Saturday, December 19, 2015

Listen ! (to the Market)

In January 2015, while some Elliott Wave sites were looking for a "three of three" upward to just begin to take the market to exorbitant new highs in the S&P500, we took the contrary view - a view based only on the wave count as we saw it - that a contracting ending diagonal was about to end the wave structure - which it did. This view - which we posted in our YouTube channel before the fact - has now been confirmed by all of the major Elliott Wave services, and most blogs, after the fact. It was a correct prediction using Elliott Wave theory.

In our post of December 3, 2015 while some other Elliott wave sites were looking for a "three of three upward" to begin, we took the contrary view that the best 'hope' for a Primary fifth wave at the time was to complete a triangle or double-zigzag downward (sic.. not upward as they were calling for) to the lower parallel Elliott trend channel boundary. These sites and false pundits have done nothing but revise and revise their counts - even changing their degree of labeling! They have been so dogmatically incorrect that they have made statements like, "this wave needs to start acting like a three of three soon or we will be forced to change our count." Indeed they have!

The daily chart of the S&P 500 now confirms that prices have not only contacted the lower trend line boundary - but have exceeded it to the down side. Here is a chart of the daily cash S&P 500, with no wave labels since the August low to show how the lower trend line boundary was met & exceeded.

Daily Cash S&P 500 Showing Channel Breach and Overlap
Further we note that there is now downward overlap with the upward August wave at 1993.46; it isn't much, but it is, in fact, overlap. We called this chart the best 'hope' for a Primary 5th wave because that's all it was - someone's hope. Not ours.

Rather, when the stock market does things like this, "we listen to it!" We do not ignore such Elliott Wave evidence, because it is the best chance at making another good prediction of what is to come. And that prediction is below on the two weekly chart of the S&P500 cash.

Before we explain, we need to tell you about another correct prediction. We said that because Primary wave 2 (circle 2) was a FLAT wave, with a higher (B) wave than Primary 1, we would not expect the (B) wave of Primary 4 (circle 4) to exceed the high. So far, it has not! Another correct prediction.

Now with the start of downward movement and overlap, we must conclude in a similar line of reasoning, that price will attempt to regain the lower two-weekly parallel Elliott trend channel line, and a 38.2% retracement of it prior wave three - Primary 3 (circle 3). Since we counted A-B-C down to the August low, we now see it as one zigzag of either a double zigzag - or equivalently - a flat-x-zigzag since wave (X) did attain within 90% of the high. Again, these would be identically equivalent structures in this case.

The key point is this : this is what the self-styled pundits and wave counters are missing - a sense of proportion and timing. Look at how long Primary 3 took in terms of time. It took almost four years! You don't correct a four year rise with a decline of only three-to-four months!

Wave fours tend to be very, very long structures in time compared to their wave two's. A wave four at (W) is just "too short" in terms of time, and a double zigzag for Primary 4 will still provide terrific alternation to the flat for Primary 2.

So - even though we can clearly see this count ahead - are we "locked in on it"? Unequivocally - No! Nothing has taken away the ability of Primary 4 to become a much larger sideways triangle, but the structure isn't right for a triangle yet. If it becomes correct, we will let you know! The bottom line is that Primary 4 'should' touch the lower trend channel line at some point, and it should try to effect a retrace of 38.2% of Primary 3. So, we remain completely flexible and non-dogmatic. We understand the issue of the Fourth Wave Conundrum - as we have called it in our YouTube Video, "A Critique of Elliott Wave for Trading" more clearly than most amateur wave counters, and it has helped us to be more patient, and responsive to the market as a result!

Listen to the market - not me!


  1. Awesome work again, Joe! Thanks a lot for the post and Merry Christmas to you and your family.

    1. Thanks Mark, and thanks for all your support in the prior year and in the coming New Year! Best wishes for a good Christmas to you and your family, as well!

  2. Nice work TJ! Extremely valid points and concerns. My gut tells me we should know market's intention by 12/31 close. Bull window is narrow, but not closed. Bears window is wide open and they need to take advantage. Curious how you would explain a new ATH time-wise in Jan if this scenario unfolds?

    1. Hi Steve - any new ATH would have meant we had a running triangle starting from Oct 2014. But a running triangle would have had a higher (B) wave, so that's why it is not being considered at this point.

    2. The only reason I was wondering is it looks like you have a nice bull flag drawn on the first chart. Simply place a parallel copy of top trendline and place on 2019 low.

  3. Great post, deep insights yet again.
    Thanks a lot for sharing, ET.

  4. By the way, Joe, I've just reviewed your monumental "A Hitch-Hiker's Guide to the EW Galaxy" from October 10 (I saved to my HD with expanded charts). I take it that your scenario 1 (P5 failure) has been pretty much invalidated by now. Or is there still a possibility for it that I don't see?
    Just letting you know that your work here has been a great contribution to my recent advance into studying EW. Many thanks for that.
    Merry Xmas and a Happy New Year, man!

  5. In response to my own post above, I think there's still an option for a EDT that will fail to exceed P3 high thus making it a P5 failure. Please correct me if I'm wrong. Sorry I've used up to much space in the commentary section.

  6. Thanks for your analysis. I fully agree with your point on timing for P4. 3 months is just too quick for a 4 year run. Regarding a possible triangle forming, why don't you see that as an option at this point? IMO it counts exactly the same as your current count.
    Keep up the good work. Merry X-mas to you and yours.