Saturday, July 30, 2016

Same Page

We're sure you know the expression that if you lock ten Elliott analysts in a room, they will develop ten different wave counts. Certainly that was true before the Primary Vth wave asserted itself upward, and a number of bearish analysts refused to consider higher counts: it was a classic case of their 'predisposition' affecting their market judgement as the $NYAD (NYSE Advance/Decline Line) rose to new highs before price did, and they did not take heed of the implications of such. Further, there was the outright refusal of the Federal Reserve to reverse policy and implement interest rate hikes in the face of every excuse they could dream up, like the Brexit vote, and now the desire not to disrupt U.S. elections in November. But, like it or not, admit it or not, most analysts now know where we are in the cycle.

Regardless, we are 'now' getting to place where more caution in wave counting is due. Based on the two charts below, we are pretty clear that a "running triangle" did take place in the US Equity markets. The triangle looks a bit 'odd' in the cash chart, but there is nothing wrong with it. We called for wave e of the triangle to retrace back down over wave 3 - during real time charting, and it did that to validate the running triangle. Further, we noted that the c wave of the triangle was the complex wave. It formed a triple zigzag, in fact, and we said that no wave could then be lower than the c wave and thus maintain the triangle (a triple zigzag is the maximum level of complexity for a sharp series). And that call turned out to be an especially good one.

Running Triangle in the S&P500 Cash Chart - 30-Minute

Further, if you follow Glenn Neely's work on triangles, which I do, a wave e should never land 'exactly' on the wave a-to-c trend line, and this one didn't - picture perfect. Those of you following the market during the week know how the Elliott Wave Oscillator went 'dead sideways' for this move swinging only tiny fractions above and below the zero line : a dead give-away for a triangle.

Here is the ES 2-hour chart, and for those of you more fanatical about the "right look" or trend line adherence, the futures chart has it! In fact, it was this chart that told me to look for this triangle in the cash chart. (Yes, 120 minute in futures often generates the same as the 30-minute chart in cash : a little trick if you didn't know it before.)

Running Triangle in ES Futures - 2 Hr Chart

So, the typical target for a running triangle is to add the widest width of the triangle to 1) the low the e wave, or 2) to the breakout point of the triangle. We will allow you to perform this exercise as a reminder to you of typical triangle targets. Meanwhile there are several aspects of this upward count we want to note.

First, a triangle always sounds a cautionary note, because they usually appear just before the last full wave up in a wave set. This one forms quite a "base" so it might well support the typical thrust out the triangle. Cash has already made a new high above it's b wave. Futures have not yet.

Second, the DOW has not yet made a new high as the S&P500 has. If you followed the markets in the last two weeks, you know the high tech sectors - the $NDX, and $RUT are currently in the lead. So, it stands to reason that the high tech components pricing is spilling over more into the S&P500 average than it is in the DJIA (which primarily has AAPL). So, the DOW has two options: it may join the party and establish a relative new high, or the DOW may be telling us that the usual alternate for a triangle - which is a FLAT - is still forming.

That is the reason that on the futures chart, we have included a Fibonacci ruler showing that a 1.382 x extension of the a wave would be at the 2177.50 level. If the DOW refuses to make a new high, one might watch this level in the S&P to see if only a flat is forming instead. If this level is exceeded in the S&P500, then one might expect the DOW to make that higher high. If not, an expanded flat is still 'possible' as a very good alternate for this count. The objective of the expanded flat would be to allow the DOW and other indexes to make a 38% retracement of it's third wave, instead of the current 23.6%.

Friday's action saw the after-hours futures tack on three additional points over cash, and it is the first day of the month which often sees in-flows from pension plans, 401k's, and company bonuses, so if there is a gap up on Monday it would not be a surprise.

In terms of the overall count, it is again worthwhile saying that we can still be in either an impulse or diagonal count, as shown by the updated chart below.

SP500 - Daily - Impulse or Diagonal Still Possible
So, we can see it is possible to count the upward wave since the late June lows as a five-wave sequence (the DJIA would have made it's five-wave up at an earlier location), and this may be the C wave of Intermediate (1), yet, if in a diagonal, or it may be just minor 1 of Intermediate (3) if in the Impulse Count.

Just to be clear A, B and what would be C forming now would be Intermediate (1) of a diagonal, whereas in the Impulse count, the April high is Intermediate (1), already, and the June low is Intermediate (2), already, and the July up wave is minor 1 of Intermediate 3.

Two eventual clues may help decide how this plays out.

First, does price hit the upper Bollinger Band, or not? If so, that is a sign of strength. If not, it will be taken as a sign of weakness.

And second is the eventual level of the Elliott Wave Oscillator (EWO). Does it break the current divergence seen in the chart? If so, that will provide more likelihood of an eventual Intermediate (3) wave in progress now. If not, it may very well indicate that a diagonal is in progress.

Remember, we maintain complete freedom to adjust the tentative diagonal trend lines, as seen fit in the future, because a diagonal is trend line is not determined except by it's waves (1) & (3), and (2) & (4), and these waves haven't even formed yet.

Why do we think all upward movement may not end right here? After all it is 'technically possible' to count five waves up from the February 1810 low:  1947, 1891, 2111, 1992, and 2177. Well, we are calling this month's structure a "running triangle", so far. And just like the March-April running triangle shown on this very same chart, that higher b wave in the triangle is still "bullish". Until we see a "regular" and not a "running" triangle, we must assess market conditions as stronger, rather than weaker.

And, then again, that $NYAD line is still making new all time highs, and not diverging, yet. It's hard to call for a bear market, when this is the case.

Saturday, July 23, 2016

Yearly Historical Dow & The Perpetual Money Machine

Below is the chart that made be count the current up move in the US Equity Indexes as Primary Five, or P5. This chart remains the count until it can be proved otherwise. Why? First, the chart made an accurate prediction. Second, the chart showed the counts of Elliott Wave International, and a number of other casual web wave-counters to be entirely incorrect. This was demonstrated recently with new higher highs in the cash S&P500 and Dow Jones Industrials. And, third, and most importantly, the chart's theory is simple and elegant.

Dow Jones Industrial Average Yearly

What is that theory? It is, "That Elliott's Guideline of Parallels has not yet been tested at the SuperCycle degree, and it should be."

You will note that if you draw a line from the 1929 Peak labeled SuperCycle 1, through Primary 3 of Cycle 5 (C5), and place a parallel copy on the low of SuperCycle 2, there has never been a wave that retraces down to the lower parallel Elliott Trend channel to Indicate a SuperCycle 4.  Some day there will be.

For now, though, we are satisfied with the prediction of the higher highs. And while some analysts did not even predict these higher highs, even predicting bear-markets instead, 'now' they are showing some 'Super Bullish' counts based on - well on the kinds of mistakes they have made before. They did not take the risk of saying, "we are likely going up in Primary 5 based on their count from the February 2016, low", but now, they want you believe that they really have a handle on equity prices with their new super-bullish alternatives.

For our part, we are just trying to complete the count on a Primary 5th wave in satisfactory fashion. As we have said before, there needs to be five waves up in a diagonal or in an impulse. We have no preference as to which forms but will try to alert our readers when it becomes more clear.

Why are we clear that the up move from the 1929 low is SuperCycle three? That is because of two of Elliott's guidelines:

  • The longest and strongest wave is usually the third wave, and, 
  • The third wave shows the greatest volume

Short & simple! And, both of those are true of SuperCycle 3, although a well-recognized concern for Primary 5 was that volume was tapering off badly. To us, it is exactly that decreasing volume which indicates the characteristic of a fifth wave.

No, as much as some central banks and some analysts apparently want you to believe now, we do not subscribe to "The Perpetual Money Machine" philosophy. It is "NOW" that interest rates are near zero or even negative for some instruments. It is "NOW" that new all-time highs are just being seen in many equity indexes. It is "NOW" that demographics will play increasing havoc with demand. It is "NOW" that politics is more split than ever. It is these types of conditions that will prevail more as the "rot beneath the surface" at a stock market top, than they did when Wall Street was gripped by financial fear at the 2009 stock market bottom.

We think at some point in the near future, the "Magic Money Machine" will slam squarely in the face of another economic law: the Law of Diminishing Returns. The more the Central Banks try to pump, the more they will be met with a desire to be free of them. Just consider Brexit - what is the message? We don't want to be part of centralize economic planning! Backfire # 1. There is more to come.

For the present, we will count the up wave covered in our past posts - until we can count "five up". This wave already has some worrisome signs. We will cover those on a post on Monday. But after that a likely correction will begin - and the only question is the degree.

P.S. After seeing how the authors of certain website handled their recent incorrect views, and the sudden reversal in their current "world view", I will not be 'applying' to any web-sites for permission to post anything. It is too hard to try to counteract their constant and consistent negativity and apparent need to be correct - even though my viewpoint offered their readers the best view of the May 2015 top, the February 2016 bottom, and the recent higher highs in the market.

Thursday, July 21, 2016

Clutching at Straws

So, from the posts below, you know that we can currently count the Privary Vth wave as either an impulse or a diagonal upward if we use the daily charts. There is one way to count the up move (using the futures, as below) that says that the upward wave is now over - that it ended in the triangle and ending diagonal, upward shown on the hourly futures. The 'only' problem with that count is that wave C fell two ticks short of making wave (5) longer than wave (3), as should have happened in a diagonal. That might be OK, if this up wave has terminated at yesterday's high.

Yet, using the hourly cash chart, and The Eight Fold Path methodology, we can see one "last gasp" bullish chart that we must at least "consider" as a viable alternate. That chart is below.

Figure 1 - Last Gasp Bullish Alternate for the Hourly S&P500 Index

So, with 117 hourly bars currently on the chart, it is 'possible' to see an impulse still in progress. We do have four waves on either side of the EMA-34 which has good form and proportion, but there are problems with this wave when compared to the ideal Eight Fold Path methodology. First, we do not have wave iii (circle iii) on a maximum of the Elliott Wave Oscillator. In short, the wave has "turned to the right", and shows poor momentum. That has been characteristic of many waves in this bull market, and while we expected that, this is one of the first waves in which wave iii would not have even reached equality with wave i.

Below is a chart of the SP500 5-min cash index. As the wave is shown, wave i (circle i) is a very nice expanding leading diagonal off of the top. We know that it is because there is more than a 1.618 extension wave that follows it. In fact, wave iii (circle iii) is 2.618 times wave i (circle i).

Figure 2 - Cash S&P 500 Index 5-minute Chart of Today's Down Wave

At present, there "is" alternation in the price pattern. Wave ii (circle ii) starts out with only three waves up to (w) in a deep retrace of the diagonal - as should be expected - and then, there is a 90% wave down to (x) which makes the overall sequences a "FLAT" or "sideways" wave. Then, there is a clear three waves up to (y) of ii (circle ii) in a very slight truncation - indicative of the long, high momentum drop to follow. Then, as it currently stands, wave iv (circle iv) is currently as sharp or zigzag wave which would provide the alternation - provided the wave ends in this area.

We have seen fourth waves like this wiped out by spikes higher on news or overnight futures movements, so all we can say is "IF" there is a non-overlapping wave iv (circle iv) - which by virtue of alternation should be the sharp, shown, or morph into a triangle - not shown - that is followed by a clean fifth wave down, then we would likely have a true impulse lower.

If the fifth wave down does not occur, the odds of the count in Figure 1 increase. If it does occur, then the odds of a continued correction begin to take the lead. Right now the odds are about 45:55, continued impulse higher, versus continued impulse, lower. Tomorrow's opening range will be key.

It is not yet worth going through the multiple Primary V scenarios higher (for impulses or diagonals) at least until we see if the impulse downward completes in satisfactory fashion. Stay tuned, it's getting interesting out there. It is worth noting that the Whilshire 5000 Index, did make a new all time high yesterday - further validating Primary V, but the $NYA and the $RUT have not yet.

Hourly Futures - 07/21/2016

Here is how the hourly Triangle worked out in the ES futures in the final analysis. The triangle itself ended in an Ending Expanding Diagonal, C wave of (E), with the required overlap of wave (0), and the thrust out of the triangle occurred in five non-overlapping waves in cash, and five overlapping waves in the futures in the form of an ending expanding diagonal. Since that time, there has been a new swing low, and price is being monitored to see if it can make a 1.618 extension, lower.

Running Triangle in ES Hourly Futures, and Five-Wave Thrust Out of Triangle

As we have said before, this triangle 'can' end the upward movement of this wave set in that it would be the final correction before 'the last wave up dead-ahead'. And certainly the presence of a 3:3:3:3:3 Ending Expanding Diagonal in the futures is quite ominous. Technically, wave (5) did not fail to make a new high above wave (B), and neither did it fail to make a new high beyond wave (3) of the diagonal.

Also, the DOW and the S&P made new highs above their respective prior (B) waves, and the Wilshire 5000 yesterday made a new all-time high, joining the indexes that are expressing the Primary V sequence.

However, wave (5) did fail to exceed the length of wave (3) by two ticks - we think that is a reasonable error at this point - given the historically highest level of stock prices 'ever' and the strained sentiment. Still, for something meaningful lower, prices would (and should) accelerate lower from here.

Let's see how things progress. It does appear we are in a correction "of some degree". We need to see if price will start 'impulsing lower' for a larger wave set, or whether they will only slowly decline in another corrective wave.

Tuesday, July 19, 2016

Hourly Futures - 07/19/2016

Here is how the proposed fourth wave "running triangle" is working out in the hourly futures. It is "picture perfect" as regards to it's current trend lines. The spike down to 2143 (futures) made the (C) wave of the triangle on the attempted Turkish coup in the after-hours. (More text below chart.)

Already Validated Fourth Wave "Running Triangle"

As many of you know, in order for a "running triangle" to be validated, the (E) must cross down back below the prior 3rd wave, which is shown in this chart as the (0) origin of the triangle. This agrees with the same location as wave 3 on the cash chart. So, this triangle has 'already' been validated by virtue of the (E) wave already having crossed down below (0), but another wave down would provide even a "better look" to the triangle.

This is partly what is meant by the triangle forming properly in every detail. But the other portion of that is the time signature of the triangle. Note that the (A) wave is the shortest in time, and every other wave of the triangle is longer in time. This is the most common way triangles form, they "take up time".

We need to note that the (C) wave lower on the cash chart was nowhere near as deep, and so on the S&P500 30-minute cash chart, while nothing is invalid with that triangle at this time, it does have a rather "weird" look to it, and could require more downward movement.

Friday, July 15, 2016

Half-Hourly Chart - 7/15/2016

Here's the continuation of the half-hourly chart in the previous post. It is 'possible' to see the fourth wave as a very large "running triangle" which was kicked-off by the Bank of England announcement of, well, "nothing", or "maybe something in August". This chart is the same as the NinjaTrader chart below, just done in MotiveWave, and with a slightly different style of letters and numbers for ease of reading.

Continuation of S&P500 Index Count from the July 6th Low
As posted previously, I have no issues with the triangle "walking outside" of the trend channel, because that is what triangles do, usually on lighter volume. You can note several things.

  1. The positions of waves 1 & 3 have not changed.
  2. The Elliott Wave Oscillator is again approaching the zero line indicative of fourth waves
  3. It is 'possible' for the triangle to expand once (see note below).
Note if the triangle expands once

The current triangle is quite narrow although it is symmetrical. There is a possibility that the wave marked c down, is just -a of c, and the wave marked d is just -b of c. Then, there would be a -c of c lower, possibility on a gap on Monday. That would be perfectly fine with this count. There is no reason a c wave can't fill the gap made by the Bank of England b wave. If that happens, then look for a further d and e wave later in the week.

However, we want to note that if this wave is a triangle, it MUST form properly in every detail. And, if it does, it may indicate, "last wave dead ahead" in this particular wave sequence.

Regardless, we are still counting upward until we can not.

Tuesday, July 12, 2016

Half-Hourly Chart - 7/12/2106

Here is a continuation of the half-hourly count which sees the July 6th low as the fourth wave up of this impulse - from the S&P half-hourly chart. This chart was constructed using the ES E-mini S&P futures (regular session only) but the count is identical to cash.

Half-Hourly Count E-Mini ES S&P Futures

There are three reasons for this count, and they are quite simple.
  1. Wave -iii is located at the 2.618 Fibonacci extension, or just slightly beyond it
  2. Price late in the afternoon traded down below the red line of the alligator indicator
  3. The Elliott Wave Oscillator (EWO) is diverging
Together, they up the odds to about 70:30 that a four wave lower is now in progress which should retrace around 38% of wave -iii (limits 23% - 50% of wave -iii).

Since wave -ii was a clear flat, as was recognized in real time, then, wave -iv 'should' be a clear sharp (zigzag) or triangle to provide alternation. Wave -iv should try to attack the lower channel line, and it is ok, particularly if wave -iv turns out to be a triangle, for it to break the lower channel line significantly before wave -v resumes in the upward direction.

There are never any guarantees, and price would have to overlap the -b wave for the count to be considered in trouble. For the present, we are counting 'upward' until we can not.

Monday, July 11, 2016

Today is 7-11 ! A day for me that will always be known as Primary Five Day

Some people not familiar with Elliott Wave work will wonder what all the fuss is about. But those of us familiar with Elliott Wave will recall that a major Elliott Wave service had predicted that the years 2007 - 2009 were the start of the equivalent of Armageddon in the financial markets. And while those years were, indeed, very bad years for financial assets, this same Elliott Wave service had predicted that this deterioration would continue in the form of a "three-wave" primary b wave higher that would eventually lead the markets lower in a new five wave sequence lower of unparalleled destruction.

Today marks the day when, instead of the three-wave sequence upward, a five-wave sequence was made "instead". The chart below shows that five-wave sequence.

With Today's Higher High Primary V is Now Validated
This is of some consequence, because it is further validation of my paraphrase of the Bill Williams method of counting the Elliot Wave. This method has been detailed in the posts below entitled, "The Eight-Fold Path to Counting an Impulse Wave", and the chart above shows each one of those steps carried out without fuss and bother on the two-weekly chart of the S&P500. Why the two-weekly chart? Because the very first step is, "To chose the time-frame for which 120 - 160 candles fits 'the wave of interest'." If you are not familiar with this method, yet, you can read about it at this LINK.

There are several reasons why we think stock prices have carried this far:
  1. The Federal Reserve's low interest rate policy
  2. From 2009, a Fibonacci eight (8) years would be 2017
  3. That SuperCycle III is the longest and strongest movement in U.S. Equity prices
  4. That even if the public is not buying wildly, banks can buy stocks with parked funds
  5. And companies are re-purchasing their shares with low-interest debt.
Regardless of the reasons, the fundamentals are incorporated in the price changes so far, and the psychology of their application in the market is what makes the Elliott Wave above.

Friday, July 8, 2016

Take Your Pick : Impulse or Diagonal

This post puts some more 'meat on the bones' of the potential contracting Ending Diagonal Count for Primary V, now that the Brexit highs have been surpassed. It is one of only two possibilities for how Primary V can end. It can end in an impulse or it can end in a diagonal

Below is the chart of the contracting shape of Diagonal.

Potential Ending Contracting Diagonal for Primary V
For the diagonal to form instead of the impulse, then all the requirements must be met, including the fact that Intermediate (1) ‘must’ make a new all time high to show it’s ‘motive’ character. Then, all the other requirements of a diagonal must be met, as well:

The lengths must measure such that (5) is shorter than (3), and (3) is shorter than (1), and (4) is shorter than (2). Furthermore, wave (4) must overlap wave (1), and all the three-wave sequences 'must' be countable as zigzags - or multiple zigzags - only.

We'll see how it plays out. So far, the needed high of 2135 for Intermediate (1) has not occurred, but prices got to within 5 points of that level on Friday.