Monday, April 24, 2017

Swiss Cheese Continues - Count Modified Slightly

The weekend French primary polling results created another gap-up open in the cash stock market today. The cash market opened up at 2375, drifted down for a bit during the mid-day, and then drifted back up to 2376, and then back down to close at 2374. All-in-all, it was possible to count another small degree "five waves up" in cash. In our weekend update, and in Friday's real time chat, we had showed an Expanding Diagonal on the 1-minute chart, which we said could be a Leading Diagonal provided it's low was not busted. It wasn't!

A slightly modified potential downward diagonal still exists on the ES E-mini S&P500 Index Futures 8-Hr chart, as below.

ES E-Mini S&P Futures 8 hr Potential Diagonal

For this diagonal to hold, then 2388.75 should not be taken out higher before there is a new daily low. Because the potential wave ((iv)) is now higher than it was previously, then potential wave ((v)) does not need to travel as far lower to provide validation. But it would need to break below minute wave ((iii)) and also travel below about 2307 if a slight new high is made in the futures tonight.

The Dow's potential diagonal diagonal now looks like as is shown in the chart below.

DJIA Cash Chart - 2 Hr - Potential Contracting Diagonal

Again, a slightly lower low in each could allow both of the indexes to synch up towards the end of the month.

So, yet again, please remain flexible and patient as the whippy market behavior continues on light volume. Other items we discussed in live chat today were a) triangles, b) B waves up, and c) that wave Minor C of Intermediate (1) was forming a diagonal itself. But none of those seem to fit well with the Dow's count, above.

Have a good night!
TraderJoe

Saturday, April 22, 2017

Weekly Review - Two Plausible Scenarios & Just One Preferred

Some websites want to send you back to the beginning of recorded stock price history in the U.S. to tell you why their Elliott Wave counts, which don't seem to work out when viewed under close scrutiny, must work out in the future. Just recently, one (ahem) shall we call it alternative Elliott Wave site, which claims it is objective, was projecting higher and higher third waves - which, as you know now - never developed. But, the odd thing is the authors of such sites rarely, if ever, say, "we got it dead wrong". How can a site be objective if it won't admit when it's tools and techniques just don't work? Wrong at the May 2015 high. Wrong at the 2016 bottom. Wrong at the March 2017 high.

I on-the-other-hand prefer to stick to real Elliott Wave analysis, as I understand it. And I think many, many people really don't understand it that well yet either. That's why I try to help show you how real wave analysis works - on any time frame from 5-minutes (as in yesterday's post) to weekly, monthly or more. I prefer to live with some uncertainties of true Elliott Wave analysis because I know that's what mirrors life. There is almost always a choice. There is almost always an alternate. This week I will show you the two most likely Elliott Wave Counts on weekly charts, and tell you which I prefer and why. It is no change from the past several weeks.

SP500 Cash Weekly - Primary 5 Impulse Count - ALTERNATE

The first count above is of the potential Primary 5 impulse wave upward. As of this point in time there is nothing that breaks any true Elliott Wave Rule in this count. It would be made up of five Intermediate sized non-overlapping waves higher, and that would normally be fine. Just, if Intermediate (2) were a flat with the higher B wave, as shown, then one would expect Intermediate (4) to be a triangle or a more simple zigzag to provide alternation with the flat wave (2). That could still happen.

But, there are five reasons why I don't like this count that go beyond 'simple' wave analysis, and proceed to more modern wave analysis as it has been further delineated by the likes of Glenn Neely, and Bill Williams.

Fibonacci Five Reasons for Alternate Designation of the Impulse Count
  1. Part of Wave (3) breaks the Primary wave ((4)) to (2) trend line, indicating loss of momentum at that point. Wave 2, as you can see, drops below this lower channel line, and it is more extreme if the real zero-to-(2) trend line were drawn in. 'Usually', 'most-often' all of wave three is above the zero-to-two trend line except in diagonals.
  2. Wave (2) does not have a very deep pull-back - it is only 38.2% at maximum. 'Usually', 'most often' second waves are between 50 - 78% or more except when the first wave is the extended wave in the five-wave sequence. But, the supposed third wave is longer, ruling out wave (1) as the extended wave in the sequence.
  3. Wave (2) is not a sharp wave. 'Usually', 'most often' second waves within true impulses are sharp or zigzag waves, and this one is a flat. While not a deal-breaker, it is a cause for concern.
  4. Sentiment. As you know, we track sentiment weekly. And you can see from the chart below that while sentiment is falling off - as expected - from the high of March 1st, it is nowhere yet near the lows of prior waves. I would expect, before an upward turn, that sentiment will fall lower yet.
  5. Finally, the NYSE Advance-Decline line has recently made new all-time highs. 'Usually', 'most often' the $NYAD will diverge with price before the all time highs are made. That just hasn't happened yet. 
Sentiment Chart

Weekly Bullish Sentiment is Not Yet Near Prior Wave Lows

For the reasons above, and not because of any sacred mystical cycles or hidden proprietary analysis, the count below is currently the preferred one.

SP500 Weekly Cash - Ending Diagonal Count - PREFERRED

As you can see, because there is no Intermediate third wave yet, this count eliminates all of the problems with a third wave breaking the zero-to-two trend line. In fact, in this count you can see from the channel that minute wave ((iii)) exactly lives up to that guideline. Yes, it is not a rule, but it is a guideline we would rather waves live up to than not. Also, there would be four more Intermediate sized waves in the near future to show divergence with that advance-decline line.

So, that's the rationale. We can see both sides of this coin, but clear and unequivocal reasons are provided for preferring one over the other. The real item of interest is that in either the Intermediate Wave (4) wave in the Alternate, or the Intermediate wave (2) in the Preferred count, it is very likely that that down wave could have the form of a zigzag! And that is the amazing part. And that is why the ES 8-hour count published previously may be taking the form of the downward expanding diagonal that we have been showing for weeks now - because in a true zigzag, a real minor A wave is needed - made up somehow of five minute-sized waves.

But, the most important thing is that it is regular Elliott Wave analysis. There is nothing mystical about it. There is nothing mysterious about it. There is nothing here that doesn't already appear in two or three books, and a couple of videos all of which are available for only modest cost or no cost.

Are you learning your Elliott Wave? We hope so. Can we be wrong? You bet. But when we are, you hear it here first - along with why!

Have a great rest of the weekend.
TraderJoe

SUPPLEMENTAL: At the request of a comment that asks good questions, I am posting these two one minute charts from the live chat room  that were done in real time.


SP500 1-Minute April 21 1546 PM ET
The first chart shows the detail that is possible today with good measuring tools and speedy equipment. At the time of posting this in the live chat room, I intentionally left all of the wave marker data on the chart, so a person could see that the measurements are exact for an expanding diagonal. Wave ((v)) is longer than wave ((iii)), which is longer than wave ((i)), and wave ((iv)) is longer than wave ((ii)), overlaps wave ((i)) but does not travel beyond the low of wave ((ii)). They are all three wave internal sequences that look like zigzags to me because they don't have "pull backs" in them.

But, this is  the key to me, if it is really a diagonal that I had identified, and not a series of one's and two's higher, then, it should have - as a prediction - at least a deep retrace if it is a Leading Diagonal wave up, or a failure lower if it is an ending diagonal. And here is what the result was ...


SP500 1-Minute Chart April 21 1559 PM ET


Well, there it is! Another Elliott Wave prediction come true. So, please be careful about criticizing building up larger fractals from smaller fractals because they are definitely there! But, stop being amazed there, and think. Look at the very top of the wave in the first chart. You notice that I did not call ((v)) done by placing it on a wave bar? That was because I couldn't find an ending formation yet.

And when you look at the second chart, what do you notice? C'mon now. There is a perfect little ending contracting diagonal for the (c) wave of ((v)). I just didn't draw in the trend lines. Can you?

Friday, April 21, 2017

Count Continues

In a rare weekend treat, here is the intraday SP500 5-minute chart in near real time as posted in the live chat room, this post is about 1:30 PM today. Yesterday, I posted that there may have been a fifth wave truncation in the c wave of (iv), on yesterday's eight hour ES chart, and the chart below shows what this looks like. Five tiny waves up off of the 5-minute channel that fail to make a new high as a wave ((5)) still within the upward channel.

SP500 5-Minute Chart with Truncation and Expanding Diagonal Downward

One of the reasons I called for the truncation, is we got the fourth wave, ((4)) within 78 candles (see the first circle on the Elliott Wave Oscillator). That does not follow The Eight Fold Path Method as fourth waves should typically occur within 120 - 160 candles in true impulses (not impulses which are part of corrections). Also, you will note that wave ((ii)) is not along the lower channel boundary which is another tell-tale sign.

Then, this morning, I started counting yet another slow, expanding diagonal downward that is perfect in every detail, with wave 5 longer than wave 3, wave 3 longer than wave 1, wave 4 longer than wave 2 (in both price & time!), and wave 4 overlapping wave 1, upward. This diagonal is likely a larger wave (1), downward. While I had no desire to start counting yet another potential diagonal down, the failure of the down wave to also follow The Eight Fold Path Method forced this count. Good thing!

The tiny diagonal lower has already proved itself, and a second wave upward might occur for the rest of the afternoon, or until the weekend. Such a second wave upward should not exceed the truncated fifth wave ((5)), above.

When this morning's downward diagonal was proven, it was also noted that wave ((1)) upward, was also overlapped in the downward direction, as shown, preventing any misunderstanding with a larger fourth wave.

It looks like the larger ES 8-hr diagonal is being set-up to complete properly, perhaps next week.

Have a great rest of the day!
TraderJoe


Thursday, April 20, 2017

Count Modified

First, here is the eight hour version of the ES E-Mini S&P Futures chart that I said I would publish today to reduce the number of candles. I said I would not change the count without informing you.  Now I am informing you. The count was revised slightly during live trading today because of the large price movement.

ES E-Mini S&P 500 8-HR Potential Diagonal Lower

Yesterday's lower daily low in the DJIA is where the new b wave of minuet (iv) is in the ES chart, above.

Today was likely the c wave higher. I called for a possible truncation in the fifth wave of the c wave in real time, and it may have done that, but tomorrow is needed to clarify whether a truncation occurred for certain. The advantage of another up wave today was that it made wave minuet (iv) larger in time that wave minuet (ii), something we discussed in the live chat room. That is the most common form of the expanding diagonal, that the fourth wave takes more time than the second wave. Note than minute ((iv)) also currently takes more time than minute ((ii)) in the above chart.

In order for both diagonals to complete properly, the futures price should still trade below 2304, as shown by the 100% line on the chart. Any higher high above 2363.25 (futures) will invalidate the interior wave (v) diagonal because in an expanding diagonal, wave (iv) can not travel beyond the end of wave (ii). And now, anything over 2375 (futures) will invalidate the downward diagonal as a whole.

So, I was considering that lower daily low for the DOW yesterday, and I had a thought that might wind up synchronizing the DOW and the S&P in time at the lows again. I presented the idea during live chat, and will also present it here. It is based on the question, "just why did the DOW have a marginal lower  low yesterday?"

DJIA - Two Hour Bars - Potential Contracting Diagonal

I can't say for sure but wave minute ((iii)) is a marginal new low, and wave minute ((iv)) currently takes less time than minute wave ((ii)) - as is usual for a contracting diagonal. I do not know that minute ((iv)) is over yet. Invalidation of a contracting diagonal in the DOW is above minute wave ((ii)).

Before the down wave is over, we might expect to see a triangle in the last wave - particularly of the expanding diagonal S&P500.

Well, that's enough for now, and remain flexible and patient as the whipsaws are likely to continue while the waves clearly do not follow The Eight Fold Path guidelines, meaning they are clearly not impulses.

Have a good night.
TraderJoe




Wednesday, April 19, 2017

Count Continues - 6

ES futures were higher overnight, but closed lower on the day, along with the cash S&P 500 index. The DOW actually make a new DAILY low today, lower than the March 27th low, but no gaps were filled as the result of it. First, here is a daily DOW chart showing that new daily low.

Daily DJIA - New Daily Low versus March 27th

Now, here is the count on the ES E-Mini S&P Futures as was posted in the live chat room today, as of the 4:15 PM settle. Notice the current count from the April 5th high forms the descending brown channel shown.


ES E-Mini S&P500 Futures - 4 HR

This count makes it clear, the invalidation point is now over 2350, basis the futures. Tomorrow, the only difference is I will be posting an 8-hr chart instead of a four-hour chart, so as to reduce the number of candles. The count will not change without my informing you. Price still has lower highs but needs the lower lows.

Target for the downward wave remains at lower than 2504 for the ES future, and the DOW's lower low helped make that case today.

Have a very good night.
TraderJoe

Tuesday, April 18, 2017

Count Continues - 5

The ES E-Mini S&P500 futures made a slight higher high in the overnight session, then traded lower before the cash market opened. So far, prices along the right hand side of the chart below continue to grind lower.

ES E-Mini S&P 500 Futures - 4 HR
The whippy price action continued into today, as prices followed down along the most recent internal diagonal trend line.

The half-hourly S&P500 cash index chart looks like "Swiss cheese" at the moment, with numerous gaps (shown in red) both above and below the market.

S&P500 Cash Index - 30 Minutes - Numerous Gaps

The cash index could not close it's opening gap today, and so a series of lower highs remains clear, but what is still needed is lower lows.

It's a time to remain flexible and patient to see whether the downward count resolves properly with a low below ES 2504 (futures) or an upward count begins. Another downward gap tomorrow should be taken as a sign the downward count may indeed resolve properly, as today can be counted as ((1)) down, as the first SP500 30-min candle downward, with a flat ((2)) upward. Invalidation of that downward impulse count would be over the 2350 level on the cash S&P. The diagonal would have to be examined in real time.

Other evidence that may be pointing in the downward direction is that the DJIA has greater than a 90% retrace on it's March 27th down wave. That would be very atypical of a triangle retrace - which is usually about 78.6% or less. So, at this time the down count still has priority. Is it possible this whole last wave will resolve as a larger diagonal lower? Yes, it is. But, an impulse lower is still quite possible too. Let's see how it goes.

Have a great evening.
TraderJoe



Monday, April 17, 2017

Count Continues - 4

ES futures dipped overnight, and then began a very low volume rally right into today's close. Regardless, the interior diagonal downward, shown on Thursday's post can be counted as a completed structure in both the S&P500 cash index and in the Dow Jones Industrial Average. It is an expanding diagonal in the S&P500 and a contracting diagonal in the DOW.

ES E-Mini S&P 500 Futures 4 Hr Chart

This downward wave is either sub-minuet wave i, of minuet (iii), of minute ((v)) downward. Or it is a minute ((c)) wave as an alternate. At this point, only travel over that 2365 level noted in Thursday's post can tell them apart, because in an impulse lower for minute ((v)), wave sub-minuet ii may not travel beyond the start of wave sub-minuet i. However, the downward wave in the ES and S&P formed correctly to this point, with all of the waves measuring properly for an expanding diagonal.

If the invalidation level at 2365 is exceeded to the upside, then it is 'possible' a very large triangle is being built as a fourth wave in an upward count, but this remains the alternate as of this time. Either way, we said to expect whippy market behavior and today was certainly no exception.

Cheers and have a good night. Sorry for the late post - there were some issues with the Blogger editor preventing uploading of charts until now.

TraderJoe