Thursday, November 5, 2015

Trading and Wave Counting as a Business

Over the course of the last several days and weeks, we have showed evidence that the market is likely making or has made a Primary 5th wave, higher. This is fine with us, because since our July, 2011 video published on YouTube, we have contended that the 'official' wave count from a well-known Elliott Wave service (that of primary A-B-C, upward) could be erroneous. Our post in this blog on October 31, 2015 showed how the NQ futures had made a new all-time high which can represent a Primary 5th wave. A few of you scoffed, with remarks like, "I never use futures in my work."

If you have been following the markets, you may have noted, that this month, the NQ futures have made even higher highs, but beyond that the cash $NDX index (Nasdaq 100 Index) has made higher all time highs - likely indicating wave 3 of a Primary 5th wave. See chart below.

This is all well and good for the technology sector. As of this writing, the Dow, the S&P, certainly the Dow Transports and even the Nasdaq Composite have not yet made the new all-time highs. At this point in time, the labeling of a third wave higher in the $NDX is consistent with the RSI(14) being in over-bought territory and with the maxim that it is usually third waves that have the power to bust through to new highs or lows, so that is the current labeling. We are assuming, of course, that a 4th and 5th wave higher are made in good form, but, again, that is an assumption. What if the three waves up are A,B,C of some larger structure like a triangle or diagonal in the $NDX, too? What happens IF wave 1 is overlapped downward before a fifth wave is completed?

We have shown the alternate count below during live chat, and on some web-sites. Again, we want to make it clear the count is an 'alternate' at this point. It attempts to answer questions like, "what happens if downward overlap occurs?", and "how does an up market get to the year 2017?" Keep in mind that 2009 plus a Fibonacci 8 years is 2017.

This scenario of a Primary 4th wave still in progress has some benefits for the market : first it could prove frustrating to a lot of participants expecting quick new highs. Second, as we said, it would take time. Third, it could also provide a "measuring objective" in terms of an Inverted Head & Shoulders for the extent of the rise of Primary 5. But, also, it might just allow some indexes like the $RUT, and the $TRANS to play 'catch up' with the industrial and technology sectors.

The key requirement of such a barrier triangle is that it should have no closing higher highs in the S&P500, than the current all-time high before all five waves of the triangle is completed. Prices can put 'tails' above the prior all-time-high and still be in a barrier triangle, but they can not close higher than the all-time high. If they do close higher before the triangle is completed, it simply means the S&P500 is joining the $NDX in Primary 5 at the current time.

If the $NDX can already be counted as a Primary 5th wave, why do we bother looking at alternate counts for the Dow & the S&P. Won't the S&P simply follow in it's tracks? We don't know for sure. Why do we bother to have alternate counts at all?

We have suggested before, that if one is in business, it is a good idea to have a "Plan B" in order to help stay in business. We'd like to provide you with a good clear example. Let's say you are in the business of producing T-shirts for football game outcomes. Even more so, let's say you are just an 'excellent' handicapper of football outcomes. Because of your expertise, you are certain that the New England Patriots will win the SuperBowl next year.

So, as a businessman, you have two choices. First, even though the outcome of the game is not for 'certain' (it is 'probabilistic'), you could just blindly follow your own expertise and ONLY print T-shirts that show the Pats winning. So, you design the T-shirts, spend the expense to have them made and shipped to you, and you get ready to sell them 'earlier' than your competitors.

But what happens if the Pats don't win? What happens if the Denver Broncos win, instead? Is there any possibility that a good plan is to have the 'design' of the second t-shirt ready, so it doesn't take as long to print if you are incorrect on the outcome? Then, at least you still get to sell some t-shirts to help make a profit rather than sell none at all. What does the designing cost? Not much at all - it takes a little time and effort. Time that might be available during all the pre-game show commercials, or when nothing else is going on.

That is the idea behind an alternate count. It's just a 'design' which may or may not be needed. It's almost 'free'. And because it is, if the original idea pans out you just throw the alternate away: it was almost free. It's that simple.

And, keep in mind, this idea is in direct conflict with yourself as an 'excellent' handicapper of football games. But that's what it means to put your expertise in the larger context of your business. You are willing to put in a tad more effort because you realize not all outcomes are certain - in fact few of them are!

Cheers and enjoy the charts!


  1. Thanks again Joe! Really appreciated!

  2. Thanks for your chart, so we still have wave 5 up to make new high on SPX in 2016?

    1. Hi Steven. First, it is not yet confirmed wave 3 is done; we'd want to see a 23.6 - 382.% retrace of a wave 3 to call a wave 4. Then, wave 4 could not overlap wave 1. As this point there is no evidence of either. Also, at this point in the NQ futures, wave 3 is longer than wave 1, so that still fits with a wave 3, but wave 3's can often become 1.618 times wave 1. That would happen at NQ 4920, and price right now is only at 4705; so wave 3 'could' have a ways to go.