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.


  1. In the case of the possible 5th wave truncation at 2193, you have it following a running 4th wave triangle. Isn't that a contradiction? Don't running triangles indicate strength in the direction of the larger degree impulse, while truncations indicate the opposite? Thanks.

    1. Usually, yes. Remember the ES did make a slightly higher high. Remember, if we are in an overall daily ending diagonal, then the higher highs may also come after the down wave.

  2. Great stuff TJ. Appreciate the thoughts you shared. You are always systematic and logical.

  3. Thanks TJ. 'Have been following you for awhile (though it hasn't been easy from study of cycles to Caldaro's site (really a shame 'bout the way certain commentators there harassed you) to here.) Keep up the good work.

    Any comments or observations about how the Russell 2000 (IWM) and the Value Line Arithmetic ($VLE) show relative strength and keep grinding higher? IWM hit a new rally high at today's open.

    1. Please see this new post, explaining things in more detail.