Thursday, November 3, 2016

Cash below 2189 Violates Diagonals

So, the diagonal counts lower were holding on by a slim thread until the very last half-hour of the day. No matter. We said we could not start an upward count until or unless we got clear five-wave sequences upward. That just didn't happen in the last couple of days during live chat.

Then, in the last half-hour today, the downward diagonal possibilities were invalidated with downward waves that were too long to follow the rules. That leaves us with a clear cut case that the only valid count in cash and futures is the B wave triangle count. It is as we described for the most part. It just had a short "e" wave. But it still follows the rules in both cash and futures. First, here is the futures count.

ES Daily Futures - Contracting Triangle B Wave

So, first note that the futures made a higher high at the point labeled v, and this prevents us from counting cash as a larger expanding diagonal downward. That point would be wave two of a diagonal on cash, but if v made the higher high, it simply can not be a second wave. Whereas, the futures triangle above does follow all the rules. And during live chat I specifically remarked how I could not say how long the (e) wave would be - and that was the specific reason why we tried the experiment on the 2 hr. cash chart shown on the prior posts. The experiment didn't work out. But the triangle did.

Secondly, note that the futures do not have a lower low on October 13th - like cash does! That actually prevents the futures from being counted like that potential cash diagonal.

So, here is the updated triangle on cash.

SP500 Daily - Barrier Triangle

As I've said before, risk in wave-counting has gone up! And, while I must apologize for the quick turn-around in the count, we have to follow the rules. Period. Welcome to B waves, and diagonals and triangles!

There is now the potential of a measured move, lower, shown by the second blue arrow that could go down (with backing-and-filling) to fill the 2040 gap.

Often, a market turn will occur near the apex of a triangle, and price is not yet near that apex. There is still no sign of an upward turn  - even though by several measures downward movement is getting stretched. The daily ES is now three-days below the lower Bollinger Band, the slow stochastic is now the second day into over-sold territory, but it has not embedded yet. So, a bounce could occur at any time.

But, again, it is not likely we will resume upward counts until price is back above wave (e) of the triangle.

While I hope this helps, I will provide a reminder of a "Payroll Friday" tomorrow and the volatility that tends to bring.

Cheers!

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