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.

7 comments:

  1. Thanks Joe!

    QUESTION: Would the current price action from "C" in your chart above, be 1-2-i-ii? thanks.

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  2. I'm sure you are aware that several indexes, including the DOW, made their lowest lows on 9/14, not 9/12. So, it seems to me that the move down on 9/13 and 9/14 can not be counted as part of a wave 2 of an impulse wave higher. Also, since you have frequently stated that every leg of a contracting ED must be a zig-zag, then that would also eliminate the possibility of a wave(3) beginning at the 9/12 low.

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    1. Have a look at the DOW futures. I did before posting. It shows the same pattern as the ES futures, above. Still counting as a zigzag, but also allowing the 1-2-i-ii count as well. I have no preference.

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  3. I realize that the DOW futures show that same pattern, but the DOW cash doesn't, and NYA doesn't, and the Wilshire 5000 doesn't. Those three cash indexes made lower lows after the 9/12 low. You've mentioned several times that the same count needed to work in both futures and cash, so I thought I would point out the problem with the current suggested count. Thanks.

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    1. It is possible to count the DOW cash down as an ending diagonal to the new low; also making it a C wave. It is nearly impossible for an index with 30 stocks to have exactly the same timing and count, as the S&P500 with 502 stocks. So, don't rule out the diagonal because the indexes are different and they will top and drop at different times. Right now, the futures and the options are the 'trade-ables'. I don't know of anyone who can trade the index itself - except by proxy in the ETF, and they have their own counting problems, as well : such as the inclusion of dividends. I am not ruling out a diagonal, nor am I ruling out a 1-2-i-ii. I can think and chew gum at the same time until things become clearer. I will post some daily counts to show some possibilities tomorrow.

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  4. Thanks. It seems to be that another possibility is that the decline was actually a complex triple 3 correction that ended with what Neely calls a non-limited contracting triangle. That would put the end of the corrective pattern (and the beginning of the new up move) at yesterday's low. I realize that wouldn't fit with your wave (2) ED count, though, because it would not have been a zig-zag.

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    1. You used the right word - 'possibility'; there is no proof of anything yet. So, tread lightly.

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