Don't Get All Sentimental

Our proprietary model of bullish sentiment across a wide range of market participants absolutely soared this week - jumping almost another five full points in one week to the highest level for all of this Primary Vth wave high.

Weekly Bullish Sentiment

The weekly percentage of bullish investors jumped to 61.2% from 56.4 %, which is amazing of itself but it also eclipsed the prior Primary V wave high at 60.9%. For those of us that watch this on a week to week basis, recording a string of eight weeks above 55%, and then seeing this, it is amazing to watch. The biggest jump in sentiment came from the mom & pop investors who "threw in the towel" on the bearish case and whose bullishness jumped seven points in a week! But there was also a rise in bullishness among professional investors and newsletter writers, as well. Pretty remarkable.

Of course, we view such one-sided sentiment as a contrary indicator in the long run, and attribute it to the power of the Minor 3 wave to sway opinion. When added to the wave counts shown  yesterday, and in the weekend video, along with the low trading volumes being experienced it adds to the case for caution in upward wave counting at this time.

But, there is further evidence, as well. Barron's magazine reports that Corporate insider transactions - those company officers and directors who must report transactions - are now skewed 62% to the sell side. (This is the ratio of Insider Sells to Buys). So, someone who knows something is selling at one of the fastest clips in recent history. It is interesting this occurs in conjunction with this sentiment high.

Well, sentiment is good, you say, but it is price action that determines gains or losses in the equity market. Is there any price evidence of concern while the major markets are near their all time highs?

To that end, we'd like to show you this chart of the Russell 2000 Index. It has a price bar not seen anywhere else on this chart - that of a "key reversal day". That is a day when prices first trade up through their all time highs - making a higher high than the previous day, then turn around and trade lower than the low of that previous day, and finally also closing lower than it, as well.

Russell 2000 Index - Key Reversal Day

This candle comes after prices may well have traded up into the triple zigzag we cited as possible in a prior post. The triple zigzag would be the minute ((b)) wave above, indicating that a steep wave ((c)) decline should begin to end the Minor wave 4. Triple zigzags are very rare birds indeed, and we wouldn't call this one except for the uncommon parallel nature of the price movement within. Price just peeked above that upper parallel, in what Elliott analysts call an "over-throw", before being smacked down back inside the channel again. Price movement down outside of the channel should well indicate that minute wave ((c)) is underway.

Well. Have a good weekend.
TraderJoe

So far, So Good

Market Outlook: Marginally higher highs possible, but risk continues to increase.
Market Indexes: R2K new all time high; None of Dow, S&P nor NQ made new ATH's today.

The herky-jerky action continues, but the waves continue to form properly in the ES E-Mini S&P Futures 4-hr Chart, and the Dow Jones Industrial Average.

ES E-Mini S&P Futures 4-hr - Wave c Formed Downward This Morning

The continued loss of momentum is shown by the break of the lower ES wedge line. A new all time high is possible, but not guaranteed. (Truncation is possible). A diagonal is still not indicated in the chart above, as there are no overlaps of concern.

DJIA Cash 4-hr Made it's b Wave Down On Schedule

The Dow fought a brilliant battle at it's up sloping trend line, and managed to close just above it. While point losses are minimal, the shapes of the various waves is what is troubling.

However, don't let it spoil a good start to your weekend!
TraderJoe

Added New Wedge Line

Market Outlook: Marginal new highs still possible.
Indexes: Dow - no new high today; S&P500 new high, NQ futures new high

Added a new potential wedge line to the ES E-Mini S&P500 Futures 4-Hr Chart, below.

ES E-Mini S&P500 Futures 4-Hr Chart : New Potential Wedge Line Added

There's a good possibility the market will finish a fourth wave lower tomorrow which would be c of (iv) in the above chart.

The Dow's count remains in a "b" wave, as below.

DJIA Cash - 4 Hr Chart - Still in b Wave Lower

Today's S&P500 Cash Index high was less than one full point from the 1.618 Fibonacci extension we showed in the weekend video. As Dirty Harry used to say, "are you feeling lucky, punk?" If you are, it's OK. Just watch things closely.

Have a very good start to your evening.
TraderJoe

Still no 38.2% Pull-Back

Market Outlook: Marginally higher highs still possible; risk growing
Markets: ES, SP500, NQ higher all-time highs; not the DOW

Here is an update on the ES E-Mini S&P 500 Futures 4-Hr Chart. The upward movement broke a potential wedge shape, but in addition, still has not made a retrace of 38.2% or more. Therefore, the best count still remains an extended first wave, as below.

ES E-Mini S&P500 Index Futures - Still No 38.2% Pullback

Since we don't have a pullback of more than 38.2%, the best configuration of the count is with the extended first wave again. It might form a wedge, with a shorter wave (iii), but that remains to be seen. There is no evidence for a diagonal at this time, as there is no overlap of any significance.

Tomorrow the Bank of Japan, and some Central Banks in Europe bring their monetary decisions to the fore. Let's see what prices do on those announcements. Regardless, in this scenario, wave (iii) should not become longer than wave x(i), and wave (iv), when it occurs, should be in the sharp or triangle class of waves.

Here is what the Dow looks like today - not having made the new all-time high.

DJIA Cash - 4 Hr - No New All Time High Today

Volume rose a bit today. But not much. Today, the Shanghai Composite completely reversed it's "ugly candle". I'm going to watch that one for an expanding diagonal now - just because the waves are so overlapping.

Have a great start to the evening!
TraderJoe

Dow, NQ and SSEC Update

Market Outlook: Three Indexes (DJIA, SP500, NQ) Wedging; possible tops not long away
Special Alert: China's Shanghai Composite (below) had an ugly candle yesterday.

Here is an update on the Dow Jones Industrial Average converted to the same likely "extended first wave wedge" as in the weekend video (where we used the S&P500 Index for the example).

DJIA - Three-Day Chart Extended First Wave Wedge

We checked thoroughly, and wave minute ((iv)) does not overlap with with minute ((i)). The wedge shape is shown by the dotted blue line. This puts the waves in the same relative position as the S&P500 Index.

Now, if we take a minute to look at the NQ (NASDAQ 100 futures, below). We see any new highs can be taken as potentially being in wave three of an ending diagonal. I have sketched it in for you below.

NQ Futures - Possible Ending Diagonal in Progress

Translating the above idea from the NQ futures, now to the four-hour DOW chart - rather than the three-daily DOW chart, shows a similarly possible arrangement.

DJIA 4-hr Chart : Potential Ending Diagonal

I have chosen to represent the potential diagonal this way, for three reasons. First, so that minuette wave (i) would be the longest wave in time inside the potential diagonal. Second, so that the c wave of minuette (i), actually makes a new closing high over the prior wave minute ((iii)) - to show it's motive character. And, third, to align as best as possible with the NQ futures.

We don't know what the impetus for a turn will be. It might be domestic. It might be overseas. In that vein, I just want to provide a chart of the Shanghai Composite Index. Yesterday's candle was quite a nasty one, as below.

Shanghai Composite Candle was a Warning

While one candle does not make a case, we will also note that the indicators have also rolled over lower, and the 50-day MA is currently trending below the 200-day MA. Not the greatest! (Further from an Elliott Wave perspective, one may consider it to be the move that ended from an ending diagonal that ended on 14 JUL. Try drawing the properly shaped wedge yourself for practice.)

So, tread carefully, and pay close attention - at least on a daily basis to our markets. The wedge shape has to break at some point soon!

Have a very good start to your evening.
TraderJoe

Exceptionally Low Volume

Here's an update on the ES E-Mini S&P500 Index 4-hr Chart we showed in the weekend video.

ES E-Mini S&P500 Index 4-hr Rising Impulse Wedge

We were expecting a fourth wave in the sharp class (or triangle), and that is apparently what we have gotten. Prices closed up +2.50 in the futures, but the volume was terribly low (only about 842 MM contracts) which compares to volume around the New Year's Holiday, not typical trading at all. NYSE stock exchange volume has dropped to 2.77 Bil, much lower than the 4 - 4.5 Bil which reflect more usual levels.

On a different topic, the U.S. Dollar Index (DX) this morning did hit that 1.618 Fibonacci level, at 94.800, and bounced off of it. It's worth watching to see if we get that minute four correction.

Well, have a very good start to your evening.
TraderJoe

Converting to Neely Style Charts, Counts

Below is the video that was promised for this weekend. Please scrub about 90% of what was said on Friday's post as the further work is showing something a little different and quite promising! Let's see if it delivers.

Thank you for your patronage of this blog as we attempt to deliver work that has potential for greater reliability in wave counting, fewer alternates, and fewer guesses. After reviewing this video, we hope you'll agree.

Have a great weekend.
TraderJoe