Thursday, September 29, 2016

The Day the Potential Diagonal Almost Died

We almost had to have a funeral today for the still potential contracting Leading Diagonal for an A wave up of Intermediate (3) of an overall ending diagonal Primary 5th wave.

Luckily at 12:17 in live chat we showed this chart, and, again with great specificity said that any price movement below 2166 (the dotted red line) would mean further downside correction.

Post from Live Chat at 12:17 PM

That's because at that point we only had three-waves up in a possible "bear flag". As many of you know by now, once 2166 was broken, the bottom dropped out, literally, and the 2151 lows were taken out. (The above chart also shows how the flats for wave two's rarely work out, and that was another key reason for calling the invalidation point.).

That really leaves only one plausible structure for the potential leading diagonal, and that is shown below.

It 'could be' that today represented an expanded flat for a deeper (b) wave of minute-iii (circle iii). If so, and there is strong upward movement over the next three days, it is possible that the diagonal might be rescued... but we're not holding our breath. Right now, the intent is to be flexible and stay on top of developments as they occur. Why?

The charts below show 'possible' five wave tops in the Dow Jones Industrial Average - made possible by that wave in February we have labeled the Orphan Child Wave - and in the Nasdaq 100 or NQ futures.

DJIA sitting on Trend Line

NQ Futures Five Waves Up?
If the Dow should significantly exceed the trend line to the down side, it would certainly destroy any chances for a potential diagonal, upward in the short run.  And we can see how to begin the count of a downward wave in the Dow. And, yet, just as the upward count depends currently on higher highs, the downward count depends currently on lower lows.

We will keep you advised as we go along, but at this point the major message must be re-emphasized. Risk in the market has gone up. This has become more of a professionals market, and not one for amateurs. Unless you are familiar with all of the various possible Elliott Wave structures, it may be difficult to keep tabs on the possibilities during the day. Further, as we said before, it takes many more price points to validate or invalidate a wave than before, and this can be tough on the nerves.

For example, it is now also possible to see the daily September waves as both upside and downside triangles as well as part of a diagonal, or portions of a downward count to be detailed later. The bottom line is whereas the market has the count where it wants it - rife with potentials and no actualities at this point - it does not have us confused:  we will simply continue to work each case methodically - as the market presents it, and make the best judgement as to the count as we proceed.

We encourage you to hang in there, and be both patient and flexible. After a period of time, the count almost always clears up. One suggestion might be to keep one's eyes on the overnight futures for a few days to see if any of the diagonal or triangle possibilities invalidate in the overnight.

Until then, the very best to you.

Wednesday, September 28, 2016

Update on Potential Minor wave A of Intermediate (3) - Part 2

Please refer to the prior post if you have not read it. I'll keep this brief. Today, in real time chat I was able to count five waves up to minuet (a) wave of minute iii (circle iii) of of Minor A of Intermediate (3), followed by a three-wave minuet (b) wave down of minute iii (circle iii), up; followed by an additional five waves up.

Here is what the count looks like on the DOW at this point in time.

Figure 1 - Add (a) and (b) of minute iii of Intermediate A in the Dow Jones Industrial Average

Now, since we have counted five waves up to (a), we are able to raise our invalidation point on this wave iii (circle iii). That is because a downward wave should not travel below (b). We should expect a full "five-waves up" from (b), and if that does not occur, something is wrong with the count. Again, see if other Elliott analysts provide you with such clear and unmistakable invalidation points. If not, they are not counting waves correctly.

For those that are interested, below is what the "real time" chart looked like today at the end of live chat. Also, I did find one way to revise yesterday's waves to make them more proportional. And it is shown below, also. It is impulse 'a', then 'b', then diagonal 'c' down to minute ii (circle ii) on the above chart. But it does not affect the position of any larger labels, nor of any of the waves today.

Figure 2 - Today's "Real Time" Wave Count in the SP500 30-Minnute Chart

In the chart above, since yesterday there are five non-overlapping waves, up, to 'a', followed by three waves down to 'b', followed by an Expanding Leading Diagonal wave i that I was able to count live wave-for-wave on the five-minute chart, followed by wave iii that occurred on Chair Yellen's comments today.

We now have 'five waves up' from b on the way to (iii), or circle iii in Figure 1. Once again, we do not know how this wave will progress for sure. It is possible that blue wave v can exceed the high of (i) all by itself. That is because wave blue iii is longer than wave blue i. So, wave v could be any length. Alternatively, this could be a five-wave sequence for a larger -i of c, with a -ii down to follow. And, this is, again what raises the risk in the market at this point in time.

P.S. I'm sorry for a little bit of the label confusion between the two charts. It is a limitation of the real time software used. I hope you can follow it. They are exactly equivalent, and if you have any questions refer to the Dow chart, in Figure 1, above.


Tuesday, September 27, 2016

Update on Potential Minor wave A of Intermediate (3)

Here is a very brief update on potential minor wave A of Intermediate (3) of Primary 5 (circle 5). We said in previous posts it was very possible that the A wave up was taking the form of a contracting Leading Diagonal. Nothing has changed. Downward movement after the Grate Debate (sic) last night did not invalidate this possibility in either the futures or the cash. Here is the hourly DOW as a reminder of the count.

Potential Leading Contracting Diagonal for Minor A of Intermediate (3) in the DJIA

So far, within this wave we are getting the deep retrace - - on an hourly closing basis of 78.6% in the DOW for wave minute ii (circle ii) of A. Upward movement has apparently started, and price found initial resistance at the prior gap.

Because we counted the down sequence in live chat, as an (a), (b), (c) zigzag, then this fully completes minute wave ii (circle ii). If upward movement of minute wave iii (circle c) has truly begun, then we can move up the invalidation point for minute wave iii (circle iii) to the low of today. Again, notice how few Elliott analysts tell you the clear and precise invalidation points for a count.

We have now sketched in tentative diagonal trend lines assuming that minute iv (circle iv) also makes about a 78.6% retrace, but first we need to see the minute iii (circle iii)  wave develop properly. It does not have to make a new all-time high, but it easily could - just depends on the lengths of the waves at the time. Wave minute iii (circle iii) however is required to make a new high above wave minute i (circle i), for the entire diagonal to be counted properly.

The most important concept we want to stress is that "counting risk has gone up" in the market. Look at the ranges being made, and how many points it takes to validate a count now. That may not change for quite a while, and we suspect that if it does it would be a surprise to the down side.

Meanwhile, we are staying relaxed, patient and very flexible. Hope you are, too!

Monday, September 26, 2016

Long Term Count - Update

Hello all. I have explained my eight year count many times in this blog and in various chat rooms or on blog sites. This post is only to provide an update of a count - which hasn't changed. First, here is the chart of this count on the two-weekly S&P500 Index from the March, 2009 low.

SP500 Primary 5 Count (Circle 5)
While I realize there are many people who are trying to have different opinions - possibly because they are just learning Elliott wave, or possibly just to fill some ego need - at this point in time the count should be relatively clear.

I use a relatively specific method of counting the Elliott Wave when it is an Impulse Wave, which I have completely disclosed and provided as a Featured Post entitled, The Eight Fold Path to Counting the Elliott Impulse Wave. Please refer to that section if you have not yet. But in this post I just want to stress a couple of points about why this count is likely correct.

As far as we know, Ralph Nelson Elliott was the first analyst to introduce the concepts of a) parallel channels, and b) alternation into market analysis.

Regarding parallel channels, when you place a line from wave Primary 1 (Circle 1) to Primary 3 (Circle 3), and put a parallel copy on Primary 2 (Circle 2), you find it projects the low of Primary 4 with considerable accuracy. The intra-week low of Primary 4 is outside the channel, the closing low is inside the channel. So, this market count meets Elliott's guideline of parallel channels very well.

But, more than that, the only two waves that span the channel are these two that are labeled Primary wave 2 (Circle-2) and Primary wave 4 (Circle 4). If you try to construct the channel in other ways, you will find it very difficult to come up with a different scheme. So, these termination points are the most logical termination points for waves Primary 2, and Primary 4 using Elliott's technique.

Next, it is pretty clear, that Primary 1 (Circle 1) is a five-wave sequence all by itself, and takes about a year in time. For the small three-waves down in 2010 to be the full correction of Primary 1 seems like "rushing a count". While second waves are 'often' zigzags, they are not required to be. No, in my view it is best seen that Primary 2 (Circle 2) is counted as a relatively rare "running flat" wave, which has three waves down to (A), three-waves up to (B), and five-waves down to (C). All of this makes sense not only in terms of the definition of a FLAT (as a 3 : 3 : 5 sequence), but it also makes sense in two other ways.

First, the running flat takes up much more time that the simple zigzag, and provides a better correction for Primary 1 (Circle 1) because it does. But, second, a "running flat" provides a very key signal that a strong and powerful third wave is about to occur. And that's exactly what this one signals as Primary 3 (Circle 3) goes on to be 1.618 times Primary 1 (Circle 1).

The Primary 3 = 1.618 x Primary 1 is near exact in the Dow Jones Industrial Average, and is slightly beyond in the S&P500 Index. Still, it is the most likely place for a Primary 3 wave to end, and it does.

Next is Elliott's Principle of Alternation. With the "running flat" for Primary wave 2 (Circle 2), we were fully expecting that the middle wave of wave Primary 4 (Circle 4) - whether it was B or X, as we have it labeled - would not make a new high. That is, we were expecting alternation in the waves and this is exactly what happened. The waves that formed Primary 4 (Circle 4) count very well as a double-zigzag and provide the needed alternation.

Now, just from a visual perspective, you can see that Primary 5 (Circle 5) is not yet as long in terms of price as Primary 1 (Circle 1). A very common Elliott Wave relationship is that 5 = 1, so this may yet occur. Second, you can see that Primary 5 is not yet as long in terms of time as Primary 1. So, the bottom line is that we are doing everything possible not to rush the count. It is entirely possible for this wave to last until Jan - Mar, 2017.

By the rules of Elliott Wave analysis, Primary 5 (Circle 5) can form as either an impulse wave or as a diagonal wave. We have our suspicions it is the latter, but we are also keeping tabs on the former. We literally have no preference which forms, but we are seeing signs of weakness and lack of momentum that are worrisome in the market. One of those signs of weakness is that Primary 5 (Circle 5) is finding resistance right along the mid line of the channel - just as Elliott Predicts. We think this ups the odds the Primary 5 (Circle 5) is indeed the wave in progress, as that it is becoming weaker as it travels.

And please remember as we have stated before, because this upward wave is likely the last in a sequence, and the last in a very long sequence since 1932, it would be fully allowable for Intermediate wave (5) of Primary 5 (Circle 5) to fail to make a new high. If the failure occurs, we will try to bring it to your attention.

Again, we make this post because some people right now have three or four different counts working, or are trying to pick tops, or somehow suggest that Primary 3 is in progress, or suggest that Primary 4 was not sufficient as it was. I, on the other-hand, am just trying to keep things simple, stay flexible, and be patient.


Saturday, September 24, 2016

No Easy Answers - Yet

While others are wild-eyed and project a Primary III wave with an S&P500 of 3000+(sic) to follow, we calmly and rationally analyze what we are given - especially considering we haven't even made a new all-time high yet! There can be no doubt that from Wednesday's FED meeting, Yellen gave the markets a big boost. But much of that boost faded on Friday. Not all of it, but much of it. In fact, while some market analysts don't even look at the Dow Jones Industrial Average any more - you know, the index that Ralph Nelson Elliott analyzed to develop the Wave Principle - we have a look at it every day, and see what it is telling us.

We have contended since S&P 2190 that "risk has gone up" in the market, and that situation continues. Here is a chart of the hourly Dow Jones to illustrate this point.

Dow Jones Industrial Average - Hourly

From the C wave low of ~18000, we now see that the range spans roughly 700 DOW points, and the trading patterns (you don't have to call them algorithms if you don't want to) are taking up much of that range.

More importantly, perhaps, on Friday, the Dow overlapped some waves downward - which could have been seen as part of a second wave down of an overall upward sequence. But, in an impulse, we don't like to see any part of the second wave overlapped by the potential fourth wave. It tends to indicate weakness. Granted, the S&P500 has not yet so overlapped.

But, that leaves us with just "three-waves up" in the Dow. And, there is no guarantee that the downward price movement has ended. So, that leaves us with this clear option. It is highly possible that if the Dow and S&P are forming their minor A wave, up, as we indicated in yesterday's post, that this A wave will be a very intractable Leading Diagonal wave. We have certainly seen this before in larger diagonals - in fact - it can be viewed as a smaller fractal of the larger two-day Ending Diagonal Dow fractal we posted in yesterday's post. If that should happen, it would clear up the count tremendously.

Remember, a leading diagonal A wave is 'likely' a contracting diagonal, with wave v, shorter than wave iii, and wave iii shorter than wave i, wave iv shorter than wave ii, in which wave iv overlaps wave i, and all three-wave sequences that count as zigzags. The purpose of such a wave might be to fill the gaps above the market.

If, and it's a big IF, we are in a diagonal, remember that it must prove itself to be the case. And, if we are in wave ii down of such a diagonal, then it can travel as low as it likes, but must not violate the lows of the C wave. While this invalidation point is clear (and again note how some other market analysts seldom mention them), it illustrates why the risks can be so high in this market.

We have drawn in some tentative trend lines, but they are just that - tentative. A diagonal is only defined by it's i to iii, and ii to iv trend lines, so the outlines of the pattern are nowhere near established yet.

But, there are other risks as well. First is the risk of 'miss-counting' upward. Could  the pattern shown be a 1-2-i-ii, of A, upward. Yes, but there is no clear evidence for that at this point in time. Wave iii, upward, would have to begin a very quick and rapid acceleration - certainly possible, but not seen on the chart as of yet.

Second is the risk of 'miss-counting' downward. Although we only counted three waves downward as A-B-C to the February low, there is a remote possibility that it actually counted as a "five", and this three waves up is to a larger (B) wave at the 78.6% retrace level - with a five-wave (C) down to follow. We don't know that, such an A wave down would neither have "the right look" or the right structure as far as we can tell, and, so, this probability seems remote. Again, there is no evidence for such a count at this point in time, and the DOW's current C wave lower would have break for further consideration of such an option. We also don't think that the three waves down of A-B-C is to a larger (A) wave, with these three waves up being to the (B) wave of an overall FLAT wave. Why? Because in such a (B) wave, it is required to travel to a 90% or better retrace of the (A) wave, and this upward movement is only slightly beyond 78.6%. So, again, this leaves us with the two most likely patterns of a diagonal A wave, up, or a 1-2-i-ii, up.

Therefore, we reiterate: from a wave counting perspective, risks have gone up - significantly. If we can help clarify the situation in the upcoming days, we will. We were 'hoping' for a nice, easy-to-call, A wave up as an impulse. The market apparently did not want life to be that easy.

Cheers! And enjoy the chart.

Friday, September 23, 2016

Best Ways of Counting the Down Move

Below are the best ways of counting the SP500, and Dow Jones Industrial cash indexes so that they "sync" at the lows. The DOW is very straight-forward. It counts as an ending contracting diagonal down to the 14 September low, as follows.

Ending Contracting Diagonal in the DJIA to the New Low on 14 Sep

This count currently fits all the rules and guidelines in that (red count) wave (v) is shorter than wave (iii), wave (iii) is shorter than wave (i), wave (iv) is shorter than (ii), and wave (iv) overlaps wave (i), and they are all zigzag waves. This diagonal, as you now know, has also been more than fully retraced. 

Our issue, as we reported in this blog, was that it wave very difficult to count the strong down wave in the S&P500 as the C wave in and of itself. It turns out we were looking so hard for a triangle in the SP500, we missed it! And it was there all along. Here it is in the next chart.

Triangle in the SP500 Index Before Truncation Wave v, and v = i

So, after all, we did have an acceptably formed barrier triangle, and it was validated with the (e) wave trading back up over the prior wave iii, as required. The only issue is the SP500 truncated slightly, and did not make a new low like the DOW, NYA, and Wilsh 5000. But, if you look at how long the wave iii is, it is a near perfect Fibonacci 6.86 x wave i, then such a fifth wave downward is certainly allowed to truncate - which it did, and only slightly.

The overall point is that both indexes can indeed be counted as A-B-C down in a zigzag. Remember that only zigzags are allowed for waves (1), (2), (3), (4), and (5) of a diagonal count. It even turns out if you don't like the ending diagonal on the half-hourly DJIA (maybe the retrace wasn't fast enough for you), then, because of the rules of barrier triangles, the DOW can also be counted in the same barrier triangle as the S&P500. In the DOW, there were no new closing lows over the low of wave iii, until the exit from the alternate barrier triangle count!

It is very likely, then, that the following waves in the half-hourly charts, above, are i, ii, and iii of the A wave up of Intermediate (3) in the diagonal count. Usually the A wave in diagonals appears near the highs - but not always. So, this manner of counting allows that, as well.

So, here is the two-day diagonal count shown on the DOW, with the A wave up, in progress.

Progress of the Potential Contracting Diagonal in the Two-Day DJIA

This is the count that currently fits the waves the best at this point, and it also fits with a Primary V scenario. A Primary Vth wave should have the lowest momentum of the prior waves. The wave also has the right look at this point in time. This also means that wave (3) can take up quite a bit more time, yet, and make marginal new highs. However, in terms of time signature, wave (3) should be shorter in time than wave (1).

Is there an alternate? It is 'possible' a smaller first wave up, (i) of a iii in the 1-2-i-ii-iii count upward has started. But the alternate count has little evidence going for it yet, as strong acceleration to the upside would be needed for what would be (iii) of iii, and we haven't seen that yet.

Cheers, hope this helps, and enjoy the weekend!

Thursday, September 22, 2016

Potential Not Realized

In our blog post of 17 September, we said, "we are in the situation where the C wave may have completed, and completed with the overlap we noted in the DOW, but not in the S&P. And that would be at the low on 12 September. But it is very, very difficult to count it that way. As a result, we have discussed in live chat and yesterday in the comments of this blog, that it is possible we are forming a triangle to the downside."

And then we updated on 20 September to say the potential was still there for a triangle, but, we said it was still only a potential and  would have to form properly in every aspect. And, as you likely surmised by now - given the Fed meeting, it did not. Therefore, we now have the situation where, "most likely" we made the C wave at the lows, and the possibility of new highs gathers more evidence. The chart that shows this the best is the ES 4-hr chart, but it agrees with the hourly cash S&P500, so we see no conflict.

ES 4-hr Chart - New Highs Gather more Evidence

We also have the situation where wave (2) downward of a potential contracting ending diagonal on the three-day DOW overlapped with wave A, but this did not happen in the S&P500. That's OK for the S&P500. In a contracting ending diagonal, the only overlap requirement is that wave (4) overlap with wave (1). So, that may help clarify where we are in the count: if it's a contracting ending diagonal, then any marginal new highs would be wave (3), provided they form as a zigzag.

If we are in the impulse count, up, then wave iii of 3 makes sense. And again, we have absolutely no preference as to which forms. We will need to study divergences with the advance / decline line as they become available and see what makes sense at the time.

Tuesday, September 20, 2016

It's Still Potential Until It Isn't

Here's the count of the hourly SP 500 potential triangle (a), (b), (c), (d), (e), that now gathers more and more evidence.

Hourly Triangle in S&P500 Index

The continued evidence is 1) there are lower highs and no higher highs, 2) the structure is very overlapping, 3) the Elliott Wave Oscillator or EWO remains less than -40% of the value of wave circle-iii on the other side of the zero line indicating a fourth wave, 4) the EWO is red and declining, and 5) volume is declining as fits a triangle.

If wave (d) of the triangle forms properly, then wave (e) can be almost any length as long as it does not travel above wave (c), and provided it overlaps wave circle-iii, down, in the upward direction. The triangle could form with a flat bottom, or as a symmetrical triangle in the final analysis. Either are acceptable.

If, and only if, the potential triangle forms properly, then a fifth wave down would be likely to form. In the case of a true barrier triangle being formed, then the breakdown can be short and swift. If a contracting symmetrical triangle forms, then a more extended wave v can occur.

Why would wave circle-v of C form in the downward direction? What would be it's purpose? Well, on the three-day chart, below, we know the DOW has overlapped it's wave A of (1) in the upward direction, but the S&P has not.

Ending Contracting Diagonal in the S&P 500 (3-day Chart)

Perhaps the purpose of a further downward wave is to cause the S&P to overlap, as well, and cause the S&P to contact it's lower trend line. Time will tell!

Saturday, September 17, 2016

OEW has Lost It's Lunch - a Fibonacci Five Times Now

First came the 2015 highs in which we indicated an ending contracting diagonal as early as February of that year, which would have started in November of 2014 and continued through May of 2015. We were looking for this structure to end a fifth wave wave up. It did. OEW called for a large third wave higher to 2,200 to 2,500. It didn't happen. Prices plummeted into August instead, agreeing with our call.

Second, came the December, 2015 up wave which OEW said was almost certain to make new highs because every Primary wave before it had and that they were simply constructed (in it's view). We said, it was likely we were in a B wave up, and the B wave would likely not make a new high because of alternation with the flat wave in 2011 - 2012. Then, when OEW did not get it's new high, it called for a truncation instead, flipping around and saying the truncation wouldn't be exceeded. It later was. Wrong again. Wrong on both counts!

Third, came the February 2016 low where OEW called this tune: "When this uptrend concludes, we are expecting the bear market to start making new lows during the next downtrend. Longer term we are expecting the market to lose 45% to 50% of its value during this bear market. Ending sometime in 2017 around SPX 1100." Really? 1,100? We on the other hand clearly and unequivocally wrote in the OEW forum, that the low was Primary IV and new highs were to be expected - which as you know is what occurred. We even pleaded with the author who had told us, "the universe unfolds in octaves". Our reply was, "well if the universe unfolds in octaves, then why won't you allow a Fibonacci eight-years (from 2009) for the bull market to complete?" Silence was  the reply.

Fourth came the latest new bull move Crude Oil call, on August 23rd, with prices at (close = 48.52) in an article called Crude and the Commodity Cycle. OEW calls for this bull market within the context of a larger bear market and says, "This suggests an upside target between $70 and $85 by the year 2020." Sounds good, right?! Wrong again. Since the article appeared Crude has declined over 10% in value and is sitting at $43.23 with new daily lows. Who makes a bull market call with a 10% decline staring you in the face, unless you clearly indicate that is the likelihood, first? But that isn't the only problem with the OEW analysis of Crude Oil. The larger problem is that OEW looks back more than 50 years to fully 1970 to begin it's wave analysis. Isn't that thorough? Ha! Anyone hear of Nelson Rockefeller? Or of Standard Oil Company? There certainly was Crude Oil trading before 1970, and lower than $1 per barrel. Crude prices in the 1930's were under $0.70 per barrel according to the EIA data. So, this whole wave analysis is woefully incomplete, and likely incorrect. In fact, the OEW analysis only really starts near the time of the first OPEC "oil shock", likely right in the "middle" of a third wave. And OEW ignores the 1990 Kuwait Invasion with prices higher by only $1 per bbl. As a signature "b" wave within a fourth wave decline, it would be a key to a successful analysis of where we are today if OEW recognized it.

Fifth comes this weekend's latest OEW treatise on the disparity of the various stock indexes, which has been going on for months now. OEW has really lost it's lunch this time saying that the New York Composite Index is trading like a foreign stock index?! Really. Let's see. The DOW has 30 stocks in it's index, the S&P 500 has 502 stocks in it's index (with very little foreign content), the Russell 2000 has 2000 stocks in it's index, the NASDAQ 100 index has 107 of the largest non-financial companies that trade on the NASDAQ market place, and the Wilshire 5000 has virtually all of the stocks that actively trade in the United States. By comparison, the New York Composite Index includes over 1,900 stocks of which over 1,500 are U.S. based companies. It is very clear to even the most novice critical thinker that, because each index represents vastly different baskets of stocks, some of which trade on some exchanges, and some of which trade on other exchanges, they will trade slightly differently! Yet, the OEW claim is that the S&P500 can not be in Primary V because the New York Composite represents some foreign companies and is, itself, in Primary V. I was going to say this is the most twisted logic I've ever encountered. But it is worse than that. It's not even logic! It is words written on a page, apparently to sell a service.

You'll note that this blog is not sold for a fee! We don't even ask for donations. We're not selling a course. And for a reason. Our primary aim is to be objective and see what Elliott Wave can really do for us if we let it. So, without further delay, we'll just provide this hourly chart of the S&P500 Index.

SP500 A,B,C Zigzag Complete or Not?

Since the truncation top, our position on the market has remained that, "risk in the market has gone up" as it now takes more points to validate a wave than when were were trading from 2165 to 2195. We are pretty sure the market is only making a corrective sequence lower to Intermediate Wave (2) of a diagonal wave for Primary V. As such, Intermediate Wave (2), shown here on the hourly chart, should be a pretty simple A, B, C zigzag wave, and this one is - albeit the B wave got quite complex, that is fully allowed.

The only clues we really get are that 1) the upward retrace is only 61.8% and has not overlapped wave 1 down at this time; 2) the Elliott Wave Oscillator is in the correct position to indicate a fourth wave - by not traveling beyond -40% on the other side of the 3, or C location (as of yet); 3) right now, we have lower highs, but no real lower lows; 4) the B wave back at the 2187 level is so complex, it would appear to be the correct wave sequence of a zigzag, not, instead, as the second wave of an impulse lower, and, 5) remember second waves of zigzags are usually sharps, and this B wave is a FLAT wave.

So, we are in the situation where the C wave may have completed, and completed with the overlap we noted in the DOW, but not in the S&P. And that would be at the low on 12 September. But it is very, very difficult to count it that way. As a result, we have discussed in live chat and yesterday in the comments of this blog, that it is possible we are forming a triangle to the downside. This potential triangle may be a "pre-FED meeting triangle", but it must, again, prove itself. Such a triangle, if it completed properly, would be the fourth wave of the C wave of the zigzag, and it would indicate "last wave down dead ahead".

Right now, in the S&P 500 cash, there are enough waves and sufficient overlap to conclude a triangle has actually finished, but then a thrust down out of the triangle would be required. Yet, triangles are usually noted for taking time and moving prices sideways. And, if that's the case, there are two more ways this triangle could develop. The first way is that another wave immediately forms along the lower wave 3 barrier (putting this triangle in the class of barrier triangles). Or, further up movement could cause the triangle to expand higher one time - in an attempt to fill the gap - and form a larger (c) wave of the potential triangle., before coming back down to the barrier to form the (d) wave.

Either is completely acceptable in terms of Elliott Wave logic, but it is very, very difficult to predict. That's why the old Elliott Wave maxim goes, "Trading in Triangles is Treacherous". Given that there is a FED meeting dead ahead - from a wave counting perspective - perhaps it is wise to let the market initially sort this one out! (No trading or investment advice is intended, provided or to be inferred). Anyway, from a wave counting perspective, that is our approach.

Have a great weekend!

Wednesday, September 14, 2016

Frumpy Dowager

No, of course, we are not talking about Downton Abbey. We're talking about the grand old lady, the Dow Jones Industrial Average herself. And, of course, she seems a bit disagreeable in her old age. What do we mean?

Well, there are a lot of impulse counts upward in the S&P500, of course. And nobody wants to show you the skeleton in the closet: the Dow Jones Industrial Average. Why it's more like the movie of Arsenic and the Old Lace. These bones are rattling.

Here is a chart of the DOW we posted today during live chat.

Downward Overlap in the Dow Jones Industrial Average
So, while a lot of impulse counts are showing a chart like the above, with A = 1, and B = 2, and C = 3, we just calmly and simply note that such a wave 4 would overlap wave 1 at the location marked A, and that is an Elliott Wave rule violation.

So, we won't show it that way! Period.

Now, some people claim the count is really 1-2-i-ii with wave 3 upward about to spring upon us. Well, that may be .. or well .. that remains to be seen. There is certainly no clear evidence to support such a view at this time. It's a bit like betting the old biddy hasn't spent her purse out for a night at the local casino. And that's not our approach to counting waves.

One other thing we note: just like at the Primary III high, the Dow made a picture perfect 1.618 extension of it's Primary I wave, while the S&P traveled a few percent beyond it, here we see the Dow never exceeded it's C = 0.618 x A relationship, while the S&P 500 crept a few points beyond it again.

Stay tuned. Things are getting interesting!

Sunday, September 11, 2016

Never on Sunday

We wanted to provide you with one special update of the reasons why we think it is very difficult to tell if we are still in the A wave of the zigzag down to Intermediate (2), or if the A wave has already completed, and we are now in the C wave of Intermediate (2).

Since 23 Aug, the ES E-mini futures have made higher highs and lower lows at locations where cash has not. This is one of the reasons why we cited in earlier posts that a "truncation top" may have occurred. It did.

Below is a 4-hr chart of the ES E-mini S&P futures, because of the choppiness, and using this chart, we have looked for every possible leading diagonal or triangle that now makes sense, and none of them do. We can only find a valid ending diagonal triangle in one location. See below.

That being the case, we label the chart in this manner.

4-Hr ES E-mini S&P Futures
We can only say that because of the strong down turn on Friday that the best counts are 1,2,3 and or a, b, c; and that is precisely because, having studied the lengths of all the waves, there now has to be a FLAT wave in the middle of the pattern, followed by an ending diagonal (c) wave of either b or 2.

This again makes prediction difficult, so looking to Fibonacci levels, and / or prior support may help give some clues later on. We just want to be very "up front" - when we don't know, we simply don't know, and it is another reason why risk in the market has just increased dramatically.

The down wave is strongly out of a base channel from 1 to 2,  or a to b, and the EWO is at a low with no divergence, so an impulse for a larger A wave can form if it likes to eventually make a deeper correction or the 'c' wave can continue on to end the correction lower. This is a clear example of why the three-day upwardly contracting will be difficult to predict in its entirety.

The only suggestion I have at this point is to watch the discrepancies between the futures and cash, and make sure that the counts can work on both. The counts on the above chart do work on both!

Saturday, September 10, 2016

Tick .. tick

We wanted to update the daily S&P chart as of the end of the day, Friday, with a Fibonacci ruler showing the potential retrace levels for wave Intermediate (2). Here is that chart.

SP500 with Retracement Ruler
You may often hear that the waves 'within' a diagonal are very deep retracements - like 61.8% or 78.6%, but that is not necessarily true. In fact, if you study the contracting ending diagonal that ended Intermediate (5) of Primary III in May, 2015, you will find that such retracements simply did not exist. In fact, Frost & Prechter do not have a rule about deep retracements within a diagonal : the suggestions are only part of the guidelines. And, given the relatively few diagonals that have ever formed in the weekly charts, the number of samples to have studied is exceptionally low.

Below is a chart showing that 2015 Ending Contracting Diagonal, as we called it, showing the retracement for wave (ii) was only 38.2%.

SP500 Weekly Ending Contracting Diagonal Showing Only 38.2% Retrace for Wave (ii) in 2015

And while we don't 'know' exactly how this one will form, we have to keep our eyes on the Fibonacci levels, because, in the case of the last one, prior support and a Fibonacci level ended wave (ii) pretty nicely.

Keep in mind, that just like a triangle's trend lines are not defined until the a-c and b-d points are known, this diagonal's trend lines will not be determined until the (1) - (3), and (2) - (4) points are known - which they are not at this point in time. We have only sketched in tentative diagonal trend lines to indicate where waves might find support. They are not inviolate.

And please recall all of the rules regarding diagonals: wave (5) must be shorter than wave (3); wave (3) must be shorter than wave (1), and still make a new high over wave (1); wave (4) must be shorter than wave (2) and can not travel below wave (2), and wave (4) must overlap wave (1). Each of the waves in the diagonal must be a zigzag, and the B wave in the zigzag can be almost any three wave structure as long as it does not exceed the start of wave A of such a zigzag.

Further, it is very likely that, from a time perspective, wave (5) will be shorter in time than wave (3), wave (4) will be shorter in time than wave (2), and wave (3) will be shorter in time than wave (1). Of all of the diagonals rules and guidelines, the time relationship is the one which is the most forgivable.

We also want to quickly indicate two things: 1) as of yet, there is no evidence we can find, yet, that wave Intermediate (2), in the 2016 chart, is over yet. There is simply no evidence for a turn. 2) It is worth noting that the ES E-mini S&P futures are only 'one tick' from downward overlap for those still looking for a 'fourth' wave at this location - which we are not. Here's the chart.

ES E-Mini S&P500 Futures One Tick from Downward Overlap

So, any continued downward movement would likely clearly indicate that the diagonal count is in progress.

In terms of an actual count lower, it will eventually wind up to be an A-B-C. The question right now is did the A wave end already and this is the C wave? Or, are we still in the A wave? That question is a very, very difficult one to answer at this point. So, once again we need to be flexible and do our best wave counting job possible. As I have said before, and emphasized in recent videos, counting either triangles or diagonal is exceptionally tricky, and I expect this one to throw a few surprises at us, too!

The problem from a trading perspective is the market just just created a situation of exceptional trading risk at this point. The number of points needed to validate either upward or downward waves has just expanded greatly.

One clue will be when the daily slow stochastic on the ES daily futures turn up, possibly from a divergence. But, at present, the slow stochastic is still headed lower.

We also want to use this ES chart to show you how the Bollinger Bands are absolutely not predictive of price, but rather follow it. If you observe both the June bottom, and Friday's price bar, you can see how far price traveled 'beyond the band', and that nothing about having a dotted line representing a Bollinger Band calculation "stopped price in it's tracks". No. Unfortunately, Bollinger Bands are an indicator derived from taking an 18-day or 20-day moving average of price, and applying calculations about each day's range to determine the 2-standard deviations that represent the band. So, it is price that determines the Bollinger Band's width and path, and not the Bollinger Bands that determine the price path. In fact, it is a hallmark of impulse waves that they will travel outside of the bands, sometimes quite violently as Friday's excursion showed.

By-the-way, people ask about alternates to this count. Because of the C = 0.618 x A Fibonacci relationship within the first wave, we actually think another way to end the bull market would be with an 'expanding' diagonal, rather than with a contracting one. But, there is absolutely no evidence for that formation, yet. It would take much more time, and possibly extend beyond the 8 Fibonacci years in which the bull market could end. So, we'll take things only one step at a time. To be clear, I think the ending contracting diagonal is the one and only pattern to be concerned with at this time.

Finally, we want to add that you can now provide your email in the box at the upper right if you wish to receive notification that a new blog has been posted. You will receive just one daily summary of any and all new blog posts, and we promise that we will not misuse your email, because we don't like our's misused, (although we can not guarantee what Google will or will not do with it). We already have several subscribers, and hope you will provide us with your feedback on if you find this more convenient or not.

Friday, September 9, 2016

Running Triangle Invalidated

We said in yesterday's post, that there was one last invalidation point for a "running triangle". That was the circle-c wave in the hourly chart. That invalidation point was cracked lower in the last couple of hours. We have always stated that the triangle and diagonals are forms that must prove themselves, and the triangle disproved itself this morning.

The good news is in live chat last night, we said we could 'likely expect a gap down opening - although there were no guarantees', and that is exactly what happened. So, we were at least headed in the right direction.

We have since reviewed many other counts including a) a triple combination - w-x-y-x-z - sideways wave that would have the same internal structure as a triangle, but that does not have the 'right look' because the x waves are not nearly equal in height. b) expanding triangle, but the problem here is now there would be two complex legs to such a triangle, and so, that is being ruled out too.

So, now when we recognize price is back below the C = 0.618 x A relationship we have spoken about in prior posts, we think the contracting diagonal scenario we said for all of Primary V makes the most sense. He is a picture of it on a three-day chart of the SP500.

Ending Contracting Diagonal in SP500 - 3 Day Chart

We think this is the count that matches best with the position of the Advance / Decline line at all time highs, and the fact that the Dow and SP500 broke through their all time highs.

This count utilizes the very slight truncation that we said was possible with the hourly chart, in our previous posts. A key to this count would be overlap of the minute b (circle-b) wave lower, and then Minor A lower.

The strength of this count is that is gives an exact accounting for degree labeling. We would now know almost 'for sure' that the August high was Intermediate wave (1) of Primary V, and zigzags would be expected for Intermediate waves (2), and (4). When price reached Intermediate wave (5), the up trend and entire bull market would be over.

We again completely admit to being wrong about the potential triangle - even though the wave signatures were there, and it was a reasonable count. But the count was incorrect for all of two hours!

Let's see if this count proceeds as expected. Again, a contracting diagonal must prove itself. But remember, we said from the time we broke out of Primary IV, that Primary V could occur as an impulse or a diagonal, and we had no preference as to either. If we get the diagonal, it should make wave counting much simpler going forward.

Thursday, September 8, 2016

Validated Triangle with Better Form and Proportion

Here is another post done for you in near real-time. This post was shown in the live chat room.

This morning, after we have counted out this hourly triangle for you wave-by-wave, since 23 August, the wave circle-e, crossed back down over wave 3, and formed a complete hourly triangle with much better form and proportion than we had said was 'possible' in our post of 6 September. Here is a view of what the triangle currently looks like at the hourly chart level.

Running Triangle Validated by wave circle-e crossing back down over wave 3
Now we must be clear. The waves in this triangle are 78.6% waves. Therefore, if the circle-e wave wants, it can also move lower and travel far enough down to fully retrace 78.6% of wave circle-d. But, even if it doesn't, wave circle-e has done all it needs to do to validate the triangle.

Since triangles usually appear before the last upward wave in the sequence, at some point, there should be at least one good five-wave sequence upward to make a higher high. And, again, this is a running triangle, which means that it is essentially still a bullish structure, and more upward waves can be expected. In fact, the usual target for a triangle is to add the widest width of the triangle to the breakout point.

I'll cover the possibilities for the daily chart once the triangle has broken to the upside. There is now only a very small probability that it won't. There is still an invalidation point for wave circle-e, and that is below the low of circle-c. So, if the circle-e wave decides to get scary, keep your eye on that point.

As you know in counting this triangle, we originally thought we may have had a contracting ending diagonal at wave (w) of circle-b. But then the high of such a diagonal was broken by just a few points, likely indicating a true diagonal had not formed. Then, mid-way through the triangle, we proposed that a downward diagonal would be possible, but it did not form well either, and we went back to the triangle count.

Why do we re-advertise these small miss-steps? It is because we are trying to emphasize proper wave counting, and show what is involved. We practice the concept that we would rather be wrong on a few twists-and-turns involving a few points, rather than get the big move wrong. But we always strive to get every Elliott Wave count posted as one that meets the rules and guidelines of the theory. When they work out, it's fantastic.

We do not believe that every Elliott Wave count can be known in advance. Only some can. The market - our collective opinions - are more complicated that one person can usually decipher. That's why we made the video, A Critique of Elliott Wave for Trading, and posted it in the YouTube channel. And, we again emphasize, a wave can't be known until it has formed. There has to be something there to see before one can hypothesize on the future direction of the market.

That being said, we did correctly find the key to the triangle count - which, as far as I can tell - no one else saw. And that was the internal triangle (b) of wave circle-c. That internal triangle gives the larger triangle its correct form and structure. You don't need an expensive course to find it. You mostly need a flexible thinking process, and the mental acceptance just to be ok with small miss-counts. No. No one likes to see errors in counting, but one just needs to accept that they will periodically be there, and just to quickly get back on track. It is not a reflection on the analyst that the market does some unpredictable things in the short run: it is the very nature of the market itself.

We hope this helps explain our approach, and our lack of desire for 'guru' status or any such thing. Elliott Wave theory is something that can be studied, learned and applied, with very little in terms of costly investment. But an investment in your time might serve the purpose better!

Wednesday, September 7, 2016

Diagonal Done

Here is a chart for you being posted in 'near real time'. It was posted in real time in the live chat room. Yesterday, we said that the circle-d wave of the triangle would appear more proportional if the (c) wave went on to form an ending contracting diagonal and in which this (c) wave exceeded the end of the (a) wave so that the (c) wave didn't truncate.

Here is the diagonal we posted in real time. The chart of the SP500 5-minutes.

SP500 5-minute Ending Diagonal (c) wave of circle-d of the triangle
From this chart, we conclude that the circle-e wave of the triangle should now take place, and it 'could' retrace 78.6% of the up wave to circle-d. Whether it does or not, in order to validate the running triangle scenario, then wave circle-e must cross back over wave 3.


Tuesday, September 6, 2016

One Way Out

So, there is one way that the hourly triangle could have wrapped up today, but there are things we don't like about it. That chart is below.

One way the triangle could have wrapped up
While the count above is a legal count in EW terms, it seems strained in terms of the duration of waves circle-d and circle-e; they seem too short in time. Also, the (c) wave of circle-d would be a slight truncation. While these things can happen in triangles they are not the first expectation.

For this reason, we must also suggest it is possible for the (c) wave of circle-d to still be in progress and possibly form an ending diagonal like this one, below.

SP500 Hourly Triangle Continuing
So, the bottom line is we won't know for sure until or unless additional fractals are broken either higher or lower. But, in the first case, the potential wave circle-e did come back down to overlap wave 3, as required, in a running triangle.

In the second case, the circle-d wave is not over, and, when it is, then circle-e must come back down to overlaps wave 3, again. But, in this second scenario, was circle-d may not under any circumstances travel higher than wave circle-b, or below circle-c; those are our two key invalidation points.

Let's see how it goes. We find it encouraging that the market has not broken to the down side and completely invalidated a triangle at this point. Triangles 'take time and move sideways' and this one is certainly doing that.

Friday, September 2, 2016

Treacherous Triangles

I have decided to post this update intra-day today. From yesterday's post, we were expecting upward movement, potentially, in wave 4, upward, of a downward contracting diagonal. Well, upward movement is what we got. However, yesterday's post provided clear invalidation points, in that such a wave 4 could not become longer than a wave 2. And, in fact, that invalidation did occur on the lighter than expected jobs report. As always, diagonals and triangles must prove themselves, and a downward diagonal did not.

So, during live chat, I re-studied the potential triangle pattern and settled on an hourly chart which appears below. What was initially bothering me was the fact that a contracting triangle should have only one complex leg, and I kept coming up with two complex legs - until I found another pattern.

SP500 Hourly - Triangle Re-Established

The pattern that was missed was that - inside of the circle-c leg - there was yet another valid contracting running triangle, which was in the (b) wave position. And there was, indeed, a five-wave sequence following it down to the (c) wave of circle-c. You'll even note within this triangle that the e wave, up, overlaps the (a) wave down, making the triangle valid. That now makes a simple (sic) leg for the circle-c leg of the triangle.

So, circle-a is simple, circle-b is complex, circle-c is simple, and waves circle-d and circle-e should be simple zigzags if a triangle is to play out in valid form. And, again, circle-e must come back down to overlap wave 3 to the left.

Ah, you say, "that downward overlap could have already happened, right?"

Well, it could have, but I don't think so. Here is a very short term chart of the SP500 5-minute chart counting the circle-d, wave up.

SP500 5-minute Chart

This count had actually carried over from yesterday. We had counted waves 1, 2, 3, 4 and part of 5, up, which seemed incomplete.  As far as can be told right now, we finished wave A, up, of circle-d this morning. Then, we got an A, B, C down both to the 38.2% retrace level, and where C is nearly exactly, 1.618 x A. We think this is the B wave, down, of circle-d up. We even called the internal wave iv of C as a triangle, and the wave v, down, on the mid-line of the channel.

If prices land on or slightly above the high on the close, it may wrap up the C wave, up, of circle-d, up, and in fact, wrap up the circle-d wave.

Circle-b and circle-c now provide the clear invalidation points for wave circle-d if this is indeed a running triangle. And it is hoped this example shows the value of an Elliott Wave count. We clearly noted where the diagonal option would invalidate. And when it did, we quickly and swiftly reacted. If your Elliott analyst is not giving you clear invalidation points, you are only getting half the story!

We apologize for originally missing that internal triangle of circle-c. As far as I know, no one else has pointed it out prior. But we wanted to get back on track, and keep you up to date.

We hope this helps clarify things as the long weekend in the U.S. approaches.

Thursday, September 1, 2016

Ooze-ing Goo

If this doesn't well describe the current stock market, I don't know what does. Some people would say market insiders are 'trying to sneak prices down', and that is possible yet they are doing so with some uncommonly narrow volatility.

Of course, we did show you this chart of the Chaikin Money Flow, and indicate clearly that volume was leaving the market.

SP500 vs Chaikin Money Flow

The result has been slightly lower lows, but the key 2147 level has not been taken out lower yet. We also clearly indicated on Friday (26 Aug) that any lower low beyond the 78.6% retracement level would spoil the triangle count we had in progress.

Then on Wednesday of this week, when the DOW made a lower low but the S&P500 did not, we none-the-less stated in live chat, that "we are souring on the triangle", even though it hadn't formally invalidated yet, nor had the S&P even made the same lower low that the DOW did. In fact, we have. A symmetrical triangle shape looks very strained at this point: possible but not high probability.

We also showed, this potential truncation count.

Hourly S&P 500 Potential Truncation Count

The primary reason for the truncation count you will recall is that the ES E-mini S&P500 futures have a higher high at the point marked 5 on this chart, where cash does not.

From a "big picture" viewpoint, there are two really good counts on the S&P 500 Index at this point. Those two counts look like this. For, the first count remember the potential long term ending diagonal for Primary 5. The above truncation count fits into that picture, as follows.

S&P 500 Daily Diagonal Count

So, this count applicable because price is again below the C = 0.618 x A Fibonacci level. But this count would be better validated by prices trading below the 2147 level. In this regard, since the truncation top, we can begin to count the down waves as a 'cousin' of the triangle, the contracting diagonal, as follows.

ES E-Mini S&P500 Index - Potential Contracting Diagonal Lower

For this count, prices may hem & haw on Friday's employment report, but two things are required: 1) a wave 4 (red) which is no longer than wave 2 (red), and, 2) a wave 5 (red) which is shorter than wave 3 (red), and occurs in a three wave sequence. So, this gives us clear invalidation points, and, hopefully, that is more helpful to you that someone who just 'guesses'.

If this contracting diagonal, lower, completes properly, then we will not know whether the diagonal is ending or whether it is leading - even though we suspect it will be a leading diagonal, lower.

The other count which is still possible is the impulse up, in which wave Intermediate (3) would have ended in the truncation. That is still possible. But because wave Intermediate (2) is a FLAT, then wave Intermediate (4) would have to become a downward zigzag or multiple zigzag that does not overlap the  2120 level in any way.

Hope this helps until things become clearer.