Wednesday, August 24, 2016

What You May Not Know that the Smart Money Does

Earlier this month, in our 20 August post, we showed two charts of the NYSE and NASDAQ weekly summation indexes, and stated that it's possible that these indicators are rolling lower and may take the market with it. Before we update our hourly triangle count on the S&P500 Index, we also want to provide you with a favorite indicator. The chart is below and the chart compares the S&P500 to the Chaikiin Money Flow (CMF). We like to look at a volume indicator when counting Elliott Waves as part of a well-rounded technical approach. Some Elliott Analysts do not consider volume in their work, and then they project stock prices to the moon!

S&P 500 Index Diverges from Chaikin Money Flow
If you look back to March & April on this chart, you can see that the higher highs in stock prices were met with a considerable divergence in Money Flow. Volume was leaving the market at the higher price levels. This divergence resulted in the May decline, and then another divergence resulted in the June decline - apparently, few people wanted to wait around for the results of the Brexit vote.

So now here in August we see another set of divergences. The first one is the difference between the current August price highs and the July high versus the lower level if the CMF in August. But, even more importantly, do you see that red horizontal line? That is showing a second divergence with higher highs from March to August, but a lower overall Money Flow during the same time periods. Volume players appear to be exiting the markets, and that is not especially good in our view.

Yes, we can see from an Elliott Wave counting perspective how a final set of higher price highs could be made in the market on the exit from the barrier triangle we have proposed, as below. But, if that is the case Money Flow says such a price high may not last.

Now let's look at the potential hourly triangle.

Potential Hourly Triangle in the S&P500 Index

So during live chat today we again counted only three waves down to this point in time. In some ways we were surprised by the depth of the decline, until we looked at the 70 - 72 level in the ES futures chart and saw where support might arise.

And then - as if by magic - the declined stopped just in time to not take out the A wave lower, so until now the potential triangle remains in tact although we will admit it looks a bit funky at this point.

And - other than the fact that we don't really believe in magic - that is almost all we can say at this point except two things: 1) if for some reason this current wave trades lower than the fractal marked as the A wave, then we would have to look for whether a larger triangle or even the beginnings of a larger diagonal were being formed - but in no case could either of those patterns exist if price trades below the August low of 2147. And, if a larger triangle or diagonal forms, then we have to start the whole process all over again. 2) if the 2147 low is taken out, then the possibility exists that we have entered the second wave of an impulse, and we would get into much more detail on that alternative should the need arrive.

Right now - near a major market high - flexibility and patience are still needed especially as we await the results on Friday of the Jackson Hole Conference and Chair Yellen's speech.

Again, best wishes to all in a choppy market.


  1. BPCOMPQ is an excellent stand alone trend has not confirmed a change-in-trend but is moving in that direction...will email the BPCOMPQ chart to you...

  2. Thanks for keeping us up to date on all of this. Appreciate all your work.