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.


11 comments:

  1. Tks JT; as always a very complete analysis. Have a nice weekend

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  2. Thanks again Joe for keeping us abreast of this unfolding A wave. Also,it looks like we may end up topping out on the Primary 5th Wave before the end of the year. Am I understanding that correctly or is the long term chart that you posted just for "illustrative purposes"? Looks like we don't have too much time left. Or, maybe it's just too early to tell. I'll keep following your blog per usual in any event.
    rose
    rose

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    Replies
    1. Hi Rose. The exact timing is flexible. First, the right patterns need to be made. My longer term chart just shows the projected path. The timing is yet to be determined.

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  3. Hi Joe

    Thanks for the analysis. I wonder, given that Wave 2 down of the final Wave 5 diagonal may not yet be completed, is it not possible that circle wave i in the chart above may be an X wave with a further abc zigzag down under way to complete Wave 2 of the wave 5 diagonal? I'd appreciate your thoughts on this.

    Regards Rusty

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    Replies
    1. Hi Rusty. Probably not because the zigzags within a diagonal are usually, most-often, simple zigzags - not double or triple zigzags.

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  4. Joe,
    Thanks as always great analysis. It speaks for itself; really no need to compare yourself to others, it comes across poorly in my opinion.

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  5. Sorry I posted the following incorrectly into the previous post:

    ============

    Hi I'm new to your blog but like the way you are so meticulous about your wave counts. Since the May'15 top I've had a count for the DJIA (which I trade) and the S&P500. It is at complete odds with everyone else that I've seen....including yours but I would very much like your opinion on it if you will oblige.

    Here's the DJIA count:

    http://postimg.org/image/pgurijw6x/

    ReplyDelete
    Replies
    1. ...and here is the S&P500 equivalent.

      http://postimg.org/image/j1kr0fnvz/

      Thanks very much

      Purvez

      P.S. I was logged in to blogspot so I don't understand why I wasn't given the option to use that ID?

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    2. Hi. I understand you are new. I have addressed that count at least eight or nine different times. I see that count as incorrect because the waves from 2010 to 2012 were a running FLAT wave, with the higher B wave. This 'running flat' is a relatively rare structure that portends great strength in Primary III which is what followed. Therefore, this wave should not be a FLAT with a higher B wave as there would be no alternation in the count.

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    3. Thanks very much for your response. I have had another look at the 2010-2012 wave and yes the wave counts do support a running flat.

      However I questioned the size of the 'shortfall' of the running flat....some 700 DJIA points, hence did not think it valid.

      Clearly I have a lot to learn.

      Please can you resolve my ID situation. I dislike posting as Unknown or anonymous.

      Thanks

      Purvez

      Delete