DJIA has the pristine count

The count below on the Dow Jones Industrial Average, 15-minute chart, is very clear in form and structure. The problem is it has two interpretations.

DJIA Cash Index - 15 Minutes - Expanding Diagonal or Triple Zigzag

Notice how - as an expanding diagonal - each of the waves is longer in price and time than the prior wave. Wave (v) is longer than (iii) which is longer than wave (i), and wave (iv) is longer in time than wave (ii), and overlaps wave (i) without traveling beyond the end of wave (ii). Notice also, that each wave is a zigzag, and how exceptionally deep the retracements are. This is probably where the authors of some books get the deep retracement look to diagonals. Sometimes and in some indexes it definitely does occur.

So far, all well and good. Then notice the classic signature of the expanding diagonal on the Elliott Wave Oscillator below the pattern. Notice how wave (v) is deeper than wave (iii), which is deeper than wave (i), and further how wave (iv) is higher than wave (ii) and does not form a divergence. This EWO signature is one of many to commit to memory. But it helps!

So, here's the problem. Because, by definition, the expanding diagonal has three downward zigzags in it, it can not be ruled out from the simple three zigzag pattern. Duh. It is one of the patterns which is its own alternate. The only way we will tell is if the high or the low is exceeded.

The reason I showed you side-by-side the count of the S&P versus Dow yesterday, is the the S&P would somehow have to be counted differently. By the rules the flat wave shown yesterday in the S&P could only be a "b" wave structure and not a fourth wave. But ...

During the comments in the previous post we noted that the S&P500 did, indeed, travel to 90% the length of it's May 13th down wave. This (and a three zigzag pattern instead of a diagonal) makes a potential flat wave possible in the S&P500, if the market needs to spend more time in a second wave. That is absolutely not a requirement, but it often happens. The Dow, it turns out, at this level, did not make the 90% mark. So now we have a "split decision". If the Dow makes a higher high than the origin of the above diagonal, it might have to be counted as w-x-y instead of as a simpler a-b-c, with x as this downward triple zigzag. Time will tell.

The bottom line is while the prior prediction of taking out the low of S&P 2,832 came to pass (in a hurry!), it can not be definitely stated whether the upward correction is over or not. The Russell 2000 is at the 138% mark to the down side of it's prior three up waves. So, it may try to make an expanded flat. And, the long holiday is upon us which means the futures can travel lots of places in the light volume.

Tuesday's cash open gap, and whether than gap fills or not, will therefore help set the direction. This is one of those times  to enjoy the time off and let the market provide a clue.

Have a great start to the holiday weekend, and keep one eye tuned to see if any important news should occur.

TraderJoe

Truncation Lives Another Day

Overnight, the futures were lower. They never made a higher high than yesterday during the session today. And so the potential truncation we discussed yesterday lived on to tell its story another day. The updated chart is below.

S&P500 and DJIA Cash Indexes - 15 Minutes - Truncation and Failure?

It was pretty clear to me from the overnight action, that the S&P500 futures (ES) had made a leading expanding diagonal lower - charts of which were posted in yesterday's comments. That wave is labeled as blue i, downward, in the chart above. Then, in whippy pre-holiday action the market spent the rest of the day in correction. The opening gap was filled. Lower lows were made, and then there were five waves up on the report of the FED meeting minutes.

So, the truncation held, but so did the .a wave wave of the correction, potentially making .c of a second wave ii. That means cash S&P might have both a truncation and a failure to deal with. And this is after making only "three-waves-up" in the flat correction, so far. If so, it speaks pretty clearly that there should be additional down side price movement to come. We'll have to see for sure, but at the end of the day there were some pretty serious price overlaps on the part of both the S&P and the Dow.

This would suggest that the 2,832 level - at least - on the S&P500 should be exceeded lower in the coming days.

Have a good start to the evening, and a good start to the long weekend - if you have already started a vacation.
TraderJoe

Three Waves Up, So far

The S&P 500 can currently be counted as a flat wave. This was predicted yesterday, and the (c) wave of the flat did occur overnight, and nearly into the close today. That flat wave is shown in the chart on the left, below.

SP500 & DJIA Cash Indexes - 15 Minutes - Flat Versus Zigzag

Please note in the internal count to (c) that all three internal sub-waves are shorter in price than (a) which helps maintain degree labeling, and all of wave iii is above a line that could be drawn from (b) to ii. Further, there is alternation in wave (c) such that wave ii is a brief sharp, and wave iv is a flat which is longer in time. The internal count of (c) is similar in both the S&P and in the Dow.

The Dow Jones Industrial Average, however, made a zigzag instead of a flat wave, as its (b) wave did not retrace the needed 90% like the S&P500 did. In fact, the (b) wave of the S&P made the slight new low which would invalidate any attempt to count impulsively upward. Further (a) wave in the S&P, because of the lower low, must have been only a three wave sequence, where in the Dow it was a five wave sequence.

The likely consequence of these patterns is that if the (a) wave is overlapped in the downward direction, it would be a warning that the upward correction is over - or is turning into a much more complicated pattern (the former is more likely). Why? Because the vth wave of the (c) wave of the correction in the S&P likely truncated this afternoon - whereas it did not in the Dow. On several attempts wave v tried to get through that .b wave high, and it just could not. That is not a good sign.

If you are not familiar with the differences between flats and zigzags, then study these charts, and it may help.

Have a good start to your evening.

TraderJoe

Lower Low Day

Today, the ES E-Mini S&P500 Index Futures made another lower low day that continues the down trending wave. In mid-afternoon, a further lower intraday low was made - but it was marginal and may be the b wave of a flat correction. We were able to count "five-waves down" in the form of an expanding diagonal. Tomorrow might start with the c wave of the flat.

For today, I want to show you some weekly U.S. equity stock indexes that have not made new all time highs.

U.S. Equity Indexes - Weekly - With No Newer All Time Highs

Each of the Dow Jones Industrial Average, the Wilshire 5000, the NYSE Composite Index and Russell 2000 have to this point failed to make a new all-time higher high. The most concerning is the Russell 2000, followed by the NYSE Composite Index.

Have a good start to the week.

TraderJoe

No Friday Rally

What do you mean prices ended the week and didn't close on the high of the day? That is kind of a rare and different turn of events, for sure.  The count remains the same.

S&P500 Cash Index - Daily - Count

Wave ii, up, currently counts like a double zigzag, and that is fine. If it wants to take more time, it could possibly extend as a triple zigzag, but may not go over the Y wave of Intermediate (B) and maintain this count. As long as the SMA-(9) of the MACD - shown as the signal line - remains below the zero level, a downtrend should be respected.

As we wrote in the comments section earlier in the day (on yesterday's post), the Russell 2000 futures (RTY) did complete all the requirements of an expanding diagonal in the downward direction. By the futures settlement, the ES and cash S&500 did not, but they might do so in the after hours or on Monday.

Keep in mind the Dow Jones Industrial Average never did make a new all-time high - as the S&P500 and some other indexes did. And I was quite correct in my call that the Dow would not see a new all time high. I was not correct for the S&P500 or the NASDAQ 100. As I stated before, this prompted me to write a major Elliott Wave service and challenge their call of an expanding triangle for Intermediate (4). I'm still waiting for a reply.

Have an excellent start to the weekend.

TraderJoe

Last Chance Fourth Wave

In a significant sign that the up trend (which is likely a second wave) is tiring, today - after making a marginal higher high - the fourth wave of (c) may have made a 50% retracement of its third wave. The Fibonacci ruler on the right shows this wave on the S&P500 cash index and its 50% measurement.

S&P500 Cash Index - 15-Minutes - Last Chance Wave iv ?

In doing so, late this afternoon price came back to the upper edge of the base channel formed by the (a) and (b) waves, and bounced a bit. This 50% x wave iii level is about the limit for a fourth wave under The Eight Fold Path Method, so watch it closely. The Elliott Wave Oscillator seems to be providing that typical fourth wave signature being within +10% to -40% of the prior peak.

Yes, there is a downward expanding diagonal there, and it could start a down wave, but it does not have to. It could be a small degree .c wave of a flat, to alternate with the sharp wave ii.

Speaking of alternation in these corrective waves, we currently have a short wave iv within (a) and it alternates with a very long in time wave iv within (c), while their second waves are just the opposite in price. That is really excellent to see. At the current moment, waves (a) and (c) are remarkably similar in time. Adding a fifth wave higher of (c) would provide better time alternation too, but that is a guideline and not a rule.

Because the trend is one's friend until it is not, we should still look for that fifth wave higher. But, under no circumstances can either the i wave of (c) or the (a) wave be overlapped and maintain this count. The best alternate at this time is a double-zigzag higher if overlap occurs before a fifth wave up.

Keep in mind that because this is likely a (c) wave, then the fifth wave of the (c) wave may truncate if it wishes - particularly in cash. So, now is the time to keep an eye on things!

P.S. As far as I can tell, within wave (c) the wave iii is shorter than wave i. I did not change the first wave count from yesterday.

Have a good start to your evening,

TraderJoe

Watch Today's (b) Wave Low

Two days ago, in the last post, five-waves down were shown in the S&P500 cash index. Over the last two days, there has been an up movement with a higher high today, likely making at least an a-b-c sequence higher. The Dow's chart, below, shows that sequence as well as any other. I include the Dow chart today because many are or were having difficulty counting it.

DJIA Cash Index - 30 Minutes - Three Waves UP

As far as I can tell, and keeping all the degrees of the labels correct, the Dow made a leading diagonal lower which can be counted as an (a) wave. Then there was a flat (b) wave up. This was followed by a sharp (c) wave down. The new (c) wave down proves the Dow's leading diagonal (a) wave, and preserves the meaning of a "zigzag" even though the (b) wave of the zigzag is a flat wave. That is allowed by the rules. 

I don't know, but could surmise, that to keep the Dow and the S&P in synch, these three waves could be the first three waves of a larger potential diagonal. To keep the degrees correct, then these three waves would comprise the larger degree wave ((i)) down. The three waves up to today in both the Dow and the S&P would be a larger degree second wave ((ii)) because this set of waves takes more time than any previous correction.

Whether the upward correction is over or not depends on exceeding the (b) wave lower. Why? Yes, the Dow made a wave today that can be counted as an ending diagonal. If it is, then fine! But, if not, then the very same diagonal could also be a leading diagonal wave i, of a larger (c) wave of a higher ((ii)) wave.

There is nothing I can do about this amount of nondeterminism in the count. This is the true nature of alternates in Elliott Wave: the same exact wave structure can have two opposite meanings in the current context. Perhaps volume, advance/declines and/or tomorrow's gap direction can help separate the two scenarios, but at this point all we can say is that the "minimum" retracement needed for a second wave has been made.

Yes, the market is messy at the moment. We can see how people might throw up their hands at a wave count. We are trying to use the relative degrees of the waves - and time as well as price - to keep us on track.

Have a good start to your evening.

TraderJoe