Update on Potential Minor wave A of Intermediate (3) - Part 2

Please refer to the prior post if you have not read it. I'll keep this brief. Today, in real time chat I was able to count five waves up to minuet (a) wave of minute iii (circle iii) of of Minor A of Intermediate (3), followed by a three-wave minuet (b) wave down of minute iii (circle iii), up; followed by an additional five waves up.

Here is what the count looks like on the DOW at this point in time.

Figure 1 - Add (a) and (b) of minute iii of Intermediate A in the Dow Jones Industrial Average

Now, since we have counted five waves up to (a), we are able to raise our invalidation point on this wave iii (circle iii). That is because a downward wave should not travel below (b). We should expect a full "five-waves up" from (b), and if that does not occur, something is wrong with the count. Again, see if other Elliott analysts provide you with such clear and unmistakable invalidation points. If not, they are not counting waves correctly.

For those that are interested, below is what the "real time" chart looked like today at the end of live chat. Also, I did find one way to revise yesterday's waves to make them more proportional. And it is shown below, also. It is impulse 'a', then 'b', then diagonal 'c' down to minute ii (circle ii) on the above chart. But it does not affect the position of any larger labels, nor of any of the waves today.

Figure 2 - Today's "Real Time" Wave Count in the SP500 30-Minnute Chart

In the chart above, since yesterday there are five non-overlapping waves, up, to 'a', followed by three waves down to 'b', followed by an Expanding Leading Diagonal wave i that I was able to count live wave-for-wave on the five-minute chart, followed by wave iii that occurred on Chair Yellen's comments today.

We now have 'five waves up' from b on the way to (iii), or circle iii in Figure 1. Once again, we do not know how this wave will progress for sure. It is possible that blue wave v can exceed the high of (i) all by itself. That is because wave blue iii is longer than wave blue i. So, wave v could be any length. Alternatively, this could be a five-wave sequence for a larger -i of c, with a -ii down to follow. And, this is, again what raises the risk in the market at this point in time.

P.S. I'm sorry for a little bit of the label confusion between the two charts. It is a limitation of the real time software used. I hope you can follow it. They are exactly equivalent, and if you have any questions refer to the Dow chart, in Figure 1, above.

Cheers!

Update on Potential Minor wave A of Intermediate (3)

Here is a very brief update on potential minor wave A of Intermediate (3) of Primary 5 (circle 5). We said in previous posts it was very possible that the A wave up was taking the form of a contracting Leading Diagonal. Nothing has changed. Downward movement after the Grate Debate (sic) last night did not invalidate this possibility in either the futures or the cash. Here is the hourly DOW as a reminder of the count.

Potential Leading Contracting Diagonal for Minor A of Intermediate (3) in the DJIA

So far, within this wave we are getting the deep retrace - - on an hourly closing basis of 78.6% in the DOW for wave minute ii (circle ii) of A. Upward movement has apparently started, and price found initial resistance at the prior gap.

Because we counted the down sequence in live chat, as an (a), (b), (c) zigzag, then this fully completes minute wave ii (circle ii). If upward movement of minute wave iii (circle c) has truly begun, then we can move up the invalidation point for minute wave iii (circle iii) to the low of today. Again, notice how few Elliott analysts tell you the clear and precise invalidation points for a count.

We have now sketched in tentative diagonal trend lines assuming that minute iv (circle iv) also makes about a 78.6% retrace, but first we need to see the minute iii (circle iii)  wave develop properly. It does not have to make a new all-time high, but it easily could - just depends on the lengths of the waves at the time. Wave minute iii (circle iii) however is required to make a new high above wave minute i (circle i), for the entire diagonal to be counted properly.

The most important concept we want to stress is that "counting risk has gone up" in the market. Look at the ranges being made, and how many points it takes to validate a count now. That may not change for quite a while, and we suspect that if it does it would be a surprise to the down side.

Meanwhile, we are staying relaxed, patient and very flexible. Hope you are, too!

Long Term Count - Update

Hello all. I have explained my eight year count many times in this blog and in various chat rooms or on blog sites. This post is only to provide an update of a count - which hasn't changed. First, here is the chart of this count on the two-weekly S&P500 Index from the March, 2009 low.

SP500 Primary 5 Count (Circle 5)

While I realize there are many people who are trying to have different opinions - possibly because they are just learning Elliott wave, or possibly just to fill some ego need - at this point in time the count should be relatively clear.

I use a relatively specific method of counting the Elliott Wave when it is an Impulse Wave, which I have completely disclosed and provided as a Featured Post entitled, The Eight Fold Path to Counting the Elliott Impulse Wave. Please refer to that section if you have not yet. But in this post I just want to stress a couple of points about why this count is likely correct.

As far as we know, Ralph Nelson Elliott was the first analyst to introduce the concepts of a) parallel channels, and b) alternation into market analysis.

Regarding parallel channels, when you place a line from wave Primary 1 (Circle 1) to Primary 3 (Circle 3), and put a parallel copy on Primary 2 (Circle 2), you find it projects the low of Primary 4 with considerable accuracy. The intra-week low of Primary 4 is outside the channel, the closing low is inside the channel. So, this market count meets Elliott's guideline of parallel channels very well.

But, more than that, the only two waves that span the channel are these two that are labeled Primary wave 2 (Circle-2) and Primary wave 4 (Circle 4). If you try to construct the channel in other ways, you will find it very difficult to come up with a different scheme. So, these termination points are the most logical termination points for waves Primary 2, and Primary 4 using Elliott's technique.

Next, it is pretty clear, that Primary 1 (Circle 1) is a five-wave sequence all by itself, and takes about a year in time. For the small three-waves down in 2010 to be the full correction of Primary 1 seems like "rushing a count". While second waves are 'often' zigzags, they are not required to be. No, in my view it is best seen that Primary 2 (Circle 2) is counted as a relatively rare "running flat" wave, which has three waves down to (A), three-waves up to (B), and five-waves down to (C). All of this makes sense not only in terms of the definition of a FLAT (as a 3 : 3 : 5 sequence), but it also makes sense in two other ways.

First, the running flat takes up much more time that the simple zigzag, and provides a better correction for Primary 1 (Circle 1) because it does. But, second, a "running flat" provides a very key signal that a strong and powerful third wave is about to occur. And that's exactly what this one signals as Primary 3 (Circle 3) goes on to be 1.618 times Primary 1 (Circle 1).

The Primary 3 = 1.618 x Primary 1 is near exact in the Dow Jones Industrial Average, and is slightly beyond in the S&P500 Index. Still, it is the most likely place for a Primary 3 wave to end, and it does.

Next is Elliott's Principle of Alternation. With the "running flat" for Primary wave 2 (Circle 2), we were fully expecting that the middle wave of wave Primary 4 (Circle 4) - whether it was B or X, as we have it labeled - would not make a new high. That is, we were expecting alternation in the waves and this is exactly what happened. The waves that formed Primary 4 (Circle 4) count very well as a double-zigzag and provide the needed alternation.

Now, just from a visual perspective, you can see that Primary 5 (Circle 5) is not yet as long in terms of price as Primary 1 (Circle 1). A very common Elliott Wave relationship is that 5 = 1, so this may yet occur. Second, you can see that Primary 5 is not yet as long in terms of time as Primary 1. So, the bottom line is that we are doing everything possible not to rush the count. It is entirely possible for this wave to last until Jan - Mar, 2017.

By the rules of Elliott Wave analysis, Primary 5 (Circle 5) can form as either an impulse wave or as a diagonal wave. We have our suspicions it is the latter, but we are also keeping tabs on the former. We literally have no preference which forms, but we are seeing signs of weakness and lack of momentum that are worrisome in the market. One of those signs of weakness is that Primary 5 (Circle 5) is finding resistance right along the mid line of the channel - just as Elliott Predicts. We think this ups the odds the Primary 5 (Circle 5) is indeed the wave in progress, as that it is becoming weaker as it travels.

And please remember as we have stated before, because this upward wave is likely the last in a sequence, and the last in a very long sequence since 1932, it would be fully allowable for Intermediate wave (5) of Primary 5 (Circle 5) to fail to make a new high. If the failure occurs, we will try to bring it to your attention.

Again, we make this post because some people right now have three or four different counts working, or are trying to pick tops, or somehow suggest that Primary 3 is in progress, or suggest that Primary 4 was not sufficient as it was. I, on the other-hand, am just trying to keep things simple, stay flexible, and be patient.

Cheers!

No Easy Answers - Yet

While others are wild-eyed and project a Primary III wave with an S&P500 of 3000+(sic) to follow, we calmly and rationally analyze what we are given - especially considering we haven't even made a new all-time high yet! There can be no doubt that from Wednesday's FED meeting, Yellen gave the markets a big boost. But much of that boost faded on Friday. Not all of it, but much of it. In fact, while some market analysts don't even look at the Dow Jones Industrial Average any more - you know, the index that Ralph Nelson Elliott analyzed to develop the Wave Principle - we have a look at it every day, and see what it is telling us.

We have contended since S&P 2190 that "risk has gone up" in the market, and that situation continues. Here is a chart of the hourly Dow Jones to illustrate this point.

Dow Jones Industrial Average - Hourly

From the C wave low of ~18000, we now see that the range spans roughly 700 DOW points, and the trading patterns (you don't have to call them algorithms if you don't want to) are taking up much of that range.

More importantly, perhaps, on Friday, the Dow overlapped some waves downward - which could have been seen as part of a second wave down of an overall upward sequence. But, in an impulse, we don't like to see any part of the second wave overlapped by the potential fourth wave. It tends to indicate weakness. Granted, the S&P500 has not yet so overlapped.

But, that leaves us with just "three-waves up" in the Dow. And, there is no guarantee that the downward price movement has ended. So, that leaves us with this clear option. It is highly possible that if the Dow and S&P are forming their minor A wave, up, as we indicated in yesterday's post, that this A wave will be a very intractable Leading Diagonal wave. We have certainly seen this before in larger diagonals - in fact - it can be viewed as a smaller fractal of the larger two-day Ending Diagonal Dow fractal we posted in yesterday's post. If that should happen, it would clear up the count tremendously.

Remember, a leading diagonal A wave is 'likely' a contracting diagonal, with wave v, shorter than wave iii, and wave iii shorter than wave i, wave iv shorter than wave ii, in which wave iv overlaps wave i, and all three-wave sequences that count as zigzags. The purpose of such a wave might be to fill the gaps above the market.

If, and it's a big IF, we are in a diagonal, remember that it must prove itself to be the case. And, if we are in wave ii down of such a diagonal, then it can travel as low as it likes, but must not violate the lows of the C wave. While this invalidation point is clear (and again note how some other market analysts seldom mention them), it illustrates why the risks can be so high in this market.

We have drawn in some tentative trend lines, but they are just that - tentative. A diagonal is only defined by it's i to iii, and ii to iv trend lines, so the outlines of the pattern are nowhere near established yet.

But, there are other risks as well. First is the risk of 'miss-counting' upward. Could  the pattern shown be a 1-2-i-ii, of A, upward. Yes, but there is no clear evidence for that at this point in time. Wave iii, upward, would have to begin a very quick and rapid acceleration - certainly possible, but not seen on the chart as of yet.

Second is the risk of 'miss-counting' downward. Although we only counted three waves downward as A-B-C to the February low, there is a remote possibility that it actually counted as a "five", and this three waves up is to a larger (B) wave at the 78.6% retrace level - with a five-wave (C) down to follow. We don't know that, such an A wave down would neither have "the right look" or the right structure as far as we can tell, and, so, this probability seems remote. Again, there is no evidence for such a count at this point in time, and the DOW's current C wave lower would have break for further consideration of such an option. We also don't think that the three waves down of A-B-C is to a larger (A) wave, with these three waves up being to the (B) wave of an overall FLAT wave. Why? Because in such a (B) wave, it is required to travel to a 90% or better retrace of the (A) wave, and this upward movement is only slightly beyond 78.6%. So, again, this leaves us with the two most likely patterns of a diagonal A wave, up, or a 1-2-i-ii, up.

Therefore, we reiterate: from a wave counting perspective, risks have gone up - significantly. If we can help clarify the situation in the upcoming days, we will. We were 'hoping' for a nice, easy-to-call, A wave up as an impulse. The market apparently did not want life to be that easy.

Cheers! And enjoy the chart.

Best Ways of Counting the Down Move

Below are the best ways of counting the SP500, and Dow Jones Industrial cash indexes so that they "sync" at the lows. The DOW is very straight-forward. It counts as an ending contracting diagonal down to the 14 September low, as follows.

Ending Contracting Diagonal in the DJIA to the New Low on 14 Sep

This count currently fits all the rules and guidelines in that (red count) wave (v) is shorter than wave (iii), wave (iii) is shorter than wave (i), wave (iv) is shorter than (ii), and wave (iv) overlaps wave (i), and they are all zigzag waves. This diagonal, as you now know, has also been more than fully retraced. 

Our issue, as we reported in this blog, was that it wave very difficult to count the strong down wave in the S&P500 as the C wave in and of itself. It turns out we were looking so hard for a triangle in the SP500, we missed it! And it was there all along. Here it is in the next chart.

Triangle in the SP500 Index Before Truncation Wave v, and v = i

So, after all, we did have an acceptably formed barrier triangle, and it was validated with the (e) wave trading back up over the prior wave iii, as required. The only issue is the SP500 truncated slightly, and did not make a new low like the DOW, NYA, and Wilsh 5000. But, if you look at how long the wave iii is, it is a near perfect Fibonacci 6.86 x wave i, then such a fifth wave downward is certainly allowed to truncate - which it did, and only slightly.

The overall point is that both indexes can indeed be counted as A-B-C down in a zigzag. Remember that only zigzags are allowed for waves (1), (2), (3), (4), and (5) of a diagonal count. It even turns out if you don't like the ending diagonal on the half-hourly DJIA (maybe the retrace wasn't fast enough for you), then, because of the rules of barrier triangles, the DOW can also be counted in the same barrier triangle as the S&P500. In the DOW, there were no new closing lows over the low of wave iii, until the exit from the alternate barrier triangle count!

It is very likely, then, that the following waves in the half-hourly charts, above, are i, ii, and iii of the A wave up of Intermediate (3) in the diagonal count. Usually the A wave in diagonals appears near the highs - but not always. So, this manner of counting allows that, as well.

So, here is the two-day diagonal count shown on the DOW, with the A wave up, in progress.

Progress of the Potential Contracting Diagonal in the Two-Day DJIA

This is the count that currently fits the waves the best at this point, and it also fits with a Primary V scenario. A Primary Vth wave should have the lowest momentum of the prior waves. The wave also has the right look at this point in time. This also means that wave (3) can take up quite a bit more time, yet, and make marginal new highs. However, in terms of time signature, wave (3) should be shorter in time than wave (1).

Is there an alternate? It is 'possible' a smaller first wave up, (i) of a iii in the 1-2-i-ii-iii count upward has started. But the alternate count has little evidence going for it yet, as strong acceleration to the upside would be needed for what would be (iii) of iii, and we haven't seen that yet.

Cheers, hope this helps, and enjoy the weekend!

Potential Not Realized

In our blog post of 17 September, we said, "we are in the situation where the C wave may have completed, and completed with the overlap we noted in the DOW, but not in the S&P. And that would be at the low on 12 September. But it is very, very difficult to count it that way. As a result, we have discussed in live chat and yesterday in the comments of this blog, that it is possible we are forming a triangle to the downside."

And then we updated on 20 September to say the potential was still there for a triangle, but, we said it was still only a potential and  would have to form properly in every aspect. And, as you likely surmised by now - given the Fed meeting, it did not. Therefore, we now have the situation where, "most likely" we made the C wave at the lows, and the possibility of new highs gathers more evidence. The chart that shows this the best is the ES 4-hr chart, but it agrees with the hourly cash S&P500, so we see no conflict.

ES 4-hr Chart - New Highs Gather more Evidence

We also have the situation where wave (2) downward of a potential contracting ending diagonal on the three-day DOW overlapped with wave A, but this did not happen in the S&P500. That's OK for the S&P500. In a contracting ending diagonal, the only overlap requirement is that wave (4) overlap with wave (1). So, that may help clarify where we are in the count: if it's a contracting ending diagonal, then any marginal new highs would be wave (3), provided they form as a zigzag.

If we are in the impulse count, up, then wave iii of 3 makes sense. And again, we have absolutely no preference as to which forms. We will need to study divergences with the advance / decline line as they become available and see what makes sense at the time.

It's Still Potential Until It Isn't

Here's the count of the hourly SP 500 potential triangle (a), (b), (c), (d), (e), that now gathers more and more evidence.

Hourly Triangle in S&P500 Index

The continued evidence is 1) there are lower highs and no higher highs, 2) the structure is very overlapping, 3) the Elliott Wave Oscillator or EWO remains less than -40% of the value of wave circle-iii on the other side of the zero line indicating a fourth wave, 4) the EWO is red and declining, and 5) volume is declining as fits a triangle.

If wave (d) of the triangle forms properly, then wave (e) can be almost any length as long as it does not travel above wave (c), and provided it overlaps wave circle-iii, down, in the upward direction. The triangle could form with a flat bottom, or as a symmetrical triangle in the final analysis. Either are acceptable.

If, and only if, the potential triangle forms properly, then a fifth wave down would be likely to form. In the case of a true barrier triangle being formed, then the breakdown can be short and swift. If a contracting symmetrical triangle forms, then a more extended wave v can occur.

Why would wave circle-v of C form in the downward direction? What would be it's purpose? Well, on the three-day chart, below, we know the DOW has overlapped it's wave A of (1) in the upward direction, but the S&P has not.

Ending Contracting Diagonal in the S&P 500 (3-day Chart)

Perhaps the purpose of a further downward wave is to cause the S&P to overlap, as well, and cause the S&P to contact it's lower trend line. Time will tell!