Saturday, October 29, 2016

Saturday in the Park

To begin this update, four intraday charts must be shown that were provided in live chat. The first chart shows the wave (3) bottom being made with the marginal new low, as predicted from the Before the Bell post yesterday.

Figure 1 : SP500 15-Minute Wave (3) of Leading Contracting Diagonal

The next chart shows the wave (4) top being made at the 61.8% retrace level from the wave (3) low.

Figure 2 : SP500 15-Minute Wave (4) Top at the 61.8% Retrace Level

We even called that wave c an "ending diagonal" in it's entirety at the time, which meant that it's origin - the wave b low - should soon be exceeded lower.

The third chart below then shows the predicted wave (5) bottom, again with a marginal new low.

Figure 3 : SP500 15-Minute Wave (5) Bottom

So, with five-waves in a perfect diagonal formation, which we called the A wave, we were then expecting a B wave, up, and a C wave down. Here is what the chart looked like at the end of the day.

Figure 4: SP500 15-Minute Completed A-B-C

At the end of the day it was now possible to say an A-B-C pattern lower had completed for minute wave (d) of the larger daily triangle. And each wave was counted wave-for-wave in real time. The larger daily triangle is shown below on the SP500 2-day chart.

Figure 5 : Two-Day S&P 500 Count with Barrier Triangle for Minor B

Price has again come down to touch the lower triangle barrier in wave minute (d) of the Minor wave B triangle, probably to thrust out of the triangle within the next few days. Now from Figure 4, you can see that we have labeled an ALT: B still in progress. So, it is possible for price to come down in another C wave to bang on the lower triangle barrier again, but it is not required. So, let's look at the triangle in more detail.

Here is the whole triangle shown using the method of placing 120 - 160 candles on the chart. If one does so, one finds that the two-hour time frame is the correct time frame for that analysis.

Figure 6 : SP500 2-Hourly Chart of Triangle

First you can see how precisely the downward wave - counted out above - strikes the lower triangle barrier without closing below it - and that is an essential component of a barrier triangle.

Second, you can see that all of the waves, and major sub-waves, so far, wrap around the EMA-34 for form and balance.

Third, you can see that the Elliott Wave Oscillator (EWO) along the bottom forms a narrowing and constrictive pattern, a veritable triangle itself, which is indicative of the sideways price triangle.

And fourth, it leads to a prediction which we are going to test. The prediction is that, when it is ready, the minute (e) wave of the triangle will cross up and over the EMA-34, again, for form and balance in a triangle. Let's see if that comes to pass in the upcoming days, just as the prediction for a Leading Diagonal A wave did.

Again, we have never tested this hypothesis before on this time scale, so we remain open-minded and flexible as we endeavor to understand the waves in detail. The invalidation levels for the continued triangle count are 1) above wave (c), and, 2) below wave (b). Please keep in mind that the overall prediction of a barrier triangle is that only a relatively short thrust out of the triangle downward is likely. That is because the market has already expended tremendous energy banging again the lower barrier already and not getting anywhere substantial.

Hope this helps, and that we remain as patient with wave counting as we do with the political process!

Friday, October 28, 2016

Before the Bell: Three More Waves Up Yesterday

Because yesterday's higher futures opening was met with selling immediately upon the cash open, we could count only three more waves up from the 25th Oct low, although the wave we have marked as 'c' did itself count as five waves. Within the first hour, the opening gap closed, and selling essentially continued into the close. Based solely on the waves obtained, we posited this count during live chat on the SP500 15-minute chart, and it supposes that we are in a further A wave down within the daily triangle.

SP500 15-Minute Chart Only Three Waves up to (2)

The initial hour's trading did not exceed the low of the c wave on 25th Oct, so it most likely counts as an 'a' wave lower. That was followed by a three-wave rise to the 'b' wave up. Then, there are three more waves down that do travel lower than the green-dotted parallel between them. We suspect that to be a third wave lower of another 'c' wave lower which should break the low of Tuesday. If it does, even marginally, then we may have the third wave down, wave (3) of a contracting leading diagonal.

It is difficult to see what other pattern would have so many three-wave sequences. We know the futures traveled down to 2116 in the after hours, about -8 points from where they closed, and are now trading higher than where they closed. Cash would need to make a print of 2131.58 or lower to validate this pattern but remember that overall wave (3) would have to remain shorter than wave (1). The futures not only broke the equivalent low from 25th Oct, but also from 21st Oct, already!

If a marginal lower low is made, one might then look for the market to whip around higher again, and if a contracting diagonal is being made, then a potential wave (4) should be shorter than wave (2). After wave (4) - and we don't know the length - we have just sketched in some tentative trend lines to show the potential, then a wave (5) downward could finish the pattern - if it, too, occurs in three waves and makes a lower low. Remember, in Leading Diagonals the fifth wave should not fail.

Again, if these five waves occur this would be just an overall 'A' wave of the next zigzag in the daily triangle, the minute-d wave lower. The objective would be to get price down to the flat barrier on the daily chart - near 2115. Any movement above the c wave high of wave (2) would definitely invalidate the pattern.

Thursday, October 27, 2016

Before the Bell: Three Waves in Each Direction So Far

In the last post on the SP500 5-minute chart, we showed you a perfectly constructed expanding diagonal wave, now known to have been a Leading Expanding Diagonal, lower. The chart below is a slightly longer time frame - the SP500 15-minute chart, and is prior to the open of the cash market.

SP500 15-Minute Chart with Expanding Leading Diagonal

There are three purposes to showing this chart today. The first is  to show how the Expanding Leading Diagonal fits into the slightly larger picture. The second is to show that Leading Diagonals are very often in an A wave position, as this one is. The diagonal is followed by a flat b wave, and then a c wave down. And third, to state that, so far, from the 10/21 low, we have three-waves up, and now only three waves down to yesterday's low.

We now don't know whether we will get another three waves up or five waves up. That remains to be seen. The blue arrow suggests where the cash market may open from the overnight futures.

There are many patterns that can occur from a count like this, so we will remain open-minded, flexible and patient until some clarification of the count occurs.

Tuesday, October 25, 2016

Repeat After Me ...

I did not tell the market to make yet another diagonal lower. But it sure looks like it did, validated with correct wave lengths and all! Here is precisely the diagonal that was counted out in the live chat room today.

SP500 5-Minute Validated Expanding Diagonal Lower

I called for the diagonal once the last blue a wave lower was made, today. The sharp blue b wave rally then followed, as did the new lower low which crossed the 2146 level - which I stated was the minimum length for the (v)th wave of the diagonal. Following these waves, which look like an A wave down, there were lower lows which presently look like a B wave flat, the c wave of which may rise tomorrow (yet to be seen).

The diagonal has all of the proper price relationships, in that wave (v) is longer than wave (iii), wave (iii) is longer than wave (i), wave (iv) is longer than wave (ii) but does not travel above it, wave (iv) overlaps wave (i), and there are all zigzag sequences.

This diagonal caused me to slightly re-evaluate my downward count to Intermediate (2). I found a way that may make it the more likely count, and that is shown below on the two-day S&P chart. A portion of this chart - the triangle - was also presented today in the live chat room.

SP500 2-Day Chart of Intermediate (2) Lower

If you remember that the Dow did make the new low at the location of the arrow, but the S&P truncated, then it is possible the five-wave sequence up in the first three says of September is the truncated end of the C wave of Intermediate (1).

Then, if we have the minor A wave down, the triangle can be a "barrier triangle" which hasn't broken lower yet for minor wave B. And, if that is the case, we may get a very small d wave down, which likely started today, followed by an even smaller e wave up - before the triangle dumps price lower.

That is the count that fits the current scenario the best, but, as always, triangles and diagonals (like the one in the first chart) are structures that must prove themselves.

So, it is still best in my opinion to remain flexible, calm and patient as the short-term whipsaws continue.


Monday, October 24, 2016

A Tale of Two Triangles

As we had noted over the weekend, we lowered our wave-counting invalidation level to 2144.50 cash. And when that was exceeded (in the overnight by the equivalent in the futures), it told us that the small pattern on the 5-minute chart that we thought was, perhaps, an ending expanding diagonal was, in fact, somehow part of a larger pattern.

We note that volume was extremely light today, and the daily stochastic is still traveling sideways. So, that still suggests a triangle of some type in progress. There are now actually two larger potential triangles - the first one of which we have referred to before.

Daily ES - Potential (e) wave of B Wave of Intermediate (2)

This chart assumes that Intermediate wave (1) completed at the August high, and the triangle is the Minor B wave of Intermediate wave (2), lower. The objective of this count would still be to get the S&P500 cash index to overlap the 2111 high made in April of this year. This count is still 'plausible'.

So, while we note the ES overlaps the June, 2016 pre-Brexit waves at the arrows shown. We note that the ES does not yet overlap the red line and wave i, shown in the above chart. This brings about the possible idea that maybe we are still in the same wave, upward. This possibility is shown on the chart below.

Daily ES - Potential ivth wave of C of Intermediate (1)

Since there is technically no overlap at i in the S&P500, then it is possible that all of this sideways mess is still a fourth wave of C of Intermediate (1), but if so, not as likely in the Dow Jones Industrial Average. The DOW does indeed overlap at the equivalent of wave i, and so this latter count takes a back seat until or unless it can be proven. The DOW's overlap is an intra-day one and not a closing one, and on very rare occasions the Elliott Wave Principle, by Frost & Prechter says that is permissible. Another reason this count takes a back seat is that it does not have the "right look"  for one impulse wave.

Nothing either clearly rules out (1), (2), 1, 2 higher. This could be a minor wave 2, on the way to a minor wave 3 if the election is decided quickly and cleanly. Let me add that chart below - just so the possibility is clear.

Daily ES - Minor Wave 2 of Intermediate (3) Possibility

Sorry I can't be more help just yet. Apparently, more price movement is simply needed. Maybe that is why the volume is so light. Often times, the w-x-y minor 2 count precedes a strong third wave higher the way it is diagrammed in the Elliott Wave Principle.

In any event, the risk of whipsaws remains elevated, as we had noted in previous posts. Both upward and downward movement are occurring only grudgingly.

Saturday, October 22, 2016

Pattern Predicts - Not Me

If it hasn't become clear through this site, yet, I try to use Elliott Wave patterns to 'predict' what will happen next in the market. That is distinct from sites who say things like, "well if the market goes down, it could keep going down.", or, "if up movement is going to occur, it needs to get started now", and then it doesn't, of course. It's hard for me to see what good that does readers.

I like all of the Elliott Wave patterns, including impulse waves. And, yet, when one doesn't see clear impulses one must try to assess what the pattern really is.

In our last post we showed you the 'numerous' diagonal patterns in the market, and indicated the predictions that they made and whether they had come to pass. They did. And, unfortunately, we're going to show you one more - this one near the end of the day on Friday. We had showed you the end of the day on Thursday in the previous post. You'll also note we had showed wave 5 as the exact low of the day in that post. Who else does that? The SP500 5-minute chart is below.

SP500 5-Minute Chart on Friday

If the downward wave we showed in the last post was indeed a true diagonal, then it would have had the propensity (not the requirement) to be deeply retraced. And you can clearly see how deeply the pattern has been retraced. Another prediction comes to pass.

Further, during live chat I compared the up channel from Friday morning with the up channel from Thursday morning, and I noted,  "how the corrective waves in Friday's channel couldn't even pop above the upper channel lines, like the corrective waves from Thursday's up channel". Look closely at this. When prices exited the channel to the down side it was clear there was some kind of loss of momentum.

When price again crossed upward over the wave marked as circle-iii, in a failed attempt to recapture the up channel shown, it was a trader in the live chat room named GummyBear, not me, who had the observation that maybe the C wave was forming another diagonal - this time an expanding one! Based on the divergence shown in the Elliott Wave Oscillator, I agreed to count out that wave. And, what do we have? Wave v is longer than wave iii, wave iii is longer than wave i, wave iv is longer than wave ii but does not travel below it, wave iv overlaps wave i, and they are all three-wave zigzag sequences.

Some of you will recognize the expanding diagonal by another name, the dreaded Megaphone pattern. This is not a pattern I was hoping for, but there it is. Further, the result of this pattern as you can see from the Fibonacci ruler is an exact C = A wave sequence upward to a deep retrace shortly before the close .

During the closing sequence, we then got what looks like five waves down, and a smaller three-waves up. Based on the C = A relationship, a potential further expanding diagonal, I then reduced my wave-counting stop from 2149 to 2144.50, cash. That is simply the result of what a C = A, followed by five-down means. If the top of the pattern holds, then we continue lower. If the top of the pattern doesn't hold then we have counted something that doesn't exist in fact, and is part of a larger pattern.

While I don't know what will happen, the ending diagonal pattern says that the start of the pattern should be exceeded lower. That means the point marked as B should be exceeded lower in the upcoming days - and possibly much more than that. Again, that's what the pattern says, and that is the pure purpose in counting waves.

All that can be said is by the close the pattern wasn't exceeded to the upside, and those trying to act on evidence rather than ego have to ask, "why not?". We have to reason from what we don't see, as well as what we do see. Just like Sherlock Holmes in the Hounds of Baskerville, "why didn't the dogs bark?"

So, just for clarity, here is the count on the larger potential diagonal downward.

SP500 30-Minute Larger Contracting Diagonal

The fact is the market is now actually in the best position to make the sub-minuet wave iii of the minuet (c) wave of minute iii (circle iii), lower. A gap down on Monday would largely solidify that possibility. For now, we can only note that price is traveling down the upper trend line of the pattern, and we note how remarkable this is. For all these reasons upward movement is not expected, and almost any upward movement in the cash market would cause us to re-evaluate the count.

In fact, in the evaluations of alternates, we must prepare you for one other possibility - and that is a downward one, not an upward one. What IF we have misjudged wave minute i (circle i) lower, and it is really a 'five' and not a 'three'. We know that in a contracting diagonal wave iii must be shorter than wave i. So, if minute iii (circle iii) becomes any longer than minute i (circle i), we will know at that instance that we are dealing with a full-on impulse down, and not a contracting diagonal.

Time will tell, but Monday has the power to clarify much in this wave count! Enjoy your weekend.

Friday, October 21, 2016

Good Grief!

I know that Charlie Brown of Peanuts fame would probably use an expression like this to describe what is currently going on. There are a number of you who are (to say the very least) skeptical of diagonals and triangles in waves. That's why I'm posting this chart in near real time to show you the counts that have been presented in live chat, and some of the predictions that have resulted.

First, over to the left of the five-minute S&P 500 chart, we even blogged on here that we had found an ending contracting diagonal on the five minute chart. The contracting ending diagonal is perfect in every aspect. Wave (5) is shorter than wave (3). Wave (3) is shorter than wave (1). Wave (4) is shorter than wave (2) and overlaps wave (1). Each wave is a zigzag, and there is the characteristic throw-over of the wave (1)-to-(3) trend line by wave (5). Try to study this formation. You will learn a lot from it.

SP500 5-Minute Chart : Three Diagonals
So, on Wednesday the 19th Oct, that diagonal led me to predict in live chat that "the origin of the diagonal, the point noted as 0 should be exceeded lower no later than noon on 20th Oct." It was in the opening hour of Thursday's trade. Then, the wave was retraced to a very large degree, and, rather than forming a parallel, looked like to me to be another diagonal. But this one would be an expanding diagonal of the 5:3:5:3:5 variety. And, it too, formed to perfection in every detail. You see, these two diagonals taken together can represent what some see as either "Butterfly or Gartley" patterns when the market is looked at through those lenses.

After the expanding diagonal formed at (5), with wave (5) longer than wave (3), wave (3) longer than wave (1), wave (4) longer than wave (2), and wave (4) overlapping wave (1), then a deep retrace was likely. Once we had gotten the five waves up to the (A) wave, then I clearly stated, "Five waves up are detected. Another pop is probable". And, shortly thereafter, the strong (C) wave up began, and retraced right to the upper descending trend line of the diagonal and the 78.6% deep retrace level.

So, next, after having drawn in the channel for the upward zigzag wave sequence, when the lower upper rising channel line was broken and the red triangle (denoting the fractal at that location) was exceeded lower, then I resumed the downward count. This is what led me to conclude in last night's blog post that, referring to the SP500 30-minute contracting diagonal, lower, "At this very moment there is no reason to abandon the count."

Further, at the end of the day yesterday, I started yet another diagonal downward due to the again overlapping waves, and the three-wave sequences, and look how this diagonal completed in perfect form this morning!

Yes! You don't often see this. Yes! It is rare. But it is guaranteed you won't see it if your Elliotician is not looking for it, or if you, yourself, are not disposed to look for triangles and / or their cousins, the diagonal, where they can be.

The point of this post is not to toot our horn. One purpose of it is to show you how diagonals and triangles have such exacting internal requirements that they can help the Elliott analyst set clear and unequivocal  invalidation points - just as we have in the last many posts. Another purpose is to help "shake loose" the Elliott Wave cob-webs that some people have - which have become so thick as to literally put blinders on them when it comes to wave counting. But, yet another purpose, is precisely to show how waves can form. After the initial expanding diagonal which we called the (a) wave down in last night's post, there is now yet another expanding diagonal, lower, which is probably the first wave of the (c) wave of minute iii (circle iii). And, still, the diagonal provides a very clear invalidation point for the downward movement in that the (C) wave high, above, at 2146, should not be exceeded higher if the count is to be correct: that is the high of the (b) wave on the SP500 30-minute chart.

Thursday, October 20, 2016

All Along the Watch Tower

So, we were expecting downward movement for today, and that's what occurred initially. First here is the continued potential diagonal, as we counted it today in live chat. Price is still following down the upper diagonal trend line quite nicely. At this very moment there is no reason to abandon the count.

SP500 30-Minute Potential Diagonal Count Still in Progress

But what happens if price surprises us in a big way to the upside in the next few days? Well, we just need to be on the watch out. Today, during live chat I showed this alternate - which I think has the best possibility of playing out in the event a large seemingly unexplained movement upward occurs.

SP500 4-hr ALTERNATE - still in a barrier triangle

Because the minute-d (circle d) wave lower did not make a new closing low, then this count would still follow the rules and guidelines for a barrier triangle. This triangle suggests it is 'possible' to pop higher in a minute-e wave (circle e). But, then, if that is the case minute-e must cross back up over the minor A wave to be corrective to it.

If any any time a four-hourly bar closes below the barrier, then a barrier triangle would likely not be the count, and something more indicative of lower prices would be. We would cover those options later - should that occur.

For now, other than keeping a close eye on things, the current diagonal count lower is acceptable. But most people will agree price is quite whippy. We will also provide that the daily moving averages are currently in the bearish configuration, with the 10-day lower than the 20-day, and the 20-day below the 50-day, as below.

SP500 Daily - Bearish Configuration of MA's

While we are getting conflicting intraday signals, today's movement was all about whipping prices about the 10-day SMA, with the close right on it.

So, patience and flexibility are still needed - especially when we can see two very clear options.


Wednesday, October 19, 2016

Right Look

While there are still no major overall changes to the count - I'm still expecting the SP500 to trade below 2111 in the next several days, during live chat today, the diagonal count was updated to be the following, even though the level of 2149 was not exceeded higher.

SP500 30-Minute Adjusted Diagonal Count for the Right Look

The only reason for this change is that it provides a potential diagonal with more of the Right Look for a diagonal. There is only the smallest of a truncation for wave minuet (c) of minute ii (circle ii), and the diagonal would have looked 'strained' if wave ii were at the 2149 level.

This count does allow the 2149 level to be exceeded slightly if the up wave to (c) of minute ii is not completed yet. But, it is very possible that it is because we counted out a very small ending contracting diagonal in perfect form on the five-minute chart to v of (c). So, I'm expecting downward movement tomorrow, overall.

Hope you understand!

Tuesday, October 18, 2016

Still No Changes

Below is the SP500 30-minute chart, which is still counting the contracting diagonal, lower, to below 2111 in the next few days.

SP500 Counting Down to a Diagonal Still

On 10/14 & 10/17 is the contracting diagonal (a) wave we referred to in yesterday's post. Measuring the (a) wave, within it you'll find that wave .v is shorter than wave .iii; wave .iii is shorter than wave .i; wave .iv is shorter than wave .ii, and wave .iv overlaps wave .i. Again, the wave follows all of the rules and guidelines for a diagonal.

Netflix earnings provided the 'pop', and the rest of the day was spent grinding (lower, I think). We have labeled the up wave as the (b) wave because, so far, it has gone nowhere, and didn't break the wave (ii), high. As a matter of fact, today looks like the deep retrace of yesterday's (a) wave diagonal, ending in the territory of it's prior wave .ii.

Late in the afternoon, we got confirmation of a lower high from the RSI (shown as the second circle), and no subsequent cross upwards as of yet.

So, tomorrow's gap direction becomes critical. If we gap down, a lower low than minute (i) would be minute (iii) of a potential diagonal. If we gap up significantly enough to cross wave minute (ii), a diagonal would formally invalidate, and we'd have to look for an alternate. Given the waves we have now, an alternate is not clear, yet.

Monday, October 17, 2016

No Changes

With today's slightly lower low that did break below the low of Thursday's (b) low, we made no changes to the overall count during live chat. We are still expecting a marginal lower cash low below S&P 2111 this week. We did however, post an internal alternate that applies only to how minute iii (circle iii) lower might form. For that alternate, we would place minuet (a) of minute iii, at today's low. This allows the possibility of yet a (b) wave up, before the (c) wave down.

The reason for placing the alternate is that it is 'possible' to count the waves from 2149 down to 2123 as a contracting leading diagonal in it's own right, following all the rules and guidelines, and we do not have a significant gap on the chart to clearly denote a third wave or a c wave.

Saturday, October 15, 2016

Isn't It a Pity?

The ES E-mini S&P futures at one point Friday were sporting a 17 point gain in the early going - only to have it erased by the futures close at 5 PM ET (not the cash close). During live chat, we counted that up movement as an ending diagonal C wave. If you're interested to see the count on this wave just as we posted it in live chat, it looked like this.

SP500 5-Minute Chart  with Ending Diagonal (c) wave of Minute ii (Circle ii)

So, it looked like we had (a), up, in five waves, then the (b) wave down, and the (c) wave up in five waves to minute ii (circle ii on the fifteen minute chart, below), followed by five more waves down.

Further our measurement on the (c) wave showed it to be 0.786 x the length of the (a) wave. While this is a little uncommon for a (c) wave, it is at a Fibonacci extension virtually to a pip. But, more importantly since fifth waves are usually 0.618 extensions, it does help avoid confusion with a fifth wave up to the high. It also just happens to match the (c) wave down of the minute wave i (circle i) earlier in the week which was 0.786 times the length of it's (a) wave, as well. I invite you to do some independent studies to verify the same. It is likely you'll marvel, as I did.

But even more importantly, we see that wave minute ii hit the projected 62% retrace level of minute i quite exactly.

If we did, in fact, have an ending contracting diagonal (c) wave upward to finish minute ii, then that means that there should not be any further price movement above it's high - at least for the next few days. You might term this a "wave-counting stop" - meaning that any price movement above Friday's high means the wave count is incorrect. This is not trading or investment advice. This is what I mean by the fact that some other Elliott analysts don't even seem to show concern for invalidation levels. But, as always, an ending diagonal is not proven until it's origin has been exceeded lower. The origin in this case is the (b) wave low of Thursday. So far, that has not happened just yet, but likely will on Monday or Tuesday.

And, as for that slightly larger time-frame picture - here is how things appeared at the end of Friday on the fifteen minute chart.

SP500 15-Minute Gap Closed in the Settlement

Because the five waves down from minute-ii did not fill the gap, we think they are the (a) wave down. Then we either have had - or are still having - the (b) wave up, to be followed by a strong (c) wave down to the likely minute-iii of a potential ending contracting diagonal for the C wave of Intermediate (2). Again, improved confidence in this count would occur if 2130, the low of Thursday's (b) wave, is exceeded to the down side.

In all, to form the larger contracting diagonal on the 15-minute chart properly, minute iii (circle iii) must be shorter in price than minute i (circle i) and would likely be shorter in time, too. This again provides another valuable invalidation point. If minute iii should become longer in price than minute i, it just means there was a flat wave instead from (a) of minute i to the high of minute ii, which would make (a), the impulse minute i count instead, and the high of minute ii still the end of minute ii (circle ii).  That is the very best alternate we can see at this point, barring an unusual surprise in the market. This is the alternate because second waves are usually zigzags (sharps) and not flats.

We are still counting downward with the short term trend because the Elliott Wave Oscillator is still below zero, red, and declining, because daily MACD and slow stochastics are still crossed lower, and because volume has been increasing on down days recently. But, even so, price excursions higher are still possible. B waves, as a class, can be difficult to count, so we can't say for sure that minuet (b) above is done. It could form a triangle or a flat wave, itself. There's really no telling - one will need to keep an eye on the overnight futures.

In the meanwhile, for true Elliott wave students: you are invited to study the (a) wave up of minute ii, (circle ii) in the five-minute chart, above. It counts as minuet i, ii, iii, iv, v - where minuet i is a perfect expanding leading diagonal that we recognized in real time. This formation at the bottom of a retracement is often a clue that a large upward wave is to follow, and it did. Next, notice that minuet iv did not overlap minuet i, and that sub-minuette wave 4 (circle 4) did not overlap it's sub-minuet wave 1 (circle 1), either. In fact, what you are looking at is the case where when wave minuet iii is only slightly longer than 100% x minuet wave i, then it is possible for wave v to be the extended wave. This is  the case, and in spades. We recognized it, and called in out in real time once the SP500 crossed 2133, the point where those nested ones and two's lower were no longer possible - as we cited in our previous blog post.

We hope this helps clarify the situation in some detail. Otherwise, have a great weekend!

Thursday, October 13, 2016

Downward Movement

We expected downward movement today, and certainly got some at the beginning of the session. However, during live chat, because of the upward overlap, we changed from an impulse count down to a diagonal count down, as follows.

SP500 Diagonal C wave lower likely in Progress

The reasons are quite simple. First, we had upward overlap of the wave now marked (a) in the above chart. Second, today's up wave was longer than yesterday's up wave, and that violates the principle of nested first & second waves. That is, in a 1-2-i-ii series of nested second waves, each succeeding second wave should be shorter than the previous. Why? that is the very definition of what the term degree means. A lower degree wave, i.e. wave ii, must be shorter than wave 2. Third, yesterday's up wave was only a 38.2% retracement. This favors a (b) wave more that it does a second wave. Fourth, we were able to count five-waves up to today's high, and fifth, the downward wave (a), (b) and (c) fit precisely in a zigzag channel, and most impulse waves do not form like this (i.e. there is no downward break of a base channel denoting an impulse wave).

Late in the afternoon, after the opening gap was not filled, we started a down wave which seems to count as a five-wave sequence, but it didn't go anywhere. So, it may be the beginning of a (b) wave lower.

So, if we have (a), (b), (c) down to minute i (circle i), we must allow that minute ii (circle ii) could be 62 - 88% of the entire new minute i (circle i) wave downward. Today's high is likely minuet (a), and the down movement at the end of the afternoon likely started minuet (b) downward to a 38 - 78% retrace of today's upward wave. This should be followed by a further (c) wave upward to minute ii (circle ii), higher.

After that, from a wave-counting perspective, downward movement should resume as another set of zigzags for minute iii (circle iii), lower.

Cheers! And best wishes in the volatility.

Wednesday, October 12, 2016

Prior Fourth Wave

Below is an SP500 30-minute chart based on the five-minute count we developed turn-by-turn in the real time chat room today. The count starts at the (e) wave of the triangle we counted out on the 4-hr chart in previous posts. As we noted yesterday, we counted a clean five-waves down in a channel, to minute wave i, below, and today we said we expected minute wave ii, up, and that appears to be what occurred.

SP500 30-Minute Count

Today's up wave was counted as a double-zigzag wave upward, and the wave stopped short of the fourth wave of one prior degree (.iv). Stopping at this level (the 38% retrace) is a temporary sign of weakness. Next, you might be able to see that - if you drew a trend line up from the low of minute i, to the low of the bar just before the one labeled as minute ii, then that trend line has now been broken lower, as well. This is another sign of weakness.

Further, from the minute ii wave high, we were again able to count another internal five waves down to the afternoon low. This is yet a further sign of weakness. In addition, the regular daily MACD's for the S&P 500 and the Dow Jones Industrial Average have also crossed lower today. Further weakness. And you can note the half-hour slow stochastic, above, has not moved to over-sold, yet, nor has it curled upward either. All of these indicators signal a move back down to at least test the prior low, but, most probably much lower (as in 1.62 x i, subtracted from ii).

That's what we see at the present. Caution, flexibility, and patience are still foremost in mind.

Tuesday, October 11, 2016

Trend Lines Give Way

Yesterday we said we had counted an initial five waves down from the minute-e wave and minor B wave top of the triangle below, and we expected "at least" another five waves down. In fact, in live chat, we were able to count a full, larger five-wave down sequence to minute-i (circle i) in the chart below.

Five Waves Down from Minor B

During the day, the triangle's lower trend line broke, as did the upwardly sloping trend line on the daily S&P500 Index, as well as the Dow Jones Industrial Average. Toward the end of the day, we got a bit of a bounce, and it could go further as minute-ii (circle ii) up of minor C down. Eventually, there should be a new low below minute-b (circle b) of the triangle.

This C wave would again be Intermediate (2) of the three-day ending contracting diagonal, with eventually Intermediate (3), to a marginal new high, eventually to follow.

Once again, we can not see a realistic upward count until or unless price got up over the the Minor B wave.

The chart above only shows the 'placeholders' for the sub-waves of Minor C; they in no way imply how low minor C could go. It is likely that the purpose of this C wave is get Intermediate (2) to at least overlap with the minor A wave of Intermediate wave (1), as we have shown previously.

While the current situation can be described as "so far, so good", we remain open, flexible and most of all patient.

Monday, October 10, 2016

TPT - No, Not a New Trade Agreement

... just a Tricky Potential Triangle. Today, even though it was a holiday, of sorts, we updated the S&P500 triangle count during live chat as follows.

SP500 4-hour Potential Triangle

Due to the light volume, we think all that happened on Friday was that the minute-d wave (circle d) became slightly longer in time, and that was  the reason for the three waves down on Friday. We think the purpose for this was related to the Dow Jones Industrial Average : the Dow did not have the upward overlap on the A wave on Friday. It only did that today, validating potential triangles now in both the S&P500, and in the Dow.

We did count a clear five-waves down in both indexes from the potential wave minute-e (circle e), and so further downside movement of some type is expected. You'll note there are more downward overlaps, light volume, and price is moving sideways : all still characteristic of a triangle.

Time will tell.

Saturday, October 8, 2016

Let's Not Belabor the Point

As you know on Thursday, we said additional movement upward to finish the minuet (c) wave of the minute-e wave (circle e) of the Minor B wave triangle from the 4-hr S&P chart in the previous post was likely. And that appears for now to be what occurred as the market climbed after the opening bell on the payroll employment report results, but then quickly gave up all of that ground and more, again, in very whippy action. Sound like a triangle?

So that you might follow along with the logic and have a visual reference, here is chart of the S&P 500 cash index on an 15-minute scale.

SP500 15-minute Chart - Possible Triangle Completion

From the SP500 4-hr chart on Thursday, we said, the complex wave of the triangle could easily have been the D wave shown as the low on 04 Oct on the chart above. It was labeled minute-d (circle d) on the SP500 4-hr chart, which is again shown below. Then we showed on Thursday the five-wave (a) wave up, and the (b) wave down. From there, we did get another a five wave up sequence, likely for the (c) wave of E of the triangle, exactly as expected. Notice how long those fourth waves take - a sign that upward movement is a real struggle.

But, as if your lucky slot machine payoff number was 333 instead of 777, instead of forming five waves down the market appears to only have formed three waves down, shown as (a), (b), (c) yet again. And further, the market did not make a new lower low than the 2144 D-wave  on the down move. Then, so far, when the market reversed, it only made another three-waves up! This is also shown as (a), (b), (c) for the present.

What most will notice is that on Friday, the market failed to take out the 62% retrace of those three waves down. So, although it is quite likely we could be done with the triangle, we can't as yet prove it. Only price movement below 2144 will do that. If price does travel below 2144, then it is possible those three waves down are the first three waves of a diagonal minor C wave lower or a first wave down - followed by a flat second wave for a second wave up. We will cover that in more detail depending on the upcoming price movements.

As a reminder, here is the SP500 4-hour chart, showing that the minute-e (or E, above) wave did indeed cross back up over the location shown for minor A, forming a valid triangle.

SP500 4-hr Chart : Wave (e) crossed back up over Wave A

So, perhaps what is setting up is a slide lower before election day to the C wave, with a rally after election day - once the results are known. Again, if the point marked 0 is Intermediate (1), then the minor A,B,C down would be to Intermediate Wave (2) of a potential contracting diagonal for Primary V, with Intermediate (3), up, possibly being the post-election wave, up.

At this point, we can not find a good upward count potential in the DOW or the S&P. If we could, we would outline it here. Upward counts would not again be seriously considered unless the market can exceed the 2166 high of Friday morning. But, we have to ask, "if the payroll report could not make the market impulse higher on the day, what will?". Yes, we have Fed minutes this week, but that is only a re-hash of a former decision, and likely not a lot of new information for the markets. Still, anything can happen and we'll keep our eyes wide open in this volatile environment.

We continue to note that the major averages have not significantly diverged from the NYSE advance / decline line, yet, and so we expect that to occur later in the topping process. And, further, we are after more than a full month between only -2 to -5% from the prior all time high, so it seems like this overall decline will still only be a corrective wave.

In short, we remain open and flexible and most of all patient as we try to ascertain in what manner the key indexes are trying to wrap up their Primary Vth wave.

Thursday, October 6, 2016

Workin' My Way Back to You

Back towards the upper descending trend line again, that is. Yesterday, using the S&P 500 4-hr chart, below, we had said we had likely started a (b) wave down. That (b) wave continued today making a full and completed double-zigzag lower. Then, prices immediately reversed upward in what was counted as an acceptable five-wave sequence higher, and is likely wave 1 of (c), upward. Here is the updated four-hour chart.

SP500 4-hour chart - wave (b) likely completed today

So, price appears to be headed back towards the upper trend line of the still-potential triangle. While we have not entirely written off the leading diagonal A wave, up, yet, price would have to exceed the point labeled minute-c (circle-c) for that count to come back alive. That might be possible, but it depends a lot on the Payroll Employment report tomorrow. And judging by today's volume, a lot of people are just sitting on their hands and awaiting the outcome.

Not all that bad an idea!

Wednesday, October 5, 2016

I Got Sunshine on A Cloudy Day

Just so you have some confidence, here is an SP500 5-Minute Chart from the live chat room of yesterday and today.

Three Waves Down Yesterday & Five Waves Up Today

Yesterday, during live chat at the end of the day, I said that while there were enough advance / declines for an impulse day down ( 1 : 3), the only way we could count an impulse down was if the market opened down this morning and made a new low. That was for two reasons : wave B (circle B) above was clearly a flat wave, and second waves are not 'usually' flat waves. But in addition, if the low of Elliott Wave Oscillator was (3) of 3, and (5) was (5) of 3 on a divergence, then the late afternoon up wave to the upper channel boundary 'could' have been a fourth wave zigzag up to alternate with the flat - as it did not overlap and the Elliott Wave Oscillator went to zero. But that exactly reverses the typical alternation sequence for an impulse wave - not impossible, but a real watch-out!

That's why I posted last night we need to have the market make a few decisions here. The market decided not to make an impulse down, and instead gapped higher this morning. This left yesterday as a clear A, B, C downward move, and the gap up was clearly not entirely unexpected.

And now today, you can see on the chart above, I counted a clean five-wave up sequence with iii of (3) on the exact high of the EWO, and (3) on a two-bar divergence. There there was a very long barrier triangle, during which the EWO did, indeed, go to within +10% to -40% of the wave (3) high, to make a solid wave (4), followed by a brief, but complete, wave (5) up out of the triangle.

But you can also see that today's high did not eclipse yesterday's high, and so today may only be a five-wave (a) wave up. Please now refer to the chart below, which is the alternate that was presented in writing yesterday.

SP500 4-hrs Difficult to Count an Upward Diagonal because of wave-d

The difficulty in counting an upward diagonal is now the minute-d wave down. It looks quite complex, and the waves in diagonal are supposed to be zigzags. But we just said yesterday's down wave was not a five-wave sequence, so that makes counting the c wave down of a zigzag very very difficult (not impossible). And the zigzag would have truncated at that - which lowers the odds even more.

So, for this reason last night I said we could be in this alternate count of a B wave triangle, which may not be completed yet. The minute-a, minute-b, and minute-c waves (circle-a,b,c) would be the simple legs, and the minute-d wave (circle-d) would be the complex leg. Then, if it is truly a triangle, (and remember all triangles must prove themselves), wave minute-e would need another up leg to unfold properly. In the mean time, minuet (b) wave down is likely underway.

IF the triangle completes properly, and there is a break below the minute-d (circle-d) wave, then a more extensive C wave of Intermediate (2) might get underway.

At this point, only a high above minute-c (circle-c) before a low below minute-d (circle-d) would be convincing that an upward diagonal for a minor A wave has re-established itself. As I have said before many times, the risk of invalidation has gone up. It takes many more points now to validate or invalidate a wave than it did before. I make no apologies. It's the nature of the game.

Tuesday, October 4, 2016

Knock, knock, knockin' on Heaven's Door

As we have been saying for days now, "risk in the market" has gone up from a wave counting view point. The "risk of invalidation is high". The best hope for the upward diagonal A wave appeared to be on Monday, but the market wasn't up to the task. As far as we can tell, too much time has now passed for the third wave minute iii (circle iii) to form in a contracting manner in time. While not an absolute requirement it would have been nice to see it form that way. There are still more ways it could form in terms of price, but price has again started to pierce the daily trend line to the down side. If momentum picks up, there could be a slide.

From my vantage point in terms of the longer run count, it is time to equally consider than the triangle formed over the last few weeks of trading 'may' be the minor B wave to the upside, following minor A down, of move that will finish with a C wave down. In other words, Intermediate (2) could develop a deeper retracement.

The are no clear options. Odds are now about 40:60 upside versus downside. An upside surprise could happen, but we don't see clear evidence of it yet. From a wave-counting perspective, it seems best to let the market call the tune.

Saturday, October 1, 2016

Stayin' Alive

Like that classic old Bee Gees tune, the Dow's potential for a Contracting Diagonal remained alive on Friday even with all the turmoil over the overseas banking issues. Here's the updated chart as of the close.

Hourly Dow Jones Industrial Average - Potential Contracting Diagonal

The most salient point regarding the count was that the b wave high of wave (b) - expanded flat - was exceeded in a positive development. (Of course, this rules out the opposite wave i at the c wave low of (b) because a wave ii could not have exceeded the start of it's wave i, which it did.)

Still, an even better occurrence would be a new high above minute-i (circle i) on 22-September. So, provided the low at c is not violated, we will be looking for that next week.

Remember, that if we are truly in a (c) wave up of minute-iii (circle iii), then such a (c) wave could occur in the form of either an impulse or a diagonal itself. So, the progress of such a wave could be a simple to count impulse (of which we may have the first four waves now), or it could become an overlapping structure. However, from a timing stand-point, it would be best if the up wave completed in the next few hours because usually (not always) in a contracting diagonal, wave iii is shorter in time than wave i.

If the overseas news settles down a bit, then with Monday being the first trading day of a new month, this often (not always) means there might be new fund inflows from pension funds, 401k's, dividend reinvestment plans, company bonuses, and / or other sources which become available on a monthly basis.

We still must indicate that risk of invalidation is still quite high. There are, indeed, downside possibilities we can see, but with the new wave higher than the previous b wave, they have decreased just slightly at this point in time. So, we'll maintain the count with the current larger trend until it no longer makes sense to do so. As a reminder of where this wave sequence might fit, here is a chart of the two-day S&P 500.

SP500 - 2-day Showing Possible Position of a Leading Diagonal A Wave

So far, the A wave is crawling up the lower trend line, and that is the reason for maintaining the count. If the trend line begins to get violated to the downside, then it would suggest that a second wave (or worse) lower is developing to a deeper location on the chart - certainly well within the realm of possibility, but not required. For now that hasn't happened, so we'll just do our best on a daily basis to keep abreast of things.

Cheers and enjoy the weekend!