Saturday, October 15, 2016

Isn't It a Pity?

The ES E-mini S&P futures at one point Friday were sporting a 17 point gain in the early going - only to have it erased by the futures close at 5 PM ET (not the cash close). During live chat, we counted that up movement as an ending diagonal C wave. If you're interested to see the count on this wave just as we posted it in live chat, it looked like this.

SP500 5-Minute Chart  with Ending Diagonal (c) wave of Minute ii (Circle ii)


So, it looked like we had (a), up, in five waves, then the (b) wave down, and the (c) wave up in five waves to minute ii (circle ii on the fifteen minute chart, below), followed by five more waves down.

Further our measurement on the (c) wave showed it to be 0.786 x the length of the (a) wave. While this is a little uncommon for a (c) wave, it is at a Fibonacci extension virtually to a pip. But, more importantly since fifth waves are usually 0.618 extensions, it does help avoid confusion with a fifth wave up to the high. It also just happens to match the (c) wave down of the minute wave i (circle i) earlier in the week which was 0.786 times the length of it's (a) wave, as well. I invite you to do some independent studies to verify the same. It is likely you'll marvel, as I did.

But even more importantly, we see that wave minute ii hit the projected 62% retrace level of minute i quite exactly.

If we did, in fact, have an ending contracting diagonal (c) wave upward to finish minute ii, then that means that there should not be any further price movement above it's high - at least for the next few days. You might term this a "wave-counting stop" - meaning that any price movement above Friday's high means the wave count is incorrect. This is not trading or investment advice. This is what I mean by the fact that some other Elliott analysts don't even seem to show concern for invalidation levels. But, as always, an ending diagonal is not proven until it's origin has been exceeded lower. The origin in this case is the (b) wave low of Thursday. So far, that has not happened just yet, but likely will on Monday or Tuesday.

And, as for that slightly larger time-frame picture - here is how things appeared at the end of Friday on the fifteen minute chart.

SP500 15-Minute Gap Closed in the Settlement

Because the five waves down from minute-ii did not fill the gap, we think they are the (a) wave down. Then we either have had - or are still having - the (b) wave up, to be followed by a strong (c) wave down to the likely minute-iii of a potential ending contracting diagonal for the C wave of Intermediate (2). Again, improved confidence in this count would occur if 2130, the low of Thursday's (b) wave, is exceeded to the down side.

In all, to form the larger contracting diagonal on the 15-minute chart properly, minute iii (circle iii) must be shorter in price than minute i (circle i) and would likely be shorter in time, too. This again provides another valuable invalidation point. If minute iii should become longer in price than minute i, it just means there was a flat wave instead from (a) of minute i to the high of minute ii, which would make (a), the impulse minute i count instead, and the high of minute ii still the end of minute ii (circle ii).  That is the very best alternate we can see at this point, barring an unusual surprise in the market. This is the alternate because second waves are usually zigzags (sharps) and not flats.

We are still counting downward with the short term trend because the Elliott Wave Oscillator is still below zero, red, and declining, because daily MACD and slow stochastics are still crossed lower, and because volume has been increasing on down days recently. But, even so, price excursions higher are still possible. B waves, as a class, can be difficult to count, so we can't say for sure that minuet (b) above is done. It could form a triangle or a flat wave, itself. There's really no telling - one will need to keep an eye on the overnight futures.

In the meanwhile, for true Elliott wave students: you are invited to study the (a) wave up of minute ii, (circle ii) in the five-minute chart, above. It counts as minuet i, ii, iii, iv, v - where minuet i is a perfect expanding leading diagonal that we recognized in real time. This formation at the bottom of a retracement is often a clue that a large upward wave is to follow, and it did. Next, notice that minuet iv did not overlap minuet i, and that sub-minuette wave 4 (circle 4) did not overlap it's sub-minuet wave 1 (circle 1), either. In fact, what you are looking at is the case where when wave minuet iii is only slightly longer than 100% x minuet wave i, then it is possible for wave v to be the extended wave. This is  the case, and in spades. We recognized it, and called in out in real time once the SP500 crossed 2133, the point where those nested ones and two's lower were no longer possible - as we cited in our previous blog post.

We hope this helps clarify the situation in some detail. Otherwise, have a great weekend!

11 comments:

  1. Thanks TJ! Since triangles and diagonals are not as common as impulses, ZZ, and flats, I think this count has a low probability by default. If it was a triangle which completed at 2170, I'm more inclined to think it was an x wave followed by a ZZ to complete b of B. This suggests c of B is underway targeting 2180ish which would be followed by a strong C wave down to complete entire structure.

    My question is this...since ES did not make a new low, how do you count that? Isn't a flat a possibility there as well?

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    1. So I provided my rationale for downward movement, and it was based on the indicators cited in the blog post. What rational do you have for your view. Which indicator do you think is over-riding these?

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  2. I'm going off of +div on hourly, daily and weekly RSI(5). Also +div on NYAD. there was also a VIX stock market buy signal on Fri when it closed back inside upper BB. this is usually (not always) followed by a bounce at the minimum like last signal 9/15 or sustainable rally like signal on 6/27.

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    1. So, while I will sometimes use hourly charts to just show wave label positions more clearly for stocks (i,e, to reduce the number of bars shown), unlike commodities that trade around the clock, I do not use hourly bars for indicators for stocks. That is because the stock market trading hours only sub-divide by the 1/2 hour, or 15-minutes. Stocks open at 9:30 AM ET, and close at 4:00 PM ET, and so, they can not sub-divide into an even number of hours. Half-hours are the first even division.

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  3. Nice +div on MACD and histogram on 30 min chart.

    http://elliotwavetrader1.blogspot.com/2016/10/elliott-wave-stock-market-update_14.html?m=1

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    1. ?? ..even that MACD has now crossed lower.

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  4. TJ why not LD of C instead of ED for C. thanks

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    1. Actually, it "can be", Jack. But I need to take one wave-set at a time right now. Regardless, it's clear you have the right mind-set. An L-D would depend upon a retrace not exceeding the B wave high of the triangle. But again, it is just a bit pre-mature to be discussing that at the moment.

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  5. TJ, where do you do your live chats?

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  6. https://twitter.com/TVarmageddon/status/787081814137462785

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