A Matter of Degree

In yesterday's post, it was shown how it possible that Primary wave four is becoming longer in time. One of the best pieces of supporting evidence for this count is wave degree. Typically, Elliott termed minor degree waves as those that showed up on the 'daily' chart, whereas intermediate degree waves were those that comprised the weekly chart, and Primary degree waves those that comprised the monthly chart. Please refer to the daily chart below for this discussion.

In our prior posts, we had counted down the daily waves to the August 2015 lows as Minor degree waves A, B, C or alternatively minor 1,2,3 (but 5 was not made in the SP500). We said 1,2,3 and A,B,C are equivalent until they are not.

One key point - and please don't miss it - is that the three minor waves lower form an Intermediate degree wave of some label. We had presumed it 'might' be intermediate (A) of a larger primary fourth wave triangle - and  that is still a possibility. Regardless of the specific label at the August low (A) or (W), we then have labeled three more minor waves higher to the November high. So, this structure now makes an Intermediate degree (X) wave - or less likely an Intermediate degree (B) wave. This type of degree labeling is proceeding simply, and smoothly and naturally. There is no 'guess work' or forcing of degrees to some preconceived notion or tortuous attempt to fit "degrees to points", and you can see that the A-B-C down to (W) and the A-B-C up to (X) consume 'roughly' the same amount of time.

But the next point to absorb is that under Elliott's structures, a Primary degree wave is composed of Intermediate degree waves. It would be a mistake to jump from minor degree labeling directly to Primary degree labeling, without explaining where the Intermediate degree went!

In the count above, the Intermediate degree is clearly shown. That is the major point - we are not leaving the Intermediate degree waves out of Elliott's Primary degree labeling.

Having said that, a wave (Y) - while the most likely course to make a 38.2% retracement of Primary 3, is not a 'for certain' wave. It is highly likely, but even it is 'not' for sure. Why not? Well price is currently down to the lower daily Bollinger Band. Sometimes, price bounces off of the lower band strongly. If and only if price makes a new high above (X), then it is 'possible' a barrier triangle is still in play for Primary 4. But that is nowhere near in evidence yet, and every attempt to reach the old highs has been rebuffed with a turn lower. More likely, a retreat from the lower Bollinger Band will only be towards the middle Bollinger Band (aka the 20-day SMA), before resuming lower.

But we think, besides the downward overlap, and the channel break illustrated, there are two more 'telling' pieces of evidence as to why we are still in a Primary 4th wave.

First, if you notice the structure from late August to late September, it forms a FLAT wave in the SP500. And second waves are 'usually' sharp zigzags, not flats. They 'can' be flats, but they are "usually' sharps. So, having a flat wave at this location is a serious warning. It fits the concept of a B wave much better than it does the concept of a second wave.

Second, we know by measurement that the C wave upward stopped just short of a C = 1.618 x A. In other words, it did not make the usual expectation for a strong and powerful third wave of 3 = 1.618 x 1.

Regardless of the eventual path, if we are making a Primary 4th wave, it must be composed of Intermediate degree wave labels that consume proportional amounts of time in the sideways or down direction to what the Intermediate degree labels have consumed in upward direction.

Cheers and enjoy the chart!

Channels and Alternation for Potential Primary 5th

Prices forming channels were important to R. N. Elliott and most practicing Elliotticians today would probably agree channels are important in Elliott Wave work. That being the case, the scenario below is the ‘best’ scenario for making a Primary 5th wave upward – using modern Elliott Wave theory. You will note we posted this potential scenario back on Nov. 22nd. So, today's drop should not have come as a surprise to anyone. We emphasize .. repeatedly ... this is a potential scenario. If you are interested in more discussion of it, it is posted below the chart.

One of the reasons for positing this scenario is that a triangle represents "indecision and a balance of forces" before the Fed meeting in December. Keep in mind there is lots of 'volatility' that can happen in the first half of the month, including the payroll employment report this Friday, and the Fed meeting on Dec 16th. Perhaps after all that is out of the way, the 'smart money' will feel more relaxed and start a rally into year end, and into the first of the year. But, more importantly than that, a triangle would signify that the last wave in a sequence is dead ahead. That's how triangles work when they are in a fourth wave position.

We should note that some people have posted a 'truncated fifth' wave at b of our triangle.

The problem with that scenario besides the fact the b wave of the triangle was clearly counted in real time by more than one analyst we know as a "three" and not a "five" is one key factor. If wave 5 was 'there', then wave 5 would not equal wave 1, which is one of the most common wave relationships. In fact, it would be much shorter. Further, the upward wave to that location would not be in a channel; it would be a wedge. But wedges are 'usually' diagonals, and this one would not be - again greatly lowering the odds of such a forced count.

Rather, 'at this point in time' we would expect the Elliott Wave Oscillator to weave around the zero level in a fourth wave, providing enough time for price somehow to contact and/or slightly break the lower trend line boundary before resuming higher. This could occur in the triangle OR in a double zigzag lower to the trend line. Either a triangle or a double-zigzag would provide the expected level of 'alternation' needed for a true Primary 5th wave.

Tentatively, we have 'sketched in' a lower triangle trend line from circle-a to circle-c. We will allow the lower trend line to be 're-anchored' within limits, if, and when we know that circle-c has ended.

Then, wave 5 should be "about as long" as wave 1. And it would likely fail somewhere near the median line of the parallel Elliott trend channel.

At this point in time, there are other wave counts we have to consider. We have outlined these in the posts entitled "A Hitch-Hiker's Guide to EW Galaxy", and subsequent "Galaxy Update". We have also indicated why this is necessary at this time. The uncertainty is inherent in fourth and fifth waves, and it is not perfectly clear yet which degree of fourth wave are we in. We have called this situation the "Fourth Wave Conundrum" in our YouTube Video, Critique of Elliott Wave for Trading. And it occurs at every degree of trend!

For now, the situation is we are "range bound" between the May 2015 high and the August 2015 low. We are awaiting resolution of the range. We can not 'make up' waves that 'just aren't there' for our personal reasons, and we can not 'force a count' that we truly don't see. We will update as best as possible when the wave count makes the most sense.