Saturday, April 30, 2016

Go Along to Come Along

To go along with the ES count posted on April 22nd, this week I reviewed many of the charts and they are posted below.

In this first chart of the NASDAQ Composite, I originally had the thought that perhaps wave 5 was forming a 'megaphone' pattern of an expanding ending diagonal. But as the week progressed, this chart did not take on the "right look" - even though to this minute it has not technically invalidated. This revised count goes along much better with the idea of having the "right look", and the fact that the ES is currently below it's 18-day SMA, and maybe headed lower, at some point, according to the slow stochastic index.

NASDAQ Composite Index - 2 Hourly Chart - Five Waves Up

This next chart shows the NASDAQ 100 counts perfectly well as a five-wave sequence upward, also. (My database uses IUXX for the NASDAQ 100 cash index). You will also note there is no Fibonacci relationship in this wave. It is not C = A, it is not C = 0.618 x A, because that level was exceeded. In short, it is another simple impulse wave – just slightly ugly in it’s characteristics. That’s because it ‘may’ be a first wave up (yet to be proven) or it may end the movement entirely – depends on the retracement.

NASDAQ 100 Index - 2 hourly Chart - Five Waves Up

By the way – some of you may recall, the NQ futures low was on 11 Feb, but cash did not follow it lower. I have also counted the NQ, and, while slightly different, it can ‘also’ be counted as five minor waves up where 4 does not overlap 1. Also, in this chart, being below the prior wave 4, now 'validates' the idea of an ending contracting diagonal for wave 5.

The idea of ending diagonals in these charts likely means we have topped - at least for a while - and it likely coincides with "sell May and go away" - - see a small caveat below. (Remember: nothing in these charts is to be interpreted as trading or investment advice - just a recap of typical market seasonal patterns there).

Next, here is the current S&P500 cash index on a 30-minute chart. I starting count this wave down on a five minute chart, as the very first "a" wave that you see on this chart on 21 April.

SP500 30-minute Possible Expanding Leading Diagonal or 1-2-i-ii lower

That first 'a' wave down has too many overlaps in it to be part of a typical third wave lower, and so it was counted as a contracting leading diagonal, perfect in every respect, with a running flat 'b' wave to follow it, followed by a 'c' wave down. This likely counts as wave (i) of an Expanding Leading Diagonal lower. Next, there was a clear "running triangle" inside of wave (ii) which also crested at the 61.8% Fibonacci retrace level. Based on the location of the gap lower on 29 Apr, the downward wave appears to best counted as a-b-c, but that is tentative at this point. It is 'possible' the structure is developing a true 1-2-i-ii lower, but more evidence is needed for that. Regardless, the second downward sequence is now longer than the first one, and given the signature of the EWO, and the position of the slow stochastic, this 'may' indicate a diagonal in formation.

So, based on these charts what is one highly likely market scenario for the next year? Well, it's possible we had Intermediate wave (1) up - as per the ES chart chart on 22 Apr. and the above charts, as well. If (here's the caveat) the day of 2 May sees inflows from mutual funds, pension finds, 401k's, etc. and we do indeed make an Expanding Leading Diagonal lower, then it could be the Minor A wave of an A-B-C lower to Intermediate (2) over the early summer.

This 'could' be followed by a pre-election rally for Intermediate (3) higher, and a dip in late November / early December for Intermediate (4), followed by a year-end to first quarter rally for Intermediate (5) of Primary V.

I don't "know" if this will happen. As always, especially when price is hanging around prior tops, we will be both very cautious, very flexible, and very open to what the market has to say. Why? Because with these five-waves up, it is also 'possible' Primary V just ended in a slight truncation. Just look a DJIA chart to see that possibility. Either way it goes, we will be patient and diligent to the extent possible.

Cheers!

Friday, April 22, 2016

Close But No Cigar Yet

Although the Dow Jones Industrial Average came within 200 points of it's all time high, price did not exceed the top. As of today, a very good case can be made using the Elliott Wave Oscillator, that a full five-waves higher have been completed, however. With that in mind, and reviewing the daily ES chart below ..

There is ‘some’ evidence to support the case that (assuming the recent top holds) the upward wave is a ‘five count’ to Intermediate (1) of Primary V. The chart of the daily ES is below. It looks almost “too coincidental” that the 38.2% retrace and the 100-day SMA are at the exact same location. So, if price were to retrace and hold the 100-day, then it would support the view of a typical ‘extended first wave’ – which was Intermediate (1). When the first wave in a series is the extended wave, then wave (2) tends to retrace to between 23.6% and 38.2%. It is interesting that 23.6% is the wave (e) of the 4th minor wave triangle.

Further supporting this view, a Primary Vth wave ‘must’ be composed of five ‘Intermediate’ sized waves. This view presents a very ‘crisp’ and ‘clean’ approach to degree labeling which is another supporting factor for the count. If support holds at the 100-day, we will up the probability of this count from 50:50 with a full-on downward count.


Note: since an Intermediate (1) wave has ‘not’ made a new all-time high, and a 38.2% retrace could also just be a “(B)” wave, we must also allow the possibility that the ‘five waves up’ are just to Intermediate (A) of what would be a very ugly diagonal for Primary V.

Cheers and enjoy the chart!

Friday, April 15, 2016

Love Triangle

Those of you who follow the market closely know that our proposed triangle in the S&P500 and E-mini S&P futures worked out beautifully. Here is a four-hour chart of the S&P 500 cash index.

The only purpose of this chart is to show by actual measurement, that IF it turns out, we get a 5 = 1, then it does blow the lid off the market. 100% x 1 added to wave 4’s triangle (e) wave goes to 2160. I do NOT know if this will happen all in one fell swoop, the market may have another way of making it happen - like having an Intermediate (1) fall short of the high. But, I just wanted to provide the measurement. Further, this measurement uses the ‘lower’ of the two peaks, when the higher of the two peaks might be just as appropriate.


I need to emphasize, that nothing says we are going 'directly there', but we could by typical EW guidelines for the relationship between a fifth and first wave.

So, patience and flexibility remain the key - as do watching the status of various technical indicators for divergences and / or non-confirmations.

Cheers and enjoy the chart!

Saturday, April 9, 2016

Opposites Attract

In fact, Master Trader Bill Williams likes to say, all it takes to make a market is "a disagreement on value and an agreement on price". It does take opposite opinions to make a market, and so, in some detail, we would like to explain why the 'opposite' count of a triangle is a 1-2-i-ii count lower. But, we'd also like to explain why we think such is not yet the case.

Referring to chart below, some of you may know we have been thinking from the many multiple overlaps in the ES 4-hour futures that perhaps a running triangle is under construction.

ES 4-hr Future Potential Running Triangle

So before we explain the further rationale for the triangle, we want to explain the opposite case, first, and why the opposite of a triangle is 1-2-i-ii. Imagine in your mind for a moment that the top (b) is instead the highest high of the move, rather than the (b) wave of a triangle. If you label (b) as the "top", then wave a, down, becomes wave 1, in five waves, wave b, up, in three waves becomes wave 2, wave c, down in five waves becomes wave i, and a next set of upward three waves comes wave ii, up.

In other words, it is precisely because a triangle is constructed of zigzags, which are counted as 5:3:5 that if a sideways triangle breaks lower rather than higher, that an impulse down could have been started.

But, here is why we think that would be a premature conclusion at this point: If you look at the c = a leg of (c), you'll see that the c wave down couldn't even make it to exactly c = a. So, that shows some signs of not being able to make downward progress. It falls short of the 100% mark. We have seen many zigzags where c is slightly longer than a, or even c = 1.618 x a. And the question to ask is, "why doesn't this downward leg show the needed power to do some damage to the triangle pattern?". It just doesn't at this point.

Secondly, look at the slow stochastic, and what do you observe? There is a clear divergence on wave c versus wave a. Again, this is a sign of "upward" strength, not downward strength.

Thirdly, there are two patterns for extension waves that the Elliott Wave Principle describes. So, here we are taking about the i wave in 1-2-i-ii . In the first variety of extension, the wave i is 'longer' than wave 1, letting one clearly know they are in a third wave extension. In the second variety, wave i is much shorter than wave 1, and doesn't even crest beyond wave 1. This wave would seem to fit neither of those two cases, making an 'extension' wave seem less likely: not impossible, but less likely.

And lastly, while there are now clear two-bar fractals at the waves labeled as "a", and "x" at this point which 'have' been broken lower, there is also a two-bar fractal at the red triangle on the chart. This fractal has survived the downward movement, so far. Only if it breaks - along with the current c wave of (c) fractal - would it suggest that a triangle is 'not' playing out*.

Now, we have always maintained that, like diagonals, triangles are patterns which must 'prove' themselves. As the Elliott Wave Principle by Frost & Prechter states, "a triangle can not be determined until all five waves of the pattern have completed". That is the case here too. A (d) wave in the upward direction 'must' form properly, and failure to do so would likely indicate a downward resolution.

What do we mean by 'form properly'? During live chat room, we were able to determine that the (c) wave down was a perfect Fibonacci 0.764 ratio to the (b) wave, up. That means that 'most likely' a (d) wave would be a 0.764 retrace on the upward wave, targeting the 2060 level in the June futures. If that level should not be made in the next three trading sessions, then it spells trouble of some variety.

In either case, upward or downward resolution, we are about to learn something significant about the longer term market direction. From the market technical indicators, volume is now declining - which matches with an expected triangle, bullish sentiment is still just barely less than 50% bullish (49.7% bulls by our measure), and the put-call ratio is back to 0.75, not showing wild speculation at this time.

So keep that in mind as we move forward. There are still a number of legitimate Elliott Wave patterns that can play out, as described in our earlier blog posts. So being open, flexible and patient at this time remains the best posture in our opinion.

* If you are unfamiliar with fractal terminology, please go to our website at the studyofcycles.com and click on the Tutorials tab, and find the Bill Williams video labeled, "The Practical Fractal".

Thursday, April 7, 2016

Interesting -- !

I can only say, "it bounced in the right location" for a fourth wave - 4. Still it needs to hold. Whether it will is going to likely determine bear from bull count.


For those of you skilled in Elliott Wave, there appears to be an ending contracting diagonal. It 'could' be for v of 3. It could be for v of C. There simply isn't a good way to tell without further price movement. There is now, however, excellent alternation between a second wave, 2, as an expanded flat and a "sharp" or zigzag for wave 4. In short, it's not over 'till it's over.

Cheers and enjoy the chart!

Tuesday, April 5, 2016

A,B,C, Simple As 1,2,3

This is the only valid S&P count that I can find (there may be others, but I can’t find them) which puts the DOW and the S&P at the same location in the cycle, with the DOW in a third wave – of some type – either 3 or C – at the 1.618 Fibonacci expansion.

It does contain an ending diagonal – which is a big caution sign. And the DOW can be counted the same way – with the same diagonal.

The invalidation of an upward count on this chart is the overlap of 1962. It may occur. It may not. But the market should be allowed to see if there is support at the 38% retracement level. The clear alternate for 1-2-3 upward is A-B-C upward. The EWO is not even below zero yet, but should get the for a wave 4 (or more downward).

But the point to consider, is what if a wave 4 is made, then where would that put a 5 = 1? Just food for thought … until the market decides.


Cheers! And enjoy the chart!