Saturday, January 23, 2016

Don't Get all Sentimental

After our post of January10th, in which we clearly called for the development of an Intermediate (Y) wave downward, we find ourselves with the following unmistakable facts.
  1. The S&P 500 Index made a new cash low over the August low; the DJIA did not.
  2. Bullish sentiment reached a new low for this cycle at only 40.5% bulls, only this week.
  3. The downward move from the November high currently best counts as "three-waves".
  4. A level of 38.2% of wave Primary 3 has not yet been exceeded to the downside. 
  5. The up move from (W) to (X) is in no way near the length of wave Primary 1  (circle 1).
From the facts above, and the chart, below, we conclude the following at this time.

The move downward in this index still coincides well with the methodology we have described as The Eight Fold Path. (See our January 2, 2016 post if you are unfamiliar with this topic).

With 120 - 160 candles on the chart, and a primary wave 3 greater than 1.618 times it's primary wave 1, and with the Elliott Wave Oscillator still well within +10% to -40% of the maximum value in wave Primary 3, price has come down to attack the lower channel line of the accurately drawn Elliott Parallel Trend channel. (This channel is drawn with a highly accurate mechanical parallel, and not the more blunt drawing tools found in some 'free' charting packages.) It is part of the eight fold path that prices will attempt to challenge this trend line, and, thus, the move was expected.

After what may be a 'false break' of the trend line, we note that price has regained the lower channel line and closed inside of it in what may be a two-weekly hammer candle at the bottom of a down trend. This may be interpreted as a sign of strength. So, as long as price remains in the upward channel, we may conclude that a Primary fifth wave is underway. Such a Primary fifth wave should obtain a length about the same as it's Primary first wave counterpart.

Next we look at the length of the current Primary 4, and compare it to the length of Primary 2. We see that Primary 4 is currently shorter than Primary 2, and this fits with the common wave pattern that 'the net distance traveled by wave four usually does not exceed the length of wave 2.' We also note that there is currently an excellent pattern of alternation in the wave structure, with wave Primary 2 as a FLAT, and wave Primary 4 as a double zigzag. Because wave Primary 2 was a FLAT, we had predicted that the (B) or (X) wave of a Primary wave 4 would not make a new high before making a new low, and our prediction was exactly correct.

Furthermore, we have more alternation for Primary 2 and Primary 4 than just the shape of the alternation (flat versus double zigzag); we have have the complexity of the waves. As it stands presently, wave Primary 2 is just a simple A-B-C flat; whereas wave Primary 4 amounts to a-b-c-x-a-b-c (or W-X-Y) making primary wave 4 more complicated in it's structure. This contributes to a really excellent alternation pattern at this time.

Next, we have the fact that Primary wave 4 has now taken up more time to correct Primary wave 3. This was one of our principle objections to saying that a Primary wave 4 had ended in August 2015: it was just 'too short in time'. That situation has now been remedied, and with it, a lot of the elements to say a Primary 5th wave should now be underway have fallen into place.

Lastly, there is the fact that Primary wave 4, may well have ended in the area of Intermediate wave (4), the fourth wave of one lower degree! This too would be an excellent prediction from a wave counting perspective!

Again, is it guaranteed that Primary 5 is underway? No! Remember 1-2-3 and A-B-C are equivalent until they are not. In our October 10, 2014 post entitled, "A Hitch-Hiker's Guide to the EW Galaxy" we showed a number of the alternative counts. The W-X-Y wave count is Scenario 4 in that post.

A couple of scenarios for the S&P500 have now been eliminated from the Hitch-Hiker's Guide and we will update those soon, and add one scenario should the upward count fail. More on that later ...

Cheers and enjoy the chart!


  1. Thanks Joe!

    Look forward to the updates

  2. Thank you for taking your time to post such detailed and informative analysis.

  3. Thanks Joe for you analysis...Would love to see more more updates

  4. Thanks Joe for you analysis...Would love to see more more updates

  5. Thanks, Joe! It's Elliott Wave education at supreme always.

  6. Joe, are u planning to update ur analysis? Would love to hear ur thoughts