Friday, November 17, 2017

Usual Expectations - 2

Market Outlook: A Challenge of the High is Underway
Market Indexes: Most Major U.S. Equity Indexes were lower; RUT higher
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

Let's continue where we left off yesterday. The market, as measured by the S&P500 Index, closed yesterday at 2,585. While other sites and analysts took the bullish case hook-line-and-sinker, we took a different approach and said to monitor the gap direction. Prices gapped lower at the open to 2,582, and traded down to 2,579. In the process, they confirmed the case we stated yesterday that to begin any new down count, the prior wave 4 would have to be exceeded lower in less time than wave 5 took to form. That occurred on the open, the continued five-minute chart is below.

S&P500 Cash Index - 5 Minute Chart - Wave 4 Beaten in Less Time Than to Build Wave 5

The blue arrow shows how much time it took to beat the wave 4 low, the green arrow shows how much time it took to build yesterday's wave 5. So, we started a downward count. We counted five waves down, including a gap in wave (3), and monitored almost all day as a triangle formed wave (4). Without wavering, we expected a new low out of the triangle, and that occurred in the last thirty minutes of the day, making a complete five-wave sequence (:5) down to the 2,577 level. And, the gap was not closed for the balance of the day.

On this chart you will see two boxes: the first is the "height" or number of points of wave (2). We contended that the purpose of the triangle was to help equalize the net distance traveled by wave (4). Since wave (4) is measured by it's E wave, the net distance traveled thus became remarkably consistent. If the wave movement ended at B, the A wave retrace would have been "too large" in terms of net points traveled, for a fourth wave compared to wave (2). We waited, and waited, and then the thrust out of the triangle occurred and made the new lows of the day. Please note the down movement "may" not be over. Wave (5) could further subdivide. In fact, after the cash market closed the futures did continue lower still.

As far as I can tell, this is now the five waves down to an ((A)) wave, of a larger correction. What larger correction?

Shortly after the open I published in the live chat room, this chart of a potential much larger triangle in the S&P500 Cash Index - Hourly. It is a 78% triangle in both directions with waves (c) and (d) both 78.6% retraces of their prior waves.

S&P500 Cash Index - Hourly - Potential Larger Triangle

It is entirely possible to count a-b-c down to the (a) wave of the triangle, and a-b-c up to the (b) wave of such a triangle. Both of these would be the "simple-legs" of the  triangle, and then the potential diagonal downward would better count as w-x-y-x-z as the "complex" (c) leg of the triangle followed by yesterday's :5, :3, :5 upward to another "simple leg" of the triangle, and then, we were expecting an (e) wave downward to also be a simple leg. In a running triangle such as this, it is required, that the (e) wave, cross down over the origin of the triangle at (0), the prior third wave, and it did that at the close.

So, there is now a validated triangle.like it or not. Could the (e)  wave go lower? Absolutely. Does it have to? No. But, keep in mind that so far we have a five-wave down count in this last leg. So three-up, and five more down should at least be expected next. And, keep in mind, some seven leg triangles have been documented in the annals of Elliott Wave history that would add an (f) and (g) leg if the market needs more time to make it to an important event or news announcement, let's say. The only reason we mention that is this triangle - while is has the right look - may be a bit stubby, yet. Hard to know how it will finish.

Now, is  that Leading Expanding Diagonal down from the top dead? No, it most certainly is not. But, again, this is exactly what I have been trying to communicate to you is the very essence of The Fourth Wave Conundrum: exactly the same valid wave structures can result in different interpretations of the current count.

That's fine with me. I'm used to it. As I said in my YouTube channel video, it is in the fourth wave (or diagonals) that people want to know what the count is. They think things like, "don't make excuses; just tell me the count, what the target is, and how many more points up or down. I need to know what the count is because I'm being whipped around like crazy". Sorry. That is the reason I coined the term. I can show you in detail how to count. I have done that above and on numerous charts. What can not be done with high probability is state what direction the next break out will be. So, we are patient and try to do our best job counting each wave. We leave the fortune telling to others. In short, the above triangle could break up or down.

What makes the Leading Expanding Diagonal slightly less probable now than the triangle is the fact that, as a diagonal, it did not make a new low below (a) of the triangle. Why not? Well maybe it is not expressing true Motive character - the ability to get prices really moving in one direction or the other, downward in the case of the Leading Diagonal.

If you're a savvy trader, you might say, "the trend is friend until it is not". And that might add odds that the next break will be in the trend direction (or up in this case). And often that works, until the last time.

Well, that's enough for me today. Have a very good start to your week.
TraderJoe

Thursday, November 16, 2017

Usual Expectations - So Far

Market Outlook: A Challenge of the High is Underway
Market Indexes: All Major U.S. Equity Indexes were higher; NQ futures new ATH
SPX Candle: Higher High, Higher Low, Higher Close - White Soldier
FED Posture: Quantitative Tightening (QT)


In yesterday's post we wrote, "The retrace downward at the end of the day, today, was to the 62% level so a further up leg is possible to near the level of the B wave of (5), if the gap direction tomorrow is up." It was. And price exceeded that B wave location, quickly eliminating at the open that wave (5), lower would sub-divide. (Wave 2 of a C wave may not travel beyond the start of the B wave).

The market as measured by the S&P500 closed yesterday at 2,565. The futures were higher overnight and price gapped up at the open to 2,573, then climbed to 2,590 intraday. As soon as we saw the B wave exceeded, we drew the confluence of these two Fibonacci levels on the chart.

S&P500 Cash Index - Half-Hourly Chart - Fibonacci Confluence

We took the extension from yesterday's intraday high and low (in blue), and the retracement of the entire move upward (in green). These were the only two Fibonacci levels that agreed: a 78.6% retrace, and a c = 1.618 extension. Those two measurements also were in the area of the (4)th wave of one lower degree.

For the day, this upward location held price rather well, and it started to back off a bit into the close. But, we did not get confirmation (yet) of a lower wave beginning. Let me explain with reference to the 5-minute Neely-style chart below.

S&P500 Cash Index 5-Minute Chart Neely Style

Yesterday, I was able to count "five waves up", shown as the :5 (which is a structure label, not an Elliott wave progress label). It literally just means "five waves up" that meets the definition of an impulsion. Then, I was able to count "three-waves- down" as A,B,C to the location marked :3. Again, this is a structure label that only means "three-waves-down" that meets the definition of a corrective structure. And today, with the gap up, it was possible to count another five-waves up, again, as :5

But, the gap was in a very odd location - it could not be counted as a "three-of-three" gap. It could only be counted as a "1". So, when you include alternation, it seemed like the best count was as a sharp for wave 2, and a flat for wave 4. This would mean that was 3 was shorter than wave 1, and so wave 5 would have to be shorter than wave 3.

In the chart above, you can see the 5 = 3 location. Somehow price never crossed it today, and the rule of wave three not being the shortest has, so far, been met. Very interesting.

BUT in counting in the downward direction, while we got some overlaps, we did not, by the close, meet a key Neely guideline for beginning a downward count. That guideline is that to start a down count, the down wave should beat the wave 4 label, today, lower, in less time than wave 5 took to form. Now, there is nothing magic about the close; this guideline could be met on a gap downward tomorrow. But, so far, it hasn't. So, the gap direction again becomes key tomorrow.

As long as this guideline is not met, then all we have in the upward direction so far is :5, :3; :5 in which the second :5 is 1.618 x the first :5. That means there "could" be another five up tomorrow. Or, there doesn't have to be and an upward corrective wave could be over for this index. This is simply the way Elliott Wave labels are assigned, as I understand it, in the Neely method. So I wanted to show a relatively clear example.

But, once again it places us in the position of having to monitor the gap direction tomorrow for further clues. This is not always the case, but we are still in The Fourth Wave Conundrum hopping around and opening and closing gaps. Today's gap up open helped close two of the gaps shown in black circle on the half-hour chart, above. But, now there is a gap both above and below the market.

Suffice it to say, the usual expectation of a 78.6% "deep retracement" after a diagonal wave has been met. And the question is "what's next"? Will an impulse form upward, or will price movement in the downward direction resume? It is very, very difficult to find a set of market metrics that can predict the overnight gaps when the market is not clearly in trending mode. Anyone who has better clues on that score, please let us know!

As you can see, sometimes not being able to clearly predict the very next wave is not a matter of whether a person can count or not. Sometimes, the market must leave the situation unclear enough so that there is enough uncertainty to make a market. If there weren't uncertainty, the market would cease to function because it would become one-sided. 

In the meanwhile, thanks for all your comments yesterday. I may not have gotten to all responses yet, but I will. It was a bit overwhelming to not to get anything for days, and then to see so many. I truly do mean, "thanks", but, also, I hope you will help spread the word about the blog. I'm not advertising, and so word-of-mouth is the best.

Thanks again for helping, and have a good start to your evening.
TraderJoe

Wednesday, November 15, 2017

Another Lower Low Day

Market Outlook: A Top of "Some Degree" appears in Place
Market Indexes: All Major U.S. Equity Indexes were lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 Index closed last night at 2,579. The futures were lower overnight, and the market gapped down ten points to open at 2,569 and continued lower to 2,557 which was fully -20 points lower, validating a count we had started yesterday in the live chat room and referred to in the blog post yesterday. When the market bottomed at that level, a sharp rally was mounted back to the 2,573 level, but not closing the opening gap.

Yesterday, I said I would share with you the downward count we developed in the cash index if it came to fruition. That count is shown in the S&P500 Index Cash Half-Hourly chart below.

S&P500 Cash Index - Half Hour Chart - Downward Count

This morning we got validation of a properly formed expanding diagonal in the downward direction. Wave (5) is just longer than wave (3), Wave (4) is longer than wave (2), but does not cross above wave (2)'s high, wave (4) overlaps wave (1) in the upward direction and they can all be counted as zigzag sequences lower.

By showing you the yellow (5) flag in an even lower location, it should be clear that it is possible that the diagonal continues lower. In order words, the C wave of (5) could sub-divide, with the current C wave location only the first wave of C. Time will tell.

As we indicated, the EMA-34 is currently headed lower. That has been telling. The retrace downward at the end of the day, today, was to the 62% level so a further up leg is possible to near the level of the B wave of (5), if the gap direction tomorrow is up.

So again, either we have a diagonal to the all-time high ending a fifth wave up, and a diagonal downward, starting a down trend, or the upward diagonal is just a (b) wave, and the downward diagonal is the (c) wave of a flat.

The VIX made a higher high today going all the way back to Aug 21, but it's daily slow stochastic is not yet in over-bought territory. And the daily ES E-Mini S&P500 Future today hit it's daily lower Bollinger Band, but it's daily slow stochastic is not over-sold yet, either.

Today we discussed a slightly different count in the ES E-Mini futures (versus cash above), because the futures make their high at a slightly different location. The two counts are currently "compatible" but they are not the same. The advance-decline line, and up / down volume continued to decline.

Right now, I am monitoring the speed of the decline (price points per number of days) to determine it's significance for longer term charts. But, so far, so good.

The daily chart that shows the best possibility for a (b) wave high - instead of a fifth wave top - is the NQ daily index. However, price has traveled low enough today, that it is time - and advisable - to include the invalidation point on the ((iv))th wave of this daily chart. Here is that chart.

NQ Daily - Last Chance for a Non-Overlapping ((iv))th Wave

I have to admit, I am quite disappointed that people are not contributing by commenting on the blog. Further, I see that readership lately is down. If readership was up, and commenting was down, I'd think you were just satisfied with what your are seeing. With both down, it makes me think I should back off considerably  as people are not spreading the word regarding what is here, and neither are they paying significant attention to it either.

Well. Have a good start to your evening. Time for me to relax, too!
TraderJoe

Tuesday, November 14, 2017

Small Point Losses

Market Outlook: Topped (more probable today) or still topping
Market Indexes: All major U.S. Equity Indexes were lower; DJUtil higher
SPX Candle: Lower High, Lower Low, Lower Close - Hanging man or Hammer
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 index closed yesterday at 2,585. Overnight the futures were lower, and the market gapped lower at the open today down to 2,578, then traded lower to 2,566 before rebounding, in the process creating a lower low day than yesterday. The rebound appeared to occur in three choppy waves: 2580-2572-2580, so far, to the 62% retracement level.

Because of the lower low day, the potential red wedge count alternate today lost "the right look", as below. It no longer looks like a wedge. Therefore it will be eliminated in the next update.


S&P500 Cash Index - Daily - Red Wedge Lost the "Right Look"

Therefore in the ES 4-Hr futures, we published this potential ending diagonal after the market opened. This diagonal would correspond to the blue wedge in the daily cash chart, above.


ES E-Mini S&P500 Index Futures - 4 Hr - Potential Ending Diagonal

The clear alternate for this count is the B wave of a flat or triangle, but until there is more price movement, it is difficult to assess. We have started a downward count in the live chat room, but it has not proven itself yet. If or when it does, I will let you know.  As always, for such a diagonal to prove itself, price must exceed the start of the diagonal at iv in less time than the diagonal took to build.

Meanwhile, you can feel the tug-of-war as the daily E-Mini S&P500 Index futures traded on both sides of the 18-day SMA, "the line in the sand", closing slightly above it at the settle.

Please note that while a triangle did not technically invalidate by the end of the day, it's "look" is strained a bit also at this time. That is because the upward b wave would look extraordinarily long in comparison to the other waves. But, a triangle could develop more proportionality and I will keep monitoring for it.

In the mean time the 4-hr EMA-34 now has a downward drift to it. So that is something to keep an eye on as The Fourth Wave Conundrum still requires the same commodities: patience and flexibility.

Have a good start to your evening.
TraderJoe

Monday, November 13, 2017

Small Point Gains

Market Outlook: Might have topped or topping
Market Indexes:  DJIA, SPX, NDX Higher; RUT slightly lower
SPX Candle: Outside Candle Higher
Fed Posture: Quantitative Tightening (QT)

The futures were first higher overnight, then lower in the morning. The cash S&P index had closed Friday at 2,582. They gapped down about six points this morning to open at 2,576, and traded down to 2,574 before quickly reversing to chop their way higher, filling the opening gap, to close at 2,584 or up about 2 points. While they did whip around (as might be expected in a diagonal or triangle) the overall point gain on the close was very modest. In the process of closing higher, the cash market did close Friday's gap down, but not Thursday's. The chart is below.

S&P500 Cash Index - Daily - Potential Red Wedge Still in Tact

While the cash market did make an "outside day higher", the ES E-Mini S&P500 Futures did not. But, as of the settle anyway, the futures did, for the first day, lose their embedded slow stochastic reading if it holds into the close of trading. The only day the futures could get it back would be tomorrow.

The red wedge in the cash market has not been invalidated.  We provided the invalidation levels in a previous post. But, we want to be clear, as of this time ...

There are two other plausible or possible counts - other than an ending contracting diagonal - right now, 1) an overall triangle dating from the 23-October high, and 2) a downward expanding diagonal from the high. This is precisely The Fourth Wave Conundrum that happens at every degree of trend, and we will have to take our clues from gap direction. Nothing says upward price movement is over yet, and careful monitoring of the over-night is temporarily needed. (For the triangle - just start a line down from the highs).

Again, the DJIA has already invalidated any further contracting upward diagonal - as it's fourth wave would be too long for it's second wave - and it's MACD is not looking very healthy. You might like to review that one. The Dow has not invalidated a larger triangle.

Also, the summation index on the Nasdaq is not looking very healthy, as per this weekly chart.

NASDAQ Summation Index Weekly

The slow stochastic looks rather ominous here. And while it could hitch up, it tends to be rather smooth in it's movements.

It's just another reason why patience and flexibility are needed at this time.

Have a good start to your evening.
TraderJoe

Sunday, November 12, 2017

It's Time ... For Time

A lot of people try to comment on price levels in the U.S. stock market. Great. Me too. But fewer people comment on time relationships in same. I think some people are a little less comfortable dealing with time and how it is expressed in the wave principle. So here are some charts for you to review.

Plus or minus .. give or take .. the stock market often expresses it's time relationships in simple Fibonacci numbers. The current "big picture" is first. At present, each of the turns may represent a simple Fibonacci number (1, 1 ,2 ,3 ,5 ,8 ,13 ,21 ,34 ,55 ,89...and so on).

Fibonacci Numbers of Years in the U.S. Stock Market

And, similarly, within the wave up from 2009.

Fibonacci Number of Years in U.S. Equities

In this case, in particular, the first corrective wave, (2), is longer than a year, and the second corrective wave (4) is shorter than a year, but both adding up to about two years. Plus-or-minus, give or take, making the whole sequence eight full years - almost approaching nine.

What I then found interesting, as we may be in that (5)th wave up, is that the current expression of time is another simple Fibonacci number.

Fibonacci Number of Months in U.S. Equity Markets

We are twenty-one (21) full months from the February, 2016 stock market bottom. (The first full month would have ended in March, 2016.) If a turn were to occur here, would it be a coincidence? Inquiring minds would like to know.

Enjoy the rest of your weekend.
TraderJoe

Friday, November 10, 2017

Taxes - What the "Powers That Be" Don't Get

Corporations are legal 'entities' that are allowed to be greedy. If the kindergarten teacher sends a note home with Billy - that he won't share the crayons with the other students - then his mother wacks him upside the head when he gets home.

But when CEO William comes home, many years later, and says that he's taking the whole family out to celebrate his mother's birthday - made possible because of the profits he led his company to over the last year, and bonus received, then the mother misguidedly beams with pride at the successful lad.

Profits are the excess of what the customer paid to purchase  an item over what the company paid for the raw materials, labor, distribution, and retailing, etc. - pure and simple. Not many are against making reasonable profits. Otherwise, there would be little incentive to open a business or remain in one.

The problem is when CEO's and Corporations get so greedy that they forget why they are in business. Some think it is to maximize shareholder wealth. Some think it's all about their company reputation. Some think it's all about their bonus. There are precious few CEO 's that will work without a bonus. What? Only get paid for the job I do? Nothing extra? It goes on & on. The result is that may CEO's can make 50x, 100x, 200x, 300x or more what their first line workers make - like the worker doesn't have to get out of bed and provide breakfast for the kids, too. Sickening.

Further, because of the high-priced Corporate lawyers, many Corporations don't have to currently pay Federal income tax, at all.

Here is how USAToday reports it, "There are 27 companies in the Standard & Poor's 500, including telecom firm Level 3 Communications (LVLT), airline United Continental (UAL) and automaker General Motors (GM), that reported paying no income tax expense in 2015 despite reporting pre-tax profits, according to a USA TODAY analysis of data from S&P Global Market Intelligence."

Clearly this situation seems unfair to most taxpaying Americans. They pay their taxes, and the best lawyers can prevent companies from paying any taxes.

First and foremost, Americans want to see the greedy Corporations and the wealthiest of the lot not to be able to escape paying their income taxes. The taxes are needed to fund the infrastructure that allows the companies to be successful in the first place. They use it. They should help pay for it. This, I think, is what most of us mean by a "fair" tax. It's one applied to all but the poorest, according to our means to pay. So, this is the first thing that must be fixed.

Second, unfortunately in the U.S., determination of what is "excess" compensation falls - you guessed it - to the IRS! The Internal Revenue Service monitors to see that "in comparison" the reported wages make sense. Huh? It results only in a never-ending upward spiral of CEO pay. This clearly results in the increasing income disparity we see among the 1%. I contend that the tax system can be used to make bonuses less attractive than straight-forward compensation. For example, bonuses could be taxed at a much higher rate than wages - this would make them less attractive, until they are taxed out of existence. It is precisely items like this that most people - if they have an honest discussion about it - want to see fixed via the tax code.

Third is simplicity. Simplify Corporate taxation so that all companies use exactly the same accounting rules, and arrive at the same result. Lawyers not needed = companies become more profitable and competitive. Then, apply a rate that helps make the companies globally competitive. But, eliminate many of the unfair practices compared to the worker. One such glaring example comes to mind. Why are companies allowed to "buy-back" their own shares? Doesn't this amount to trading on inside information? Only the company gets to time it's buy-back with the knowledge it has which no one else has. And why are such costs (as all business costs are) tax deductible? No, it seems that if a company wants to buy-back it's shares (supposedly for some strategic reason), it should actually pay a penalty for doing so. The reason is quite simple - if the company has too many shares outstanding, then it must have somewhere made a mistake. That is the very definition of "too many". And mistakes in business should be dis-incentivized, not rewarded.

Along the lines of income tax simplicity, most individuals recognize the sheer nonsense that is going on. Why are your social security benefits taxed, at all? If it's a benefit - just reduce the benefit by the amount that would otherwise be taxed and save all of that needless calculation and paperwork! This is only the tip of the tom-foolery iceberg.

Why do you pay in withholding taxes to the system, only to apply for a refund at the end of the year? This is crazy. Let's take it away, and try to get it back. Huh? This is what insane people do when they are not banging their head against the wall. Please stop. Isn't there a fair way to have an employee just state what their situation is in the year, and have the taxes paid by deduction and be over and done with it? No financial calculations - not even the post-card. Just a status update. I'm married with four children, and I own a home, with a mortgage of X, and pay property taxes of Y. The taxing authority just then calculates the appropriate deductions during the year. No audits - because it is THEIR fun with the numbers, not yours.

I could go on & on. There are many, many more examples of idiocies in the system. And there are just as many ways to make a taxing system more simple and fair. All one has to do is think a little outside of the box. Unfortunately, all of our government leaders seem to be stuck glued inside that box! At least for now.

Today was an inside day, with the market down slightly for the week.
Have a good start to your weekend!
TraderJoe