Sunday, November 22, 2015

Galaxy - Update

In the post of October 10th, 2015 we showed a number of possible market paths and titled it, "A Hitch-Hiker's Guide to the EW Galaxy". In this post, we want to show where a number of those counts stand. In an October 29, 2015 post we showed how the truncated fifth wave of Primary 5 could already be counted: according to Glen Neely in "Mastering Elliott Wave" the upward wave is already more than a 90% retrace in some indexes, and when the upward wave exceeds 78.6% it is 'possible' to consider it as a truncated wave - provided the upward structure is a five-wave sequence. We showed then, using a leading diagonal, how a five-wave sequence 'could' be counted. So, we will not reproduce that chart here.

But, if the upward count is still taking more time, it possible to see the upward count as only a "three wave" sequence, at present.

The Dow Chart below shows, the upward structure as still a "three-wave" sequence and not a five-wave structure.

As the chart shows, the upward wave has 'not' attained 1.618 x wave i at this point. It is 'close', but no cigar, yet. Further the current upward wave has not, yet, attained a new high. (It could easily, but stay with the discussion for a moment). Further, the observation is that price as not returned to the lower parallel trend channel yet. Price could easily do this as a more complex wave iv as a double-zigzag, or as a triangle - before making a fifth wave (v), higher. This count follows typically seasonal bullish holiday patterns.

But, because price has not attained a 1.618 extension, yet, and is still above the mid-channel, it is also possible we are 'still' in a minute three wave higher, as the chart below shows. This count would also still follow typical seasonal patterns. Then, there would be a drop in a zigzag to the lower trend line channel. This count would also be compatible with the idea that it is third waves (minute iii, in this case) that have the power to break through prior highs or lows.

But because there are still only "three waves up" - at the present time, the larger Primary 4th "barrier triangle" option must still remain on the table. Ultimately, this count would also resolve to the upside, but it is more neutral in the short term. It also has more potential to take price into 2017 (2009 + 8). The chart is below, and it shows that an Intermediate (B) wave would be a complicated structure - such as a double zigzag, with it's key feature being that it would not make the new high, but come very close. Then, there would be Intermediate (C), (D), and (E) waves to follow.

The simple reason behind leaving this count on the table at this point is that the count off the August low is not 1 and a simple zigzag. It is one, and a FLAT wave. Usually, not always, second waves are zigzags or double zigzags. This one is either a, and a FLAT, or three-waves up, followed by three waves down.
Lastly, we will show the count which - other than three waves up - has the least price evidence for it. While this count is still possible, there is insufficient downward price movement to conclude that this pattern is underway. It is the downward diagonal count. It would be counter-seasonal.

This count recognizes that deeply retracing waves are a sign of a potential diagonal. At this point, we could not say whether such a diagonal would be a contracting one or an expanding one. This count would gain more credibility if new highs were not made, and the lower parallel trend line boundary were exceeded to the downside. There is 'some' evidence for this count, and that evidence is that other market averages (such as the $NYA, and the $RUT) have overlapped the upward August wave downward in mid-November; meaning that a fourth wave should not overlap a first wave. That would make the six-year upward count from March, 2009 Primary A, B, C, and not Primary 1, 2, 3.

Again, at the present time, the best price evidence is upward. These charts are presented should that change. Why would it change? The best reasons would be a) a LOT of people are looking towards new highs, and b) maybe more time is needed so that bull market is a Fibonacci 8-years long.

Please do not be dismayed by this situation. Objectively, we have said in our YouTube Video (A Critique of Elliott Wave for Trading) ...well before the fact of this wave .. that fourth and fifth waves are notoriously difficult to predict. We have called this the "fourth wave conundrum" in the video. It happens at every degree of trend, and it just recognizes that it is extremely difficult to determine "in advance" whether fourth waves will be a simple zigzag, or extend to some more complex and time consuming structure like a flat, double flat, flat-x-zigzag or triangle. That is a reality of the Elliott Wave world, and recognition of it can help prevent some frustration with Elliott wave analysis.

Cheers and enjoy the charts!

1 comment:

  1. Great work Joe!

    I really appreciate all you do and your posts. Thanks so much and have a great Thanksgiving next week!