Saturday, July 30, 2016

Same Page

We're sure you know the expression that if you lock ten Elliott analysts in a room, they will develop ten different wave counts. Certainly that was true before the Primary Vth wave asserted itself upward, and a number of bearish analysts refused to consider higher counts: it was a classic case of their 'predisposition' affecting their market judgement as the $NYAD (NYSE Advance/Decline Line) rose to new highs before price did, and they did not take heed of the implications of such. Further, there was the outright refusal of the Federal Reserve to reverse policy and implement interest rate hikes in the face of every excuse they could dream up, like the Brexit vote, and now the desire not to disrupt U.S. elections in November. But, like it or not, admit it or not, most analysts now know where we are in the cycle.

Regardless, we are 'now' getting to place where more caution in wave counting is due. Based on the two charts below, we are pretty clear that a "running triangle" did take place in the US Equity markets. The triangle looks a bit 'odd' in the cash chart, but there is nothing wrong with it. We called for wave e of the triangle to retrace back down over wave 3 - during real time charting, and it did that to validate the running triangle. Further, we noted that the c wave of the triangle was the complex wave. It formed a triple zigzag, in fact, and we said that no wave could then be lower than the c wave and thus maintain the triangle (a triple zigzag is the maximum level of complexity for a sharp series). And that call turned out to be an especially good one.

Running Triangle in the S&P500 Cash Chart - 30-Minute

Further, if you follow Glenn Neely's work on triangles, which I do, a wave e should never land 'exactly' on the wave a-to-c trend line, and this one didn't - picture perfect. Those of you following the market during the week know how the Elliott Wave Oscillator went 'dead sideways' for this move swinging only tiny fractions above and below the zero line : a dead give-away for a triangle.

Here is the ES 2-hour chart, and for those of you more fanatical about the "right look" or trend line adherence, the futures chart has it! In fact, it was this chart that told me to look for this triangle in the cash chart. (Yes, 120 minute in futures often generates the same as the 30-minute chart in cash : a little trick if you didn't know it before.)

Running Triangle in ES Futures - 2 Hr Chart

So, the typical target for a running triangle is to add the widest width of the triangle to 1) the low the e wave, or 2) to the breakout point of the triangle. We will allow you to perform this exercise as a reminder to you of typical triangle targets. Meanwhile there are several aspects of this upward count we want to note.

First, a triangle always sounds a cautionary note, because they usually appear just before the last full wave up in a wave set. This one forms quite a "base" so it might well support the typical thrust out the triangle. Cash has already made a new high above it's b wave. Futures have not yet.

Second, the DOW has not yet made a new high as the S&P500 has. If you followed the markets in the last two weeks, you know the high tech sectors - the $NDX, and $RUT are currently in the lead. So, it stands to reason that the high tech components pricing is spilling over more into the S&P500 average than it is in the DJIA (which primarily has AAPL). So, the DOW has two options: it may join the party and establish a relative new high, or the DOW may be telling us that the usual alternate for a triangle - which is a FLAT - is still forming.

That is the reason that on the futures chart, we have included a Fibonacci ruler showing that a 1.382 x extension of the a wave would be at the 2177.50 level. If the DOW refuses to make a new high, one might watch this level in the S&P to see if only a flat is forming instead. If this level is exceeded in the S&P500, then one might expect the DOW to make that higher high. If not, an expanded flat is still 'possible' as a very good alternate for this count. The objective of the expanded flat would be to allow the DOW and other indexes to make a 38% retracement of it's third wave, instead of the current 23.6%.

Friday's action saw the after-hours futures tack on three additional points over cash, and it is the first day of the month which often sees in-flows from pension plans, 401k's, and company bonuses, so if there is a gap up on Monday it would not be a surprise.

In terms of the overall count, it is again worthwhile saying that we can still be in either an impulse or diagonal count, as shown by the updated chart below.

SP500 - Daily - Impulse or Diagonal Still Possible
So, we can see it is possible to count the upward wave since the late June lows as a five-wave sequence (the DJIA would have made it's five-wave up at an earlier location), and this may be the C wave of Intermediate (1), yet, if in a diagonal, or it may be just minor 1 of Intermediate (3) if in the Impulse Count.

Just to be clear A, B and what would be C forming now would be Intermediate (1) of a diagonal, whereas in the Impulse count, the April high is Intermediate (1), already, and the June low is Intermediate (2), already, and the July up wave is minor 1 of Intermediate 3.

Two eventual clues may help decide how this plays out.

First, does price hit the upper Bollinger Band, or not? If so, that is a sign of strength. If not, it will be taken as a sign of weakness.

And second is the eventual level of the Elliott Wave Oscillator (EWO). Does it break the current divergence seen in the chart? If so, that will provide more likelihood of an eventual Intermediate (3) wave in progress now. If not, it may very well indicate that a diagonal is in progress.

Remember, we maintain complete freedom to adjust the tentative diagonal trend lines, as seen fit in the future, because a diagonal is trend line is not determined except by it's waves (1) & (3), and (2) & (4), and these waves haven't even formed yet.

Why do we think all upward movement may not end right here? After all it is 'technically possible' to count five waves up from the February 1810 low:  1947, 1891, 2111, 1992, and 2177. Well, we are calling this month's structure a "running triangle", so far. And just like the March-April running triangle shown on this very same chart, that higher b wave in the triangle is still "bullish". Until we see a "regular" and not a "running" triangle, we must assess market conditions as stronger, rather than weaker.

And, then again, that $NYAD line is still making new all time highs, and not diverging, yet. It's hard to call for a bear market, when this is the case.


  1. TJ

    i have post triangle targets of 2192 and 2202...... extension long target is only 2182 so we will need more extensions to get there

  2. If it drops below B/(2) then that would indicate a diagonal? Right?

    1. This comment has been removed by the author.

    2. It 'could' very well happen that way, and if it does, then a drop below B/(2) would either indicate a diagonal is in progress, 'or' all upward movement has ended. But a diagonal 'doesn't have to' happen the way you suggest. If you will take the time to review the diagonal from the Oct '14 low to May '15 top, you will see that there was never a wave that made a new 'swing low'. There were always higher lows.

    3. Thanks TJ, appreciate your effort. Please correct me if I'm wrong. A drop below the 'current' B/(2) will then be the 'new' B/(2) if a diagonal is in progress? That is, the 'current' B/(2) is just sub-wave A of B/(2).

      But I'm thinking a drop below B/(2) has low probability since we are about to get the 5th wave up from 1992 (post-Brexit low).

    4. Thanks for your clarifying response. I reviewed the time period and understand a little better the potential options.

  3. Thank you for your posts Joe. I have learned a lot; things which aren't on any published books.

  4. TJ, thanks for posting your excellent work! Looks like the blue 5 has completed and the down move has started. Does that complete C/(3)? If yes, looks like the lower trendline around 2070 is the target?

  5. Looking forward to your next comments, TJ.

  6. based on ew oscillator, seems like the last move from 1990was not an impulse

  7. Incredible insightful analysis Joe, if I am reading your options correctly it is possible wave 4 completed today as a flat on lod es 2042.