Wednesday, August 3, 2016

A Warning

So, in yesterday's live chat, we were able to say a "downward impulse" was "in trouble" at the location labeled as 'a' on the hourly ES futures chart, below. Do you know how and why we were able to make that call when we did?

ES Hourly Futures from the August High Price

While many analysts were counting for an impulse wave down in equity indexes, we were able to say that such an impulse count was in trouble at the location marked 'a' for four key reasons. Do you know what they are?

First, at that location, wave (iv) would 'already' have been longer - more price points traversed - than it's corresponding wave (ii). That is not usually the case. 'Usually' (not always) wave fours cover the same or fewer net points that their respective second waves. Second, the upward wave to 'a' is what some called the end of wave four, expecting a fifth wave down which never materialized. We did not. Why not? Because that would have made wave four 'shorter in time' than wave two. And, that, too, is 'usually' not the case. Usually wave fours are known for taking up much more time than their respective wave twos and this one did not. So, when the 'a' wave was made, we said, "if we are in a wave four it will take up more time ...". Third, the sharp upward movement of 'a' appeared to be just the start of a zigzag. But, a zigzag would provide no alternation for the second wave which is 'also' a zigzag - certainly it does not have a 'lower' b wave. And, fourth, when we got to that location on the SP500 5-min cash chart, it was clear we were already at 120 - 140 candles, and there was no fourth wave signature of the Elliott Wave Oscillator. As you know, this contradicts the guidelines of "The Eight Fold Path" for Counting an Impulse.

So, with these facts in hand, it told me to 'ease up' on those expectations for a fifth wave lower, and it hasn't happened as an impulse yet. More fully, I said in chat, "upward overlap of the first down move was entirely possible."

Now, of course, in tonight's trading - hours later than the time of the call on the impulse being in trouble - you can see that the downward wave (i) has indeed been upwardly overlapped in the futures by a potential wave (iv). In fact, I waited for the overlap, so this post would be 'crystal clear'.

That leaves us with only one real possibility for a significant downward wave in the futures - that of an Expanding Diagonal. Does it 'have' to form? No. Could it form? Very possibly.

The point right now is not the specific market call. Wave (iv) could traverse slightly higher in the overnight, but we now have a 'very specific' invalidation point on this wave in that wave (iv) of a diagonal can not travel above it's wave (ii). And, it also provides a specific target on this wave, which is that a downward wave (v) should travel below downward wave (iii), and 'should' be longer than it - if a diagonal is to form properly. If it does not, then we simply accept a,b,c instead of (i), (ii), (iii) downward.

No, the point right now is whether you can tell for yourself when an impulse appears to be forming properly in the first place - and equally importantly when it appears not to be forming properly. After all, this can help one 'pick and chose' their market battles, reduce risk, and conserve capital. These are needed as part of an overall market counting strategy.


  1. Your lessons in Elliott are very much appreciated. Tks Wieb

  2. Thanks. Seems to have been an a b c down and maybe B wave up.

  3. Love this website because you explain your work. Thank you!

  4. Thanks Joe

    I really appreciate the way you throw questions out there, so as to make us think and reflect on EW rules and principles. Helps keep the info in our heads. Much appreciated.

  5. Question for you TJ. In a W-X-Y correction can Y (or W) be a 5 wave move?

    1. In a W-X-Y correction, the sequences are 5:3:5 to W, three-wave X, and then either 5:3:5 to Y; or Y as a triangle with the requisite sideways five overlapping waves. Hope this helps.

  6. Thanks for this. What as happened now we didn't reach an ath in futures charts? Could this be a b wave that just ended?