Friday, December 9, 2016

Wedge Update

It's not for sure that the wedge applies, and it won't be for a few more weeks. But here is an update on the wedge count. Keep in mind, the wedge should apply because the wave Intermediate (2) pull-back is so shallow. This topic is covered in the writings of both Prechter and Neely. There is no argument between the two.

SP500 2-day Wedge Count

According to this count, Minor 1 of Intermediate Wave (3) is the extended wave in the Intermediate (3) impulse (wave Intermediate (3) must now be an impulse in this scenario). The reason Minor wave 1 is the extended wave is that the Minor wave 2 pull-back also is quite shallow ~23% or less depending on whether you use futures or cash. Keep in mind the futures have overlap between what is shown above as Minor 2, and the initial Trump rally wave of early November.

That being the case, it would be typical for Minor 3 to extend to 0.618 times the length of Minor 1. That occurs at about 2266 - 2270 on  the cash S&P. We can make an allowance for a 0.786 extension also, but in no case can Minor 3 be longer than Minor 1 in this count.

Personally, I think the 2266-70 high would fit best because then the fourth wave, Minor 4, would occur prior to the FED meeting next week. While I do think the FED will raise rates, the bond market has likely already discounted the raise with it's dramatic rise in yields. Then, you can see from the above chart, that, if Minor 4 is shallow enough, like a triangle or flat, that Minor wave 5 can easily reach the target of Intermediate Wave (3) = 0.618 x Intermediate Wave (1). Minor 5 in the above chart is drawn so that is it shorter than Minor 3, to meet all Elliott rules.

While I need to take one thing at a time here, the clear alternate (for the channel count presented yesterday) is that the 2266 - 70 level would only be minute i, of a much larger Intermediate (3). At this point in time, there is insufficient evidence for that count, but I can't rule it out.

Back to this wedge count, wave Intermediate (4) could surprise many with how deep it goes, but if it's the last wave in an impulse, it obviously can not overlap wave Intermediate (1). And, further, when we get there, the final wave Intermediate (5) could be an ending diagonal on a smaller scale. We'll see. Let's see how extensive price movement becomes.

We are still in wave Intermediate (3) until further updated. But things are beginning to get stretched. The futures now have three daily closes outside the upper Bollinger Band, and a return to inside the band will be needed in the next few days because the probability of staying outside of the band decreases with every additional day outside band without a close inside the band first. But closing inside the band does not mean that prices will decline enough to be meaningful. So, stay on guard and I'll do my best to update you in the short term.



  1. Hi TJ,
    Do you know if they provided statistical odds on a wedge because of a short wave 2?

    1. On page 11-2, of Mastering Elliott Wave, Neely says this:

      "The move that follows an Extended Wave 1 (i.e. Wave 2) can not retrace much more than 38.2% of Wave 1....Wave 2 can not be a running correction."

      The words can not are pretty specific. Prechter only says, "when" the first wave extends the second wave 'often' relates to the first by 0.382, so he only speaks in those terms.

      But I would like to add the contents of an email I received this morning.

      From: Pieter van Leeuwen
      Dec 9 at 11:03 PM

      Hope you’ll pardon the note OFF the blog, since I can’t post there. Feel free to ignore, or comment THERE as appropriate.

      But in today’s blog entry, you like the wedge and believe it should be one.

      But you have wave (3) as a five waver and not an zig zag ABC.(Perhaps 3 and 4 of (3) are i and ii of the C wave).


      This is an interesting idea I would like to give him credit for. The only issue with it is it 'might' extend the time of the bull market out past March, 2017; that's because we'd have to go through the whole Intermediate (2) and Intermediate (3) scenario again. Still, it is another plausible count.

    2. I will also add, that if you measure the futures, the futures just nicks past that 38.2% level, but certainly not most of the way to the 50% level. The measurement considers the Aug high as Intermediate (1). This seems to fit Neely's phrase of not "much more than 38.2%".

    3. Thank you for such a detailed answer, TJ.

  2. Thank you joe for your work pro

    have a nice week end

  3. Tony Caldaro having called many flip flips over the last two years, who censors his blog, now is an expert not just of EW, but 6000 years of history!

    1. I no longer submit that OEW is a helpful tool. However, Tony Caldaro's current count has validity with me, especially when I look at the monthly candles and recent strength. My current system (which is not EW) that I use was wrong on the recent strength. I don't know what's going to happen, but if we close the month strong, I think this rally could last the entire year.

    2. bravo! and do you mean the entire year of 2017? or just until the end of the year 2016?

    3. I think if we close strong again for the month, I will need to expect at least 6 more months for a new high (that includes a pullback) and potentially all or most of 2017.
      One of the puzzling reason's why I misread the strength of this rally was due to the initial poor performance (days after the election) of consumer staples, biotech, and technology. Looking back, I should have put more weight on the massive banking accumulation, as well as other sectors such as steel and continued strength in semiconductors.

  4. Tony Caldaro his count is not the same at all
    Must not mix in addition he knows already deceive more than once

  5. Whether you think TC is correct or not, the simple fact the NYAD made a new high to confirm price suggests the bull market has a ways to go. It also suggests the count posted by TJ has a low probability. TJ is a big proponent of the NYAD, but failed to mention the new high. Cheers!

    1. Please see the Dec 7th post, "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."

      If you're going to criticize, all I ask is that you be accurate about it.

  6. TJ's current wave (3) of 5 appears consistent with an NYAD new high. During wave (5) the negative divergence of the NYAD might be expected if one is to occur. I'm not aware of a hard and fast rule that says one will occur.

  7. Correct, it is not a rule. It's a game of probabilities and since almost every major cyclical top has displayed NYAD divergence, I would think this top will to. I'm not totally onboard with TC. It will be a couple of years before we know if he is correct. A divergence can take more than a year to play out like it did for the 2000 top. The best bear case I can see is this wave is int 3 of major 3 of P5 in OEW terms. This suggests the divergence will play out during M4 & M5. If M4 sees a nasty decline in NYAD, unfolds as a sideways affair in price, and takes 4-6 months...then it's possible. This might be asking too much unless Trump is a totally different president than candidate. The fact the market is slightly over 100pts from P1=P5 with NYAD making new high is not good for LT bear case.

  8. Hi ET,
    what do you think about the count of DJI on this German EW page?:

    It says we are very close to the downward movement straight to 16.500.

    Thanks for your comment.

    1. So, the expanding diagonal for Primary V is a 'plausible' count for the major US Indexes only in the DJIA and the NY Composite; not in the SP500 or the $WLSH, because of their lower lows in Feb 2016, than in Aug 2015.

      And, while intriguing, there is insufficient evidence for it as of now. It certainly fights the current momentum and, while plausible, will require an overlap of Intermediate (4) with Intermediate (1) before it could even be considered as the preferred count.

      There are easier ending patterns than this one. One very good ending pattern would be if Intermediate (4) formed a regular (not "running") triangle with an internal minor B wave that was lower, not higher, than Intermediate (3). Or, a regular zigzag for Intermediate (4), followed by a contracting or expanding ending diagonal for Intermediate (5).

      So, until then, Occam's Razor applies and we will go with the simplest of the alternatives.