Sunday, March 18, 2018

How You Can Tell - 12

Thanks to all who read Saturday's post. If you read it, you know I have counted an a-b-c down, with the possibility of a flat wave following it. Many of you also know, I was probably the very first, if not only, Elliott Wave analyst to show a picture of a contracting ending diagonal in U.S. equity indexes. You can view that post here at this LINK if you have not seen it already.

This morning, I was considering the implications of the a-b-c down from yesterday's post in the overall context of the waves being made - whether triangle or diagonal - and had to ask this question. If we have just made an a-b-c lower, regardless if it is to be followed by another a-b-c lower, then why is the wave so short in point length?

To make a long story short, I concluded that such a wave could be a second wave, and the chart below is how it could fit into the overall pattern of a diagonal wave for the S&P500 Daily Cash.

S&P500 Cash Daily - Potential Contracting Diagonal

At this stage the wave labels are just placeholders - for clarity only - and the overall pattern is again still just a potential pattern: a diagonal is a pattern which must prove itself. But, I had, in near real time, successfully counted for you the wedge shaped a wave up and told you why I thought, since there were no large pull-backs - it was an impulse wave in a wedge with an extended first wave. Also, as an a wave, it did not go anywhere it important. It did not break any new all-time highs.

Then, I was able to count out the .a, .b, .c waves of the flat to the b wave down. Now, the giveaway might be that the higher high for wave i might just well be expressing it's motive wave character - the ability to move price in the direction of the main trend. And, this corrective wave lower - whatever form it takes - could just be wave ii. Most analysts are trying to count this as a fourth wave. What if it is not?! It almost certainly is not the fourth wave of an impulse in the DJIA because of overlap.

What I like about this count, is that it now gives us a very specific invalidation point. Wave ii may not go below the low of wave b. Perfect. That is the way Elliott wave counting is supposed to work. We are supposed to get clear invalidation points for the counts to help limit risk.

Then, if after a wave ii completes, a wave iii carries to a higher high than i, we might suspect the diagonal is really on!

In the process, as the indicator panel attempts to show, divergent high peaks would be expected on the Elliott Wave Oscillator (EWO, or AO on, and there should also be a higher low (on the EWO or AO) for wave 4. And wave 4 must overlap wave 1 downward, yet remain shorter than wave 2.

I do not know how long this can take to play out exactly. Perhaps we will get more clarity as the pattern progresses. What I do know, is at this point, I can see the still potential pattern clearly, and it will be of great assistance with clear invalidation points to help in counting the overall wave position of the market. I have not seen this pattern or the one I posted earlier anywhere else on the web or from any Elliott wave service for that matter.

So, I consider this as value-added for you. And - free at that!
Have a very good weekend.

Saturday, March 17, 2018

How You Can Tell - 11

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher; NDX, NQ lower
SPX Candle: Lower High, Higher Low, Higher Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

In the category of you can't extract blood from a stone, you also likely can't get much more information from the market than it offers. So, there is not much point - at times like this - in beating one's head against the wall looking for more clarity than we can get. But I do think it is essential to see what information is there, and not throw away any that is there.

With that in mind, here is the chart of the S&P500 Cash Index - 15-minutes that we have been working with all week.

S&P500 Cash - 15 Minute

This chart essentially says, "we have spent two days going downward, and, after breaking the downward channel to the upside, spent two days going sideways."

We counted out for you in near real time, the A wave down, and the B wave "running flat", all based solely on measurement and structure, and not based opinion. The C wave down - also based on measurement - best counts as the ending contracting diagonal shown. It fits all of the rules and leads to the right conclusion: the upper parallel trend line will break - which it does.

Next, beginning on 15 Mar, there is the break of the channel upward, and a divergent back-test of it downward, which actually makes a lower low in the S&P500 (but not the DJIA), and then a very sideways structure, currently, to which one might try to draw some trend lines. We have sketched in some.

Before we go on about the possibilities for this wave, we will note that, at present, as a triangle it is not very well formed yet. Even to the untrained eye, I think one can see it is not entirely symmetrical yet: the top line is flatter than the bottom line. Also, it is possible to count the up portion from 15 Mar to 16 Mar as a five-wave-sequence or as a three-wave sequence. So, that alone generates some caution. But, we don't exactly know what will happen before the FED meeting this week, and so a triangle could get better defined, or the trend lines could be a good effort, but still just an illusion, and the pattern will break unexpectedly in one direction or another.

So, here are some of the possibilities for this structure. From an A-B-C down, if sideways movement continues, and a triangle is better formed, the triangle could be an X wave, with a further A-B-C down yet to come - to allow the daily triangle on the DOW to extend it's lower trend line further lower. The same with the daily S&P 500.

Equally possible, if the potential triangle prematurely busts upward, is an X wave in the form of another flat. And that is because of the lower low following the C wave. In that case, the middle leg of the potential triangle is, in fact, and impulse, and - provided a new cash low is not made - then the down movement at the end of the day on Friday is all or part of a second wave lower. Further, there has not yet been a 62% upward retrace of this down wave.

Next, because, with the DOW's downward overlap, and a very ill-formed upward channel on the S&P500 it seems less likely that this is a fourth wave of the upward progress, as currently structured. Again, a fourth wave of an impulse is impossible in the DOW, but might be possible as a larger triangle in the SPX. But this is now pretty far down on the list. Remember, the DOW and the S&P are fully out of synch wave-wise because they topped on different days. It is even possible, because of that extra wave in the DOW for it to make a non-overlapping impulse down.

There are few technical clues. I mentioned the DOW's weakness relative to the S&P. Another one I see was the NDX was a bit weaker in the last session than other indexes. Again, due to The Fourth Wave Conundrum, it is hard to get or present more information than is available.

So again, be careful, cautious and patient until things clear up just a bit.
And have a good start to your weekend.

Thursday, March 15, 2018

How You Can Tell - 10

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJIA, DJTran, up
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Overall, on the longer term daily chart, with an inside day on the Dow Jones Industrial Average there is no resolution yet to the Dow's potential daily triangle that we showed yesterday. Nobody was willing to bite.

On the shorter term, I was expecting up movement at the open, and then a lower low from yesterday's post. That is what happened on the S&P500. It is not what happened on the Dow. Further, I was expecting we had made an A-B-C down in a channel. That is what happened, but with a minor tick too high today in the S&P500 cash index, the potential expanding diagonal C wave invalidated. So, here is the best count I can offer considering the current waves and following all of the rules.

S&P500 Cash Index - 15 Minute Chart

The problem wave was wave (ii) which invalidated yesterday's expanding diagonal C wave in the cash, but not in the futures, as it is higher than wave iv, which is not allowed by the rules. Too bad. Dead is dead. Then, with today's lower low, it is possible we had the third wave of a contracting diagonal overall for a larger (A) wave down. One more new low, shorter than wave (iii) is needed to allow such a count. Then, there should be a B wave up. The alternate - which is harder to fit into a daily count - is that today's new low is the smaller (b) wave of an expanded flat wave. But, it could happen that way. Expanded flats are more common than diagonals so we should respect that.

Further, we don't know that wave (iv) is completed. That's why the question mark. If it is to remain as wave (iv), then it must be shorter than wave (ii) and still be countable as a zigzag wave.

If we do make a larger (A) wave down, then it might simply form a better zigzag lower - which can still fit with diagonal and triangle counts.

The bottom line? No one needs a counting mess like this. We are mid-range between the recent highs and lows and there is not a good trend in force. We also need to note that within this down wave, the DJIA and the S&P500 made their previous high on different days. The S&P topped on 13 Mar, the DJIA topped on 12 Mar, which only adds to the mess.

So ...caution, patience and flexibility remain the by-words. Have a very good start to your evening.

Wednesday, March 14, 2018

How You Can Tell - 9

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJUtil, up
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Yesterday, I was expecting some kind of up wave at the open, and then further down waves. That is precisely what happened, and the size of the waves seems to be what matters.

With reference to the chart below, this morning's up wave labeled c of B exceeded the size of the wave labeled a of B. And, the down wave to b exceeded 161.8% the length of a. Yet, the c wave up, as expected, did not exceed the high of a. Therefore, this middle wave meets all the criteria for a true "running flat" wave, and has, with the waves following it, been designated an overall B wave in an A-B-C, lower. So far.

S&P 500 Cash : 5-Minute Chart - Since the March High

IF the up wave designated as c were to be designated as ii of 1-2-i-ii, then this would be a degree violation, and that is one way that the concept of wave degrees in Elliott Wave is helpful. In a true 1-2-i-ii, then wave ii can not be larger than wave 2, or it violates the very meaning of the term degree.

Next you'll note the whole down wave is in a rather specific declining channel. This is one hallmark of a corrective wave. 

Third, again because of the size of the wave marked (iv), and the fact that it overlaps the wave marked (i), it appears the overall C wave will be an Expanding Ending Diagonal. Right now we have (iii) longer than (i), (iv) longer than (ii), (iv) overlaps (i) without traveling beyond the end of wave (ii), and all of the sequences thus far can be counted as zigzags. Now, more than likely, wave (v) down should also become longer than wave (iii). Already, there is a lower low than (iii) so the fifth wave has not failed, but the question is will (v) become longer than (iii), as it should. A case can be made that we have made the a wave down of (v), with possibly a b up, and c down to go tomorrow.

Overall, if we do make an A-B-C down, then, again, depending on length, we can still be in a triangle or a diagonal. 

On the day declines exceeded advances by 1,247 : 1,703. This is nowhere near as severe as those truly impulsive days that are from 1 : 4 to 1 : 9, and so that may still provide a clue regarding correction versus impulse.

As I noted last night in the comments, it was possible with the overlap in the Dow futures to see a potential triangle - completed or in progress. Below is the daily chart of DJIA - Cash Index. Yes, regardless of whether I preferred to see a triangle or not, one can argue that the exact shape painted out below is that of a triangular shape - right up until today.

DJIA Daily Cash - Triangular Shape In the Dow

The shape is fairly symmetrical, although not perfect. And as I alluded to in last night's comments, it all depends on whether the (a) and (c) waves are five-wave sequences or three-wave sequences. A triangle like this could become more symmetrical - and take more time - if the current down wave travels to below the current (c) wave location, around the 78.6% Fibonacci retracement level, and then there is a larger (d) wave up. It is, however, currently possible for prices to 'pop' and make the thrust out of the reasonably well-formed triangle from here.

Do I know for sure? Not on your life. This is The Fourth Wave Conundrum, and so I remain flexible, calm and patient. And I will not pretend to know something that I don't, and I will not purport to sell you a service that claims to know, when it doesn't know either - like some of those other web-sites. I am however, just gratified to see the triangle shape on the chart, with each significant wave on the opposite side of the daily EMA-34. It does bring a smile to my face, and I hope it does to yours too.

Remember, the alternate for a triangle is almost always that (a) = 1, and (b) = 2, and (c) = i, and (d) = ii. In this latter case, then since (d) or ii, is smaller than (b) or 2, then, finally there would be no degree violation.

Have a very good start to your evening. I truly hope this helps.

Tuesday, March 13, 2018

How You Can Tell - 8

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJTrans, DJUtil, up
SPX Candle: Higher High, Higher Low, Lower Close - Outside Reversal Candle Lower
FED Posture: Quantitative Tightening (QT)

The daily 78.6% Fibonacci retracement level from the low, shown on yesterday's daily chart proved to be stiff resistance at least for the day. And while I was expecting a lower low day, it did not come before a marginal new higher high after the CPI report. The market, as measured by the S&P500 Index, had closed yesterday at the 2,783 level. After the open, the market gapped up to 2,802 in the first half hour, and then turned lower. It filled the opening gap at mid-morning, and traded down to 2,769 by noon. There was a brief rally at that point, which was shorter in time than the down wave, as it traded up to the 38% retracement level of the down wave.

Refer to the Intraday chart of the S&P500 cash index below.

S&P500 Cash Index from the High of the Day - 5 Minute Chart

After noon, price headed lower again, tracing down to 2,758 in what appear to be three slightly diverging waves. I have tentatively labeled these three waves as i, ii, and iii since, in the cash market, a fourth wave has not overlapped upwards yet. But it could.

If there is no upward overlap, then since wave iii is 78.6% the length of wave i, at this point, then we could have another one of those wedge-shaped impulses downward being constructed.  If a wave iv upward should make an overlap on wave i, but not become longer than wave ii, then it is 'possible' a diagonal is being made. That would suggest a fifth shorter wave downward. Unfortunately, we won't know until we know.

Of course, the three-waves down could end here, as a-b-c. I'll address the larger daily count when I first know if we are dealing with five-down or three-down. It is possible to see these downward waves as part of a fourth wave, if you use the futures and not the cash for counting. That is because the futures have a 62% retrace at the March lows. And cash does not. Further the downward retrace has not overlapped any important waves.

Have a very good start to your evening.

Monday, March 12, 2018

How You Can Tell - 7

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Higher High, Higher Low, Lower Close - Spinning Top Candle
FED Posture: Quantitative Tightening (QT)

Follow-through buying from Friday's payroll employment report pushed the futures higher Sunday night and into Monday morning. As a result, the S&P500 opened higher and made a new local daily high over that of 27 Feb. Also as a result, the NQ futures made a new daily all-time high. Markets, as measured by the S&P500 Index closed Friday at 2,787, and with the gap up, they traded up to 2,797. About a half-hour after the open the follow through dissipated and a bout of selling began which dropped the index to 2,779 in what looked like five waves down. Then, the "b" wave of a likely flat wave occurred - equal lows in the S&P500, and lower lows in the Dow - followed by a bounce that carried the index up to 2,792 to complete the likely "c" wave of the flat. So, from all appearances, it looked like we had five-waves down and three-waves up, before prices tailed off to close at the 2,783 level.

The NQ and the RUT closed higher, the Dow and the S&P lower. So, let's look at the daily chart first.

S&P 500 Cash - Daily - Spinning Top Candle

In the S&P500, the slight higher high day got the index to make a closer approach on the 78.6% Fibonacci retracement level. This is about the ideal level from which to form a triangle if one is to occur. And, yet, there is nothing magic about a spinning top day. It may just be a consolidation day.

Further, when we count the internals of the up wave from the March low, something very odd has happened.

S&P500 Cash - Half-Hourly Chart - Lack of 38.2% Retrace

You will note that after the wave marked A, the B wave shown failed to make a 38.2% retrace on A. It missed by several points. And yet, the upward wave to the point marked (i) is longer than the first wave.

Now, in a true impulse, when the first wave is retraced less than 38.2%, then we suspect that the first wave would be the extended wave. But, wave (i) being longer than A tells us this may not be a true impulse at all. Price may be forming a diagonal wave, either for a (c) wave of the ((b)) wave of the triangle, OR to go over the top as the next leg in an upwardly slanting wave for the third wave, Intermediate (3) in an overall contracting ending diagonal as we showed in Saturday's post.

So far, price is in the channel shown, and it is suspicious in that a third wave has not broken the upper channel boundary. And if a zigzag forms in the downward direction it may be a second wave of such a construction. In this chart, the "five waves down, and three waves up" from the second paragraph are shown as a & b just for simplicity (please ignore all degree labels at this stage - right now the labels are place-holders only). So, IF a sharp c wave should form downward tomorrow, there would also be little alternation one could point to in this wave - another sign of a potential corrective wave.

Again, a triangle for Minor 4, or a diagonal for Primary [5] remain the best options. The count has gotten very, very messy. It is typical of fourth waves and / or diagonals. But, I hope you can see the rationale in the above wave since the March low. A true impulse up would have retraced more than 38% or the next wave up would have been shorter. It would be highly unlikely to have both conditions together in anything other than a corrective wave that was forming.

Have a good start to your evening!

Saturday, March 10, 2018

Because Now You Can See It

This is now the right time to post about a potential count I mentioned earlier - the diagonal for the end of a Primary 5th Wave.

While others are extolling how this bull market will go on for years to come, the chart below may tell a different story.

NQ Futures - Weekly - Potential Ending Contracting Diagonal

It seems like years ago I proposed that a Primary 5th Wave could end as a diagonal, or as impulse, and I really didn't care which. But, it does seem like the importance of a Primary 5th wave in ending a Cycle size and / or a SuperCycle size wave might merit a diagonal in a "too far, too fast" move.

With the NQ futures higher high this week, I think you might be able to finally visualize how such a wave might form. The tortuous flat bottom from late February 2016 to November 2016 can simply be Minor A and Minor B of a long stretched-out zigzag for wave Intermediate (1).

And the grinding wave higher from November 2016 to late January 2018 is the C wave - which ends on a high of the Elliott Wave Oscillator. If so, then the 38% retrace wave to Intermediate wave (2) is a sharp zigzag as required in a diagonal wave. If an upward zigzag completes properly for Intermediate (3), then another sharp wave down could potentially occur for Intermediate wave (4), after which should be another zigzag wave higher for Intermediate wave (5) to end the primary wave.

Although in Friday's post I indicated again the diagonal possibility, the wave labeling above takes precedence over that on the daily chart. I had some time to think about this after the heat of battle on Friday, and really like the fact that the Elliott Wave Oscillator is now diverging on a higher wave. So, that is likely Intermediate Wave (3) - which does not seem quite finished yet.

If a count like this occurs, it may be coincident with a "sell May, go away" type of market. Again, this is not for certain. Diagonals are waves that must prove themselves in every aspect. I also really like the fact that in the S&P500, the C wave of (1) would be literally a point shy of C = 2.618 x A, as I have noted before and written about in this blog. And I like the fact that few other Elliott Wave sites are looking for a count like this one.

Perhaps the S&P will follow-through with higher highs like the NQ. Or, perhaps, the S&P500 only forms a triangle while the NQ forms a diagonal.

I do hope you have a truly good weekend - and now have something else let roll around in the back of your mind!