Monday, January 23, 2017

Some New Lower Lows

If you've been following the stock market over the last few days, you know that we have had a series of lower high days, and today was another one of them. I said in Friday's blog post, though, that we needed to start seeing lower low days to begin to have some confidence in a down count.

Today we got a low that was below both Friday's low, and Thursday's low last week. Even though the point loss at the end of the day was modest, below is the intra-day count I mentioned on Friday's post. With the lower lows, I give the count a 70:30 probability of  making a new lower low under wave 4  sooner than a higher high over wave 5.

SP500 - 4 HR - Potential Down Count to Minor A of Intermediate Wave (4)

From wave 5, the downward count reads as follows: An expanding leading diagonal for minute wave (i) of A, followed by double zigzag minute wave (ii). The y wave of minute (ii) has a truncation that was called in real time, and minute wave (ii) is longer in time than minute wave (i) for good proportions. Minute wave (iii) is in development with the first sub-wave of it downward today - hence the new lows.

If so, a gap opening downward would be expected in the next couple of days to indicate the third sub-wave of minute (iii), lower.

This view is published for several reasons. First is that a truncation in a second wave ending structure would be a somewhat bearish development for the near term if it holds. Next, both the 4-HR slow stochastics and Elliott Wave Oscillator are still heading lower after a divergence; so, too, is the MACD Histogram, which today renewed it's decline. Third, the EMA-13 on this chart has curled lower. And, lastly, the Russell 2000 has overlapped the prices from Dec 28th at the end of 2016 already.

The other 30% of the probability goes to a longer triangle wave 4, but such a triangle does not have good proportions at this time, and that is the simple reason why it is not the top count.

Cheers!
TraderJoe

Friday, January 20, 2017

What Now, Dow ?

Let's address the very short term first. In the Dow and S&P, all the charts currently have from the all-time-high is a series of lower highs! While that may indeed indicate a down trend is coming, the lower lows to confirm that are still needed, and they are not in evidence, yet. That 'might' happen early next week, and in live chat, we have published a currently very tenable wave count lower. We'll see.

Today, all we had was a situation where the bulls couldn't make a new all-time-high (ATH), and the bears couldn't fill the opening gap. With the S&P and NQ so close to the all time highs, we must allow that until new lower low candles are printed on the daily chart, we must respect the trend and allow that new higher highs are possible. (The Dow, as you know, is now not as close to it's all time high as the S&P.)

But what I wanted to address today is in reference to the the longer term count : that of the S&P500's potential diagonal that we showed you yesterday versus the Dow Jones Industrial Average. As you may recall from my previous post entitled Elephant Head, I have a long memory, and two things have been bothering me. First is the fact that the Dow and the S&P did not bottom on the same day in Primary IV (in February, 2016), and the second was - ignoring that - the DOW would have it's Intermediate Wave (1) at a different location than the S&P500 in an impulse count. This was potentially causing me to count the DOW with an 'X' wave where I said it was a five-wave sequence in the S&P500 - which just - I'm sorry - seemed too odd.

So, I went to work last night to try to answer that riddle, and here is the Dow count that would agree with the placement of the Intermediate Waves in the S&P500 Index.

DJIA Now In-Synch with S&P500 Index

You should take some time to compare this to the potential count of the S&P500 Diagonal shown yesterday to now see that, a) all of the five-wave sequences are now in the same place, b) that all of the corrective sequences are now in the same place, and c) that Intermediate (1) and Intermediate (3) now synch-up on the same waves on both charts!

And the answer lie in putting that orphan wave in the Dow to good use! Problem solved!

So, the Dow may still finish as an impulse - while the S&P finishes as a diagonal - because, in the Dow, Intermediate (3) is still too long to allow Intermediate (4) to overlap Intermediate (1) with a wave that is shorter than Intermediate (2), as is required in an ending contracting diagonal for the Dow. But, perhaps it just means that Intermediate (4) in the S&P will overlap, and Intermediate (4) in the Dow will not overlap!

That would really confuse the daylights out of most wave counters - but, hey - that's what the market is here for!

Cheers!
TraderJoe

Thursday, January 19, 2017

Further Notice!

I stated in my blog post of December 7th (which I encourage you to again review), "we are in Intermediate Wave (3) until further notice". I also rejoined, "Do I personally like the market here? No, I have said too many times, the risk of a wrong count is going up - specifically because it takes many more points now to validate a count."

Well, I am happy to say, that today very likely constitutes "further notice!".  Let me be as unequivocal as I can be. "Today's outside reversal candle lower in the ES has just upped the odds that Intermediate (4) is now in progress." And I have some very, very good news. In the S&P 500 and in the NQ futures, it means we may be able to count this halting, whipsawing upward progress as a contracting diagonal overall - just not the Dow Jones Industrial Average. But the DOW is most likely in it's Intermediate Wave (4), too.

So, let's look at the daily chart of the S&P 500. If the market has, in fact, reversed course here, then it is possible to count Intermediate (3) at the prior high in a Ending Contracting Diagonal in the S&P500. The half-hourly ending diagonal we showed you on January 9th in the article entitled, Intermediate (3) May Now Be Done.

Daily Diagonal in the S&P500 Index

It is now just barely possible in the S&P500 Index for an Intermediate Wave (4) to form from this location that is shorter than Intermediate Wave (2), and still overlaps wave (1). What makes it possible is counting the Election Night rally as an "A" wave, not as a "1" wave in itself.

As we showed earlier, this is not possible in the Dow Jones Industrial Average (although we continue to look and monitor for it).

Yet, the reason we think that Intermediate (3) is done is specifically because the Dow has broken it's prior wave Minor 4 low. See first chart below.

DJIA Daily - Break of Prior Wave 4 Low

In wave theory, the only way the count above can still be counted as a fourth wave, is as an expanding triangle, as below. (But we caution such structures are extremely rare, and the S&P 500 can no be so counted as an expanding triangle at this point in time.)

A Possible But Less Likely Wave 4 in the DJIA Daily

Besides the S&P not being able to be counted as an Expanding Triangle at this time, there is something that would be "odd" about the above potential triangle which makes it less likely, also.

Usually in expanding triangles, each new wave takes more "time" than it's predecessor wave. They not only expand in price with required higher highs and higher lows, they also expand in time. And, while that works for waves b, c and e, it does not work for wave d. Wave d takes less time than wave c. So, this is a real watch-out to the bullish case. It's almost as if the Dow and the S&P topped on the same daily bar for a reason.

Only time will tell, of course. But, if the S&P500 begins to make higher highs by even 20 points, or so, it will ultimately become impossible for that Wave Intermediate (4) to overlap wave Intermediate (1) and still have (4) remain shorter than (2).

I will continue to research the DOW to see if any diagonal makes sense for it. But keep in mind - it is not required!

Cheers and enjoy the day!

Wednesday, January 18, 2017

All Together Now ??

From my perspective, the chart that most likely tells the story of where we are is this daily chart of the ES E-mini S&P500 futures. Our basic count is not changed, higher highs are needed to confirm the continuation of Minor 5 of Intermediate (3); lower lows are needed to confirm the initiation of Intermediate (4). Neither has happened so far, though it was close in the Dow today.

ES E-Mini S&P Future - Current Count

From the election night low, we have Minor 1, up, Minor 2, down, Minor 3, up which is shorter than Minor 1. Over the Christmas holiday we got Minor 4, which was described in detail, and we are now, most likely, in the Minor 5th wave. The ES has not made a higher high over wave Minor 3, yet. The cash Dow and S&P have.

Price is still over the 18-day SMA and so still has a "positive bias" as Ira Epstein might phrase it. But the Bollinger Bands are now narrow and moving sideways, prices have been choppy, and wave counting is "testy" at best. As far as I can tell - in both the Dow and S&P, the count that explains it best, it "(a)", up, and "(b)" sideways as part of a very ugly diagonal in formation. That is because we have found one way to consider the Dow and the S&P hourly charts at equivalent locations at this point in time.

First, the Dow ..


Dow Hourly - minuet (a) up, (b) down

Please note this wave count would invalidate with any lower low below 19,718 as shown by the red line.

Now for the S&P - which is a little messier.

S&P Hourly - minuet (a) up, (b) down

In the case of the S&P500, the minuet (b) wave may be taking the form of a terminal triangle. We have sketched in the case where the triangle is completed - just as we did in live chat today. But, I also noted that "triangles can expand one time", and it is possible the up wave at the end of the day today is only the end of the D wave (within the triangle), and it's possible to move the upper trend line of the triangle higher, and that an E wave down will occur tomorrow at the opening.

In either case, any higher high this week would likely be the (c) wave up of minute i (circle i) of a larger diagonal that is playing out and is sketched in, above, on the ES E-mini S&P Daily chart that opens this article.

Cheers!


Friday, January 13, 2017

Five Waves Up

Here is that Dow 30-minute chart on which we counted A & B, in which B was likely a very messy flat. We were expecting five waves up in a C wave, and sketched it in on the chart. Here is an updated version.

DJIA - 30 Minutes - One set of "five-up"

First, starting over on the left-hand-side, depending on whether you think the downward wave following the A wave up is a smaller 'a', or 'w' wave (...it is clearly a three-wave sequence...), then the 'b' or 'x' wave, upward to Jan 6 measures precisely 138.2% of the length of that 'a', or 'w', wave. How is that for wave theory accuracy?

And then, the Jan 12th wave downward to B just marginally breaks that 'a' or 'w' wave lower to confirm the flat yesterday morning.

Then, on the opening this morning, that "tsk-tsk" gap I mentioned yesterday (now shown with the black circle) filled straight-away. And, once again, no gaps to the upside (on this chart).

Next, it's hard to argue that we've had five clear waves up (.i through .v), and this is followed by what looks like a bull flag downward, which broke upward at the end of the day, following by a back-test of the bull-flag channel which has held so far.

The downward wave on the Dow measures between 50 - 62%, and is deep enough for a second wave. While we don't know that the second wave downward is finished completely (... it could well be...), wave theory tells us that after 'five waves up' there should at least be five more waves up, and possibly more if the C wave develops as it should into an impulse or diagonal.

Cheers and enjoy the long weekend!
TraderJoe

Thursday, January 12, 2017

Another Lower Low

As if to ask, "How Low Can You Go??", the Dow and S&P500 both made lower lows today. The downward movement filled the next gap down (shown in black), but it had to open a downward gap to do it (shown in red at this morning's open). Tsk..tsk. So far every single downward gap has been filled upward. And, in a twist, before the S&P could hit the 62% retracement level, the rain stopped, the clouds parted and the sun came out yet again. Here's that 30-minute S&P chart.

SP500 30-Minute - Lower Low

So, the best count right now is that of a triple zigzag downward, and because of the wave 'lengths' it could (but shouldn't) be considered an expanding diagonal downward. There is something wrong with the Expanding Diagonal. Usually the waves in an Expanding Diagonal get longer in time as they drive deeper in price. This one has each progressive wave getting shorter. So, again, we don't think it is a diagonal for that reason. We think it is a triple-zigzag B wave, lower. With a slight new high to follow.

The potential triangle on the Dow busted this morning (which we called in the real time chat room), and the Dow filled it's gap near the origin of the wave. Here's where we think the Dow is at this point in time.

DJIA - 15 Minute B Wave

Notice that an Expanding Leading Diagonal downward definitely can not be counted on the Dow because the middle leg is too short. We think that adds to the reasoning on the S&P 500. But, it is possible the Dow just made an awful ugly flat for a B wave. The two B waves 'would' go together. And possibly we are starting the C wave higher of minute-i of a diagonal for minor 5.

Once again, here is the overall two-daily chart of the S&P500 - showing where I think we are in the count.

SP500 Two-Daily Preferred Impulse

Remember, wave Minor 5 of Intermediate (3) can become longer. It just can not become longer than Minor 3 in this count. And there is no proof, yet, that Minor 5 is definitely over.  Only traveling below Minor 4 would signify that.

But, it goes without saying we are likely "in the topping process". Look at those Dow waves on the fifteen minute chart and how choppy they are. Rest assured the market specialists and algorithms do not want us on board when they do - eventually - take the market down. That's what the "topping process" in the market is all about!

In terms of invalidation, the upward scenario for the Dow would be over if the low of the A wave is exceeded lower. Same with the S&P (but it is much further away).

Cheers and enjoy the charts!
TraderJoe

Wednesday, January 11, 2017

Lower Low

Although we got a lower low today, and are glad we indicated a top of sorts where we did, some additional studies have indicated we may have more topping to do yet. First, let's look at that SP500 30-minute chart again.

SP500 30-Minutes Lower Low Today

Although we did get a lower low today, the downward wave does not count well according to The Eight Fold Path Methodology. So, during live chat today, we indicated that there were two ways to count the down wave in progress: as A-B-C or as a-b-c-x-a-b-c; which the latter you will recognize as W-X-Y, and is shown on the above chart. We also pointed out that the down wave stopped at the prior wave iv in the diagonal. This suggests - as best we can tell right now - that only an overall "B" wave was formed lower, and the diagonal was just the "A" wave of minute i in a larger upward diagonal count that will make up Minor wave 5. So, there 'should' at some point be a C wave higher to end minute i.

Supporting this view; today I examined the Dow Jones Industrial Average, as below. And, two interesting things show up in the Dow. First, when trying to count a diagonal upward, one finds that the middle wave (marked at the end of the day on January 5th) is "too short". This means the Dow must not have been in a diagonal, but in a triangle.

DJIA - 15 Minute - Not a Diagonal But a Triangle

Also, you will note that, unlike the S&P 500 which did not, the Dow did make a new secondary low today. This prevents a count of  i, ii up from the first low. Therefore, it appears as if wave c in the Dow count is the complex leg of a triangle, and higher highs might, in fact, be expected within this Minor 5th wave. First, the d & e legs of a triangle must finish properly, with the e leg crossing back down over the A wave. Then, there should be up movement out of the triangle.

This would allow the minor 5th wave to take on some length in relationship to it's minor wave 3, and that would be acceptable - provided that minor 5 does not become longer than minor 3.