Saturday, October 8, 2016

Let's Not Belabor the Point

As you know on Thursday, we said additional movement upward to finish the minuet (c) wave of the minute-e wave (circle e) of the Minor B wave triangle from the 4-hr S&P chart in the previous post was likely. And that appears for now to be what occurred as the market climbed after the opening bell on the payroll employment report results, but then quickly gave up all of that ground and more, again, in very whippy action. Sound like a triangle?

So that you might follow along with the logic and have a visual reference, here is chart of the S&P 500 cash index on an 15-minute scale.

SP500 15-minute Chart - Possible Triangle Completion

From the SP500 4-hr chart on Thursday, we said, the complex wave of the triangle could easily have been the D wave shown as the low on 04 Oct on the chart above. It was labeled minute-d (circle d) on the SP500 4-hr chart, which is again shown below. Then we showed on Thursday the five-wave (a) wave up, and the (b) wave down. From there, we did get another a five wave up sequence, likely for the (c) wave of E of the triangle, exactly as expected. Notice how long those fourth waves take - a sign that upward movement is a real struggle.

But, as if your lucky slot machine payoff number was 333 instead of 777, instead of forming five waves down the market appears to only have formed three waves down, shown as (a), (b), (c) yet again. And further, the market did not make a new lower low than the 2144 D-wave  on the down move. Then, so far, when the market reversed, it only made another three-waves up! This is also shown as (a), (b), (c) for the present.

What most will notice is that on Friday, the market failed to take out the 62% retrace of those three waves down. So, although it is quite likely we could be done with the triangle, we can't as yet prove it. Only price movement below 2144 will do that. If price does travel below 2144, then it is possible those three waves down are the first three waves of a diagonal minor C wave lower or a first wave down - followed by a flat second wave for a second wave up. We will cover that in more detail depending on the upcoming price movements.

As a reminder, here is the SP500 4-hour chart, showing that the minute-e (or E, above) wave did indeed cross back up over the location shown for minor A, forming a valid triangle.

SP500 4-hr Chart : Wave (e) crossed back up over Wave A

So, perhaps what is setting up is a slide lower before election day to the C wave, with a rally after election day - once the results are known. Again, if the point marked 0 is Intermediate (1), then the minor A,B,C down would be to Intermediate Wave (2) of a potential contracting diagonal for Primary V, with Intermediate (3), up, possibly being the post-election wave, up.

At this point, we can not find a good upward count potential in the DOW or the S&P. If we could, we would outline it here. Upward counts would not again be seriously considered unless the market can exceed the 2166 high of Friday morning. But, we have to ask, "if the payroll report could not make the market impulse higher on the day, what will?". Yes, we have Fed minutes this week, but that is only a re-hash of a former decision, and likely not a lot of new information for the markets. Still, anything can happen and we'll keep our eyes wide open in this volatile environment.

We continue to note that the major averages have not significantly diverged from the NYSE advance / decline line, yet, and so we expect that to occur later in the topping process. And, further, we are after more than a full month between only -2 to -5% from the prior all time high, so it seems like this overall decline will still only be a corrective wave.

In short, we remain open and flexible and most of all patient as we try to ascertain in what manner the key indexes are trying to wrap up their Primary Vth wave.


  1. What if we have a fourth wave triangle from a truncated 5th of 3rd as a triangle?

    1. The first wave iv of A or 1 would have overlapped in that case - which is not allowed. And if you count the downward wave as a diagonal with an overlapping fourth wave, then (in the SP500) the fifth wave is not allowed to fail. Can't have it both ways.

  2. HI Joe,

    You are the expert in EW, and as much as the question I have for you may be irrelevant to the current thread, I would appreciate your kind response.

    I am following gold (/GC), and to me it feels like the correction that started from 2011 finished a wonderful 5 waves of 'A' by end of 2015. (In fact, the 3rd wave was an exact 1.618 of 1, and 4th retraced to 1.0.)
    We are currently in a zig zag for 'B'. I am looking for what are possible values for fibonacci retracements for B in a A/B/C zig zag?

    Thanks in Advance,

    1. Hi Shiva, Common retracements for the B wave of a zigzag are 38 - 62%, but anything from 14 - 99% are allowed, provided the A wave truly did make five waves, and as long as the origin of the A wave is not exceeded during the B wave.

  3. thanks TJ, always thoughtful insights