Saturday, October 22, 2016

Pattern Predicts - Not Me

If it hasn't become clear through this site, yet, I try to use Elliott Wave patterns to 'predict' what will happen next in the market. That is distinct from sites who say things like, "well if the market goes down, it could keep going down.", or, "if up movement is going to occur, it needs to get started now", and then it doesn't, of course. It's hard for me to see what good that does readers.

I like all of the Elliott Wave patterns, including impulse waves. And, yet, when one doesn't see clear impulses one must try to assess what the pattern really is.

In our last post we showed you the 'numerous' diagonal patterns in the market, and indicated the predictions that they made and whether they had come to pass. They did. And, unfortunately, we're going to show you one more - this one near the end of the day on Friday. We had showed you the end of the day on Thursday in the previous post. You'll also note we had showed wave 5 as the exact low of the day in that post. Who else does that? The SP500 5-minute chart is below.

SP500 5-Minute Chart on Friday

If the downward wave we showed in the last post was indeed a true diagonal, then it would have had the propensity (not the requirement) to be deeply retraced. And you can clearly see how deeply the pattern has been retraced. Another prediction comes to pass.

Further, during live chat I compared the up channel from Friday morning with the up channel from Thursday morning, and I noted,  "how the corrective waves in Friday's channel couldn't even pop above the upper channel lines, like the corrective waves from Thursday's up channel". Look closely at this. When prices exited the channel to the down side it was clear there was some kind of loss of momentum.

When price again crossed upward over the wave marked as circle-iii, in a failed attempt to recapture the up channel shown, it was a trader in the live chat room named GummyBear, not me, who had the observation that maybe the C wave was forming another diagonal - this time an expanding one! Based on the divergence shown in the Elliott Wave Oscillator, I agreed to count out that wave. And, what do we have? Wave v is longer than wave iii, wave iii is longer than wave i, wave iv is longer than wave ii but does not travel below it, wave iv overlaps wave i, and they are all three-wave zigzag sequences.

Some of you will recognize the expanding diagonal by another name, the dreaded Megaphone pattern. This is not a pattern I was hoping for, but there it is. Further, the result of this pattern as you can see from the Fibonacci ruler is an exact C = A wave sequence upward to a deep retrace shortly before the close .

During the closing sequence, we then got what looks like five waves down, and a smaller three-waves up. Based on the C = A relationship, a potential further expanding diagonal, I then reduced my wave-counting stop from 2149 to 2144.50, cash. That is simply the result of what a C = A, followed by five-down means. If the top of the pattern holds, then we continue lower. If the top of the pattern doesn't hold then we have counted something that doesn't exist in fact, and is part of a larger pattern.

While I don't know what will happen, the ending diagonal pattern says that the start of the pattern should be exceeded lower. That means the point marked as B should be exceeded lower in the upcoming days - and possibly much more than that. Again, that's what the pattern says, and that is the pure purpose in counting waves.

All that can be said is by the close the pattern wasn't exceeded to the upside, and those trying to act on evidence rather than ego have to ask, "why not?". We have to reason from what we don't see, as well as what we do see. Just like Sherlock Holmes in the Hounds of Baskerville, "why didn't the dogs bark?"

So, just for clarity, here is the count on the larger potential diagonal downward.

SP500 30-Minute Larger Contracting Diagonal

The fact is the market is now actually in the best position to make the sub-minuet wave iii of the minuet (c) wave of minute iii (circle iii), lower. A gap down on Monday would largely solidify that possibility. For now, we can only note that price is traveling down the upper trend line of the pattern, and we note how remarkable this is. For all these reasons upward movement is not expected, and almost any upward movement in the cash market would cause us to re-evaluate the count.

In fact, in the evaluations of alternates, we must prepare you for one other possibility - and that is a downward one, not an upward one. What IF we have misjudged wave minute i (circle i) lower, and it is really a 'five' and not a 'three'. We know that in a contracting diagonal wave iii must be shorter than wave i. So, if minute iii (circle iii) becomes any longer than minute i (circle i), we will know at that instance that we are dealing with a full-on impulse down, and not a contracting diagonal.

Time will tell, but Monday has the power to clarify much in this wave count! Enjoy your weekend.

13 comments:

  1. Thankyou, Joe, your analysis of the patterns, they make a lot sense. You are correct no one gives the predictive quality that you provide. It is one thing to tell us what just happened, do not see very much "what is next" or what are the possibilities. I also appreciate following your counting and educating us on EW theory too. I get a lot out of your your updates.

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  2. Joe, you have the BEST EW analysis, hands down. I've been at the other sites and it's ridiculous. Your analysis is clear and precise and flexible and I've used it to make very profitable trades. Most of all, I am learning to do my own analysis through your teachings. Thank you!

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  3. Joe, you have the BEST EW analysis, hands down. I've been at the other sites and it's ridiculous. Your analysis is clear and precise and flexible and I've used it to make very profitable trades. Most of all, I am learning to do my own analysis through your teachings. Thank you!

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  4. After a 5 days-vacation it felt very good to read your analysis again. As always, very educative! Thanks Joe.

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  5. Nice analysis! However, it looks like the count will be invalidated at the open

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    1. As I stated last week, the probability of having a diagonal unfold from a triangle was very low. They both are not 'common' structures so by default it's a very low probability. probably heading to 2175-2185 first

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  6. Excellent explanation of the thought process that goes into counting waves and the ramifications of what to expect the market to do next IF the presumed count is the actual count. However, the overnight price movement has completely invalidated the presumed count, which points out the "issues" associated with counting waves. The fact of the matter is that the market can and will do whatever it wants, whenever it wants. Add in the fact that no matter what the markets does, "there is always a count for that," and one quickly understands that you always need to be aware of what OTHER valid counts currently exist that point in the OPPOSITE direction of the presumed count. The same detailed analysis has to always be done with those alternate counts at the same time as the presumed count, or else a trader will be doomed to failure.

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    1. There is more detail on the best alternates at this time on Monday's post. Hope it helps. Btw, I am not a proponent of "pre-destination". That is - just because a wave is counted one way - does not mean it's prediction has to come to pass. Wave counting is only and always an exercise in odds. That's why a close stop was posted.

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  7. How does one join the chat room?

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    1. Send me an email at Elliott_Trader@yahoo.com and I'll forward you the details.

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