, a Primary Ⓐ at the bottom of October 2022, and a Primary Ⓑ at the high in 2025, and Primary Ⓒ and cycle a at the low near 2,000 (price) to match the low of Primary ④. We just think the market should have the option of ending a very long wave with a diagonal, and the above count is it, for now.

Have an excellent start to the weekend.

TraderJoe

Lower High, Lower Low

The swing-line indicator now has a lower high and a lower low underneath the 18-day SMA on the daily chart of ES futures shown below.

ES Futures - Daily - Lower High, Lower Low

Daily price is now down past the lower daily Bollinger Band, with a close below it, dropping the odds to 6 - 7% of a further lower close below the band (not impossible, just lower odds). But the daily slow stochastic is not yet even in over-sold territory. So, the trend is down until it isn't.

Further, I have sketched in the wave ii to wave iv trend line with a parallel copy placed on wave iii. This is Elliott's second parallel technique and is often the first target for a fifth wave, v. The next targets, if the first is exceeded, would be 0.618 x net [ i - iii ], or v = iii. So, there could be more downside. Just be cognizant the Payroll Employment report is coming up tomorrow, and it could wreak havoc with volatility.

We will note that 'many' chartists will not be very persuaded there is an uptrend coming until or unless there is an outside bar up, tomorrow, with the close respectably in the upper third of the candle. Then, the low of that bar would have to hold for two days, and price would have to make a close over the 18-day SMA again.

So, be careful. One initial target is dead ahead. Have an excellent start to the evening,

TraderJoe

Rules Not Broken

Nothing about this count breaks the 'rules' of Elliott Wave. The overnight wave is the very definition of impulsivity.

Wave iv may be a failed 'double-combination' wave. It is 13 bars long compared to wave iii's 8 bars. So, it is longer in time, as Neely likes to see. Also wave iv breaks the Neely 0 - ii trend line.

Price is down at the lower daily Bollinger Band. Can it go lower? It can. We'll be on the watch.

Have a good start to the evening,

TraderJoe

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