Wednesday, December 7, 2016

There is Nothing Wrong

So, don't worry too much, because there is nothing wrong. Before I get into the discussion about the count, let me first clearly admit that Monday's post about the Dow throwing off a warning signal, while potentially correct, was wrong in the final analysis. During live chat, I once again re-iterated that a potential diagonal must form correctly in every detail, and in this case wave (v) would have to remain shorter than wave (iii). It did not. So what? I had never started a downward count, as readers can verify.

And, as Donald Trump outlined his choice to head the EPA, Crude Oil fell, the Transports rose to a new all time high, the $NYAD broke it's local divergence, and the S&P500 rose higher. I was still expecting higher prices. They got 'much' higher - and more quickly than I thought.

Now to show why nothing is really wrong, first of all, below is the updated two-weekly chart of the S&P 500 Index.

SP500 Two-Weekly Chart

As regular viewers of my video channel and  readers of this blog know from the posted Eight Fold Path methodology, I am one of the biggest proponents of a preliminary target of 5 = 1 for the fifth wave in an Elliott Wave sequence. That level is at 2,363. As you can see from the above chart, today's price action only gets us to within 78.6% of that level. But, it does indicate that level is possible.

Will the S&P actually "throw-over" it's two-weekly channel as a last hurrah? I have no way of knowing. It is speculation at this point in time, but that, too is possible. And, beyond that, it is even possible for a fifth wave to extend to 0.618 x net (1-through-3). But, we're not there yet.

I have repeatedly said and written since the end of the Primary 4th wave that I have 'no preference' as to whether this up wave completes as an impulse or a diagonal. It started out looking like a diagonal, and it may still be. Below is the diagonal possibility.

SP500 Two-Daily Diagonal Possibility

At the moment, there is nothing wrong with this count. Wave (3) is still shorter than Wave (1). Yes, we have 'blasted-off' for the moment - and somewhere within a "C" wave it 'should' feel like that. But, unlike other professional Elliott Analyst's who were screaming "top tick" I did nothing of the kind. I did not suggest we were at the ultimate top.  And I even clearly suggested we were in an Intermediate (3). Today just helps prove that we are. Will Intermediate (3) turn out to be a 'raging impulse'? That is possible.

Do, I personally like the market here? No, I have said too many times, the risk of a wrong count is going up - specifically because it takes many more points now to validate a count. And I clearly indicated another 3 - 5% up in this wave is possible. I will be more friendly to the market if there is an Intermediate (4) pull-back. But, my question is "did you go short, based on Monday's post?" If so, remember, I do not offer trading or investment advice. All I will do is re-iterate the information in my paraphrase of Ira Epstein's Trading Guidelines: he does not recommend shorting a market above the 18-day SMA : the line in the sand. Clearly, prices are still above that level. This is why he makes that recommendation.

So, for now, the reality is "we are in a wave (3), and whether it's an impulse or a diagonal we must recognize it as a wave (3)."

I have revised the hourly DOW Jones count to look like this, for the moment.

Hourly DJIA - Three Wave Count

Let me say quite clearly. I do not know that wave iii of C is over. There could be much more buying from overseas markets tonight, and even more yet on any ECB announcement tomorrow and FED announcement next week.

But from the vantage point of the Elliott Wave Oscillator, this is a particularly odd wave, as the middle section of the wave - which should have the most momentum - has the least. Further, there do appear to be two non-limiting triangles in the wave (where price goes right to the apex) which causes price to travel beyond the usual triangle target (see Neely, Mastering Elliott Wave if you have questions on this). And, it was the second triangle that was the fooler. It was a triangle, not part of a diagonal.

These things happen when you count Elliott waves and try to follow the rules. It's nothing wrong with wave theory. It's an error of pattern recognition - technically - and how a person handles it is up to them. I know how I do. I cut back and try to adjust as quickly as possible to the new paradigm. In reviewing my blog performance, however, I said the one thing I would try to concentrate on was always to provide a clear and unequivocal invalidation point based on the pattern. And, I did not do that in Monday's post, so I first apologize, and I will endeavor to do that from now on. I certainly did do that in live chat, saying that the pattern must prove itself that wave (v) remain shorter than wave (iii). When it didn't: that was that - pure and simple!

Once again, the invalidation point of Intermediate (3) of a diagonal wave is that it may not become longer than wave Intermediate (1), but I would greatly start to question this one if goes beyond 50% times wave (1) because then I would have to do some measurements to see if wave (4) could again overlap wave (1), and still remain shorter than wave (2). More on that in a future post.

Thanks for reading, and have a good evening!


  1. Well, I'll be the first one to admit that I WANTED to short based on Monday's post but not because of your warning, but because I had anticipated an upper price target of 19,318ish where the Dow Jones MUST NOT exceed in order to keep valid the potential ending diagonal.

    Had an order ready to short but after looking at the Adv/Dec ratio and the Up/Down volume ratio and VIX my mind began to wonder if that was the smart thing to do. When prices blasted through 19,320, I decided to reverse my position and go long with some DIA weekly calls and instead of losing money, I made money.

    And that is why I love Elliott Wave so much: it gives you a risk management system, as well as invalidation points that help you determine what might be the better trade.

    I also remembered what you posted on one of your previous posts dated November 15th "I Here You Knockin" where you laid out the REQUIREMENTS for a potential Ending Diagonal. Well, the same rules applied here today, so I used those rules to make a decision and I acted on it.

    Thanks again Joe!

  2. I would suggest that before everyone becomes uber bullish here, you might want to take a look at the TL that has been dominating SPX for the last 19 years. You can see this TL by connecting the 10/97 low to the 10/98 low. It acted as support for the final 2 years of the blowoff. After the top in 2000, it still acted as support in 3/01 and 4/01, but the market finally broke through it in 9/01. Then the market tried to get back above the line in 12/01, 1/02, and 3/02, but failed each time, which led to a 35% decline over the next 7 months. After the bottom in 03, the market rallied for the next 4 years, until it touched the line again in 10/07. That led to a 50% decline. Then, after the 09 low, the market rallied for 6 years, until it touched the line again in 5/15. That led to a 15% decline. Now, as of today, the line sits at 2250. It's been 15 years since SPX closed above this line on a monthly basis. Enough said...

    1. Thank you for your post. I reconstructed the line for myself, and see your observation. What you have said is accurate for a linear scale chart. (Simply doesn't work for a log scale chart, but you weren't necessarily claiming that. I'm just pointing it out.) It's also unclear why such a line would work: what is it's significance?

      But beyond that, we are also just barely nicking over a line drawn on a log chart from the 2000 top, to the 2007 top, to the 2016 top. Your observation and this one were interesting to see.

      Thanks again.

    2. Yes, the line is based on linear scale. To me, the significance is the same as any other TL. Support and resistance.

  3. How do I find your video channel?

    1. Hi. You can find my YouTube video channel at this link

      I highly recommend watch the video "A Critique of Elliott Wave for Trading" as the first video you watch. It will get all the dirty laundry out first, and then you have a clear path for reviewing some of the other videos.


  4. Hi joe
    Thank you for your article
    I hope that your monthly discount is fair
    End of Phase V
    But can it still last a while for the rise ???