Wednesday, December 28, 2016

Complex 4th Wave

If you have never seriously studied Elliott Wave, here is a very good example of a complex fourth wave for you. Since December 14th, we have shown the minor 4th wave within Intermediate Wave (3). That's just about two weeks ago now. On December 15th, it was stated that the minor 4th wave could form as either a 'complex correction' or a triangle, as we were waiting for the EMA-34 on the two-hourly chart to be crossed lower, and the complex correction is what we've got.

Here is an update of the two hour chart as shown in the live chat room today. If you are interested in Elliott Wave, then I urge you to study this chart.

SP500 - 2hr Chart - Complex Wave 4

Notice that price has now crossed the EMA-34 for good form and balance in an impulse wave. Also, the wave 0 - 2 trend line has been broken, indicating the losing of momentum as volume shrinks over the holidays.

This chart would indicate that wave 4 would be expected to wrap up soon, so as to avoid an overlap with wave Minor 1. Then, there should be a fifth wave up, to Minor 5 - which should be shorter than Wave 3, because wave 3 is shorter than wave 1.

You will notice we are using The Eight Fold Path method (in the Featured Post) to count this impulse. It was started by selecting the time frame that provides the needed 120 - 160 candles on the chart. That time frame is the two-hourly chart in this case. This is a step most people don't perform, and many do not understand why they even need to perform it. We have been using that time frame since the charts first posted on December 14th.

The Elliott Wave Oscillator has re-crossed below the zero line, but it is not greater than -40% of the peak value in wave 3. The chart does not imply that the minute z wave of minor 4 can't go lower. In fact, it can.

But what the chart does tell us, in a simple and straight-forward manner, is that minor wave 1 should not be overlapped, downward before there is a new high in the market, or we likely did not make an impulse wave up. If a new high should complete as Minor 5, then we did, indeed, have a successful impulse.

And, if you think this chart is interesting, you should see the NQ futures chart. Hint: likely also in Intermediate wave (3) at this time, by my count... But, we'll save that one for later.

Take care as we are in the last few trading days of 2016.

Saturday, December 24, 2016

My Christmas Card to You

Sometimes a nice picture of a yule log on the fireplace says more than our fumbling for words. This picture includes my original candlestick formation known as the The Three Wise Men.

Dow Jones Industrial Average - Two Weekly

And, if you have time away from Facebook or other diversions for a holiday puzzle, where does the Elliott Wave Principle, by Frost & Prechter, tell us that, "when the third wave extends, the fourth wave often divides the Golden Section"?

Stay safe, healthy and happy!

Thursday, December 22, 2016

The Results are Nearly In

So continuing on yesterday's post of the Dollar Index, here is how the count proceeded regarding wave 4. Recall, I was looking for either a FLAT wave or a triangle. From the measured wave lengths below, the wave is the flat structure, and I have x'ed out the triangle possibility.


Dollar Index - Two Hours - Flat

In the real time chat room early this morning, at the point of wave (iv), I was able to call that the down waves to yesterday were likely an ending expanding diagonal wave - and sure enough, wave (v) promptly followed. You see the waves numbered here, as waves (i), (ii), (iii), (iv) and (v), and we name that structure as c:5, meaning a 'c' wave in five-waves lower. The meaning of the ending expanding diagonal is that it will likely end  the downward wave sequence from wave 3.

Prices have not yet broken above wave (iv); if or when they do, the downward movement is likely over. There is a possibility of one more down move to a lower low (if this up wave ending the day is only the .c wave of a larger flat b wave inside wave (v), downward. We should know that early tomorrow.

At this point in time, the c:5 wave has not exceeded the low of the a:3 wave which would be more common in a flat. As I said above, that still could happen. If it does not, it simply means the upward pressure on the Dollar is so great as to leave the fourth wave with this minor truncation, creating a 'truncated flat', or 'running flat' - whichever term you prefer. Regardless, shortly, there should be a fifth wave up. (Targets would be 5 = 1, or secondarily, 5 = 0.618 x net (1 through 3)). Because wave 3 is only slightly longer than wave 1, then there is the possibility that the fifth wave extends to the longer target - fooling most. Time will tell.

The other thing to note on this chart is the fact that we have re-drawn the Elliott Parallel Channel so that it now meets the low of waves 2 and 4. When you do this, you should find a portion of wave 3 that sticks above the channel - as this one does. (If you don't see that, then you are likely working on a multiple zigzag, instead). Wave 3 should be above the channel to show it's momentum.

And, lookie here! Yes, in the S&P500 Index, on the two-hourly chart below, price has finally traded below the EMA-34, a prediction we made days and days ago for you.

SP500 Cash - Two Hourly Chart - Price Trades Below EMA-34

Note too that the EWO with 126 candles on the chart  is now also below the zero line again, in that famous fourth-wave signature.

As well, there is now a rather clear trend line break (which is shown as the dotted gray line).  Can this wave be forming a triangular fourth wave? It sure could. The exceptionally low holiday volume might go along with that. (But there is still nothing yet to say that a double-flat couldn't still be forming in a longer price pattern - although this is certainly not required at this point).

If price is, indeed, making a triangle, remember that triangles usually occur before the last wave in the current sequence, i.e. before a wave 5, up, in this case. And, if wave 5 forms, it should be shorter than wave 3, because wave 3 is shorter than wave 1.

Cheers and enjoy the pre-holiday spirit.

Wednesday, December 21, 2016

What we are looking for

Below is a crystal clear example of a fourth wave - this time in the chart of the two-hourly US Dollar Index. Follow this example in detail, and you will likely learn a lot about wave-counting for yourself.

US Dollar Index - March Future - 2 Hr

First, the waves you see clearly form a channel. The channel is first drawn between waves 1 & 3. Wave 3 is denoted in this case by the maximum of the Elliott Wave Oscillator (EWO). We did not draw 120 candles on the chart for this example .. which is occurring in real-time. We highly recommend you do.

Next, look at wave 2, before paying attention to anything else. Wave 2 is a sharp wave (i.e. zigzag). It has an impulse wave a, a short b, and and ending contracting diagonal c wave - which forms perfectly in every detail. Wave 2 also has it's EWO cross below the zero line, and it crosses under the EMA-34 to indicate it's a different wave.

Then, after wave 3, there is another zigzag downward to the point marked in blue as a:3, and this structure in and of itself, would provide no alternation for wave 2. That is your first major clue about wave 4. The second major clue is that the EWO has not crossed below zero in the downward direction. That is a major warning that wave 4 is not done.

Because the EMA-34 is not crossed lower, we should not expect that wave 4 ended at that location. Even visually just eyeing the wave at the point of a:3, wave 4 would be very short in time compared to wave 2, if it ended at the a:3 location, wouldn't it? And what do we know about Elliott 4th waves? Usually, most often, (not always) the fourth waves take up a lot of time, particularly if they turn out to be triangles.

Now the a:3 wave forms as a zigzag, also. It has an impulse wave a, a more substantial b wave than the one in wave 2, and the c wave down is also a contracting ending diagonal. This time, if you go down to the level of the 30-minute chart, you'll find that the fifth wave of the diagonal truncates ever so few pips. That's fine. That's allowed in an ending diagonal, and never allowed in a Leading Diagonal. The truncation is your second major warning about wave 4. A truncation in an up market means, "stronger prices dead ahead", and that's what happens. A new high is made in the market. But this high also occurs in three waves - black a,b,c. Wave c is clearly in five waves. And notice, that it is only a marginal new high. This is what we call a regular b wave.

But this is the important point: After wave 3, when you have three-waves down - as an a:3 wave - the meaning of the a:3 is that the b:3 wave must reach the 90% level for a flat wave. And it does, too. That is clear.

So, now we see on the down side that wave 4 has indeed crossed the EMA-34 again to make a wave with good form and balance. So, this is the minimum time that we should normally look for wave 4 to complete. And it could. Wave 4 could form what we call a "running flat" and end right there to begin a wave 5, up. But that would be the very rare case.

More typically, wave 4 would form a FLAT wave, with a c:5 wave down, lower than the a:3 wave down. Flats are common, but most people make the mistake of putting the Elliott wave label for 3 at the highest point on the chart, and not drawing in the reference channel. And that prevents them from recognizing the FLAT wave structure.

Now, finally, with all of those prerequisites put into place, we might finally expect wave 4 to attack the lower trend channel boundary in some way. It could still do it as a triangle (in this case it would be a running triangle because of the slightly higher b wave), or it could do it as a FLAT, or a double flat or other more complex structure, and in it's attack the EWO will likely be within +10% to -40% of the zero line compared to the wave 3 high of the EWO.

But, the number of structures I have just described above - and the legitimate ways the fourth wave could complete - are what I call the fourth wave conundrum. It is very difficult to predict the ultimate shape of that wave. Many Elliotticians - wanting perfection for their own systems and biases - don't want to hear about that uncertainty, and so they don't call fourth waves properly, or they confuse them with second waves.

But, after reading this post, we hope you won't. With a few simple tools and techniques you can do this for yourself, increasing your own confidence in wave counting.

The bottom line is there should be a fifth wave up in the Dollar Index, and it should approximate the length of the first wave, wave 1 - perhaps ending on or near the mid-channel.

Tuesday, December 20, 2016

Still in the Fourth Wave - Taking Time

Fourth Waves should take time. This one is no exception. The Dow has made two new highs while the SP500 has not. Those are likely X waves in the SP500 cash.

SP500 - 2 hr - Still in 4th Wave

Still waiting on price to cross the EMA-34 with 120 candles on the chart.

Cheers!

Monday, December 19, 2016

A Prediction from the Year 1819

If you think Nostradamus was good, and maybe you don't, back in the year 1875 a farmer in the United States, by the name of Samuel Benner, who was wiped out by the panic of 1873 sought to figure out the reasons for economic booms and panics.

He plotted corn, pig and iron prices religiously and attempted to ascertain cycles and wrote a book called "Benner's Prophecies, The Future Ups and Downs of Prices" and he published it in 1877. The book is still available today for those who are so inclined. The original price charts, and derived cycle chart are still available.

In 1978, A. J. Frost, working with Robert Prechter, updated Benner's work and added stock market prices as another indicator of economic strength or weakness. Below, you will find A. J. Frost's time table for cycle highs and lows. I have re-drawn this chart to protect the original copyright, but none of the data in the chart has changed.

Benner Fibonacci Cycle Chart

So, the key to this chart is that the economy experiences peaks every 8, 9 or 10 years - repeating. And it has minor troughs every 16, 18, or 20 years - repeating. And it has major troughs every 16, 18, or 20 years - repeating.

And, when you seriously look over this chart, and consider that some of these predictions were made with cycles derived in the 1800's, you might think "not too shabby". You have a certain stock market peak in 1929, a low about 1933 - which are hard to argue with. Some stock market highs in the late 1950's and 1960's followed by some lows around 1975. And then there is a general upswing in stock prices indicated from 1975 to about 1983.

Now keep in mind, this chart was never intended as an Elliott Wave counter. That is, the chart is not trying to count Elliott Waves one-for-one. No, counting Elliott Waves is a separate and distinct exercise. Instead, this chart was trying to elicit the best years to look for tops and bottoms.

Alas, even with that as the case, this chart has fallen into severe disrepute because of what people see in the chart from 1983 to 1987! What most people see is that "yes, stocks did have a bottom in 1987", and that was the famous crash of October, 1987 - that was predicted by Robert Prechter. But, the problem is what they also see is a line going down from 1983 to 1987, and their eyes glaze over, and  they shake their heads. "No", they say. "Stock prices rose in one of the greatest rallies of all time from 1982 to 1987. This chart can't be right! Throw it away! Now! It would have wiped me out!". People are like that sometimes.

I argue that even when you use the original chart, you need to make only one visual modification to have the chart make sense. I have made that modification, below.

Benner Fibonacci Chart with Important Notation

I contend you only need to realize what happened in 1973 - 1975, when President Nixon closed the Gold window to fully understand this chart. Since the dollar post-1975 was not convertible into gold, this chart now makes ultimate sense - because the central bank was able to inflate like crazy and change the measuring stick. So, that means even though a cycle trough is due in 1987, it occurs from a much higher level than the prices in 1983. Oh, the crash happens alright - and right on schedule - but the change in the measuring stick is not recognized in the chart! And, how could it have been? How could someone predict what one, certain, individual man, or a particular president will do - at some point in the future from an aggregate of past prices?

There's no way to do that.

But what would we find if we looked at an update of the chart above now knowing that the measuring stick for prices has changed, is changing and will continue to change in the near future? Is the chart still as useless as some people claim? Well, I have taken considerable time to update this chart for cycles in the future, and show it below.

Updated Benner Fibonacci Chart
Now when you look at this chart, ask yourself, "did stock prices generally rise from 1987 to 1991, in opposition to Robert Prechter's call for a major bear market?" Yes, they certainly did. And, how about in the year 1995, was there a stock market crash? What's that? "No", you say? You say stock prices continued rising? Well, let me remind you about this little problem experienced in Orange County and in Mexico.

Courtesy of the Wall Street Journal ...
"For most, 1994 wasn’t a particularly notable year. There was no presidential election, no major geopolitical developments, no stock market crash, and no summer Olympics. And yet it’s a year that ought to be etched on investors’ minds. Because, in 1994, the bond market suffered a very sharp and sudden selloff that started in the U.S. and Japan and then spread more or less across all developed markets."

And, this sell-off occurred late in 1994, resulting in a second wave for US indexes, as shown in the chart below.

SP500 - Weekly - Late 1994 Correction

Ok. So this chart being what it is, now ask yourself, "did stock prices go up into the year 2000?" You bet they did. In spades! And, then, "did stock prices go down after the year 2000 into the year 2003?" Once again .. you bet they did: there is no debate about that.

So, then what about a continuous up cycle from 2003 to 2010? Well, here again, there can be no doubt that prices were higher in 2010 than they were in 2003. We know that. And we also know that prices made a new all time in 2007, due to Alan Greenspan's goosing of the housing market along with George Bush, and Bill Clinton's signing of the repeal of the Glass-Stegall Act.

But we all also know that 2009 made a new low over prices in 2003 - well - at least it did in some markets! Certainly, the DOW and S&P did. But certain other markets like the Dow Jones Transportation Index, the NASDAQ Composite, the NASDAQ 100, and the London FTSE did not make new all time lows in 2009 over 2003. Still, we probably both could say, we could not use this chart as an "ultimate" wave-counting or wave timing chart because we simply couldn't sit through a swing like 2007-2009. And, that is, in fact part of my message here. So hold on for just a moment.

We also know that in 2008 the activist Federal Reserve again, unilaterally began dropping interest rates to try to sooth the banking sector - in a very big way - with QE1, QE2 and QE3. And yet, all will recall that 2010 was the year of the still unexplained FLASH CRASH. I traded during that time, and there was no doubt then that it changed a short term market cycle anyway. Yes, prices did recover to a new high from it, and then the chart says we should expect a low in 2011 - and what happens? Prices peak in May, 2011, and then decline into October, 2011. From a peak of about 1,370 to a low of 1,074 is a near perfect "bear market decline" of 21.6% (by the generally accepted definition of a bear market).

So, while this doesn't again prove anything, ask yourself again from the lens of history, "why was there two market tops, and both a flash crash and a beautiful five-wave decline in 2010 and 2011?" Why did they happen in those years? Why didn't a flash crash happen in 2006, for example, or why didn't it happen in 2013? Why those years? Do you begin to see what I am getting at?

Of course, the rest is history in one way of looking at the world. Prices again are higher now than they were in 2011, and we are not yet to the next key date on the chart. And yes, we did have another major correction in the middle (as 2015 and 2016 do not appear on the chart.)

What year is this? Yep, 2016.  We are less than two weeks from 2017, and what year is the next key date on the chart? Yup, 2018. Don't look at me. I did not make up the math of these cycles. They were discovered by others. They date back to data from 1819, and they make some fairly narrow patterns for some specific years!

On the one hand, I am as skeptical of long term cycles as anyone may be. But I am more friendly to this verifiable record (or not - as you wish to see the errors in the cycles) of this cycle chart than any other type - especially some ridiculously vague idea of a Saeculum cycle as a way to predict the health of financial assets.

So, if I'm not a full believer in these cycles, what schema am I proposing in general?

First, and foremost, if I can do the above work, and update the chart in an afternoon or two, you can bet your boots that the Federal Reserve has employees (or even college interns!) that can have done it, have actually done it, and are doing more. Next, recall Federal Reserve press conferences or Congressional testimony. You will sometimes hear the FED chairperson talk about "anti-cyclical policy". Yes, you have it right. The Federal Reserve knows what the cycles are - and, they often actively use  monetary policy to combat the cycle currently in place. The FED has gotten you off the GOLD standard; they have both tightened interest rates in an unprecedented manner up to 18% to crush inflation in the 1970's and they loosened interest rates to near 0% in the 2010's to fight deflation. Most importantly, the FED, by these actions, keeps changing the very measuring stick of financial assets, and so it is no wonder that one cycle chart developed with data almost two centuries ago doesn't provide an exact road map. Was the FED as active in 1819 as it is now?

But it is amazing to see where the hits are!

Secondly, no one ever proposed that this cycle chart be used as a replacement for wave counting. And I am not either. Certainly, from my vantage point, it is, in fact, wave counting that protects one from the 2007's and 2009's that don't show up on the chart! So, wave counting takes precedence.

Thirdly, I like to "test" things. This chart provides a major upcoming test - of a top in 2017 or 2018. I'd like to see if there's another "hit". If so, it would project a three-year decline or bear market into 2021. That would be interesting, indeed. But I do have to say, that knowledge of this work is one of the reasons I was a staunch proponent of a Primary Vth wave in February, 2016, rather than the bear market that so many predicted.

Unlike some other amazingly vague cycle work, done by some people I don't even consider Elliotticians any more, this work gives you a clear hypothesis to test. And it is reasonably objective. You can do the test yourself. And, when things work or don't work, you don't need a guru to be telling you, "see how good my methods work", or "we have this exception because I said so".

As you may know, this Benner-Fibonacci chart was popularized in the Elliott Wave Principle by Frost and Prechter. I have read many, many newsletters by EWI over the years. Do you think they ever dusted this one off to see what it says now? I've never seen it. Isn't that kind of a shame? Keen minds wonder.

Have a wonderful week ahead.




Saturday, December 17, 2016

Another Wedge

In prior blog posts, we suggested that because of the short wave two's, the S&P500 might be forming a wedge impulse, in which Intermediate Wave (1) was the extended wave in the impulse sequence, and Intermediate Wave (3) would be shorter. And, a similar sequence appears to be forming within Intermediate Wave (3), with minor 1 the longest wave, and minor 3 at 0.618 x 1. This week's corrective behavior  - having occurred right on schedule - tends to bear that out, with us now being in minor wave 4 of Intermediate (3).

But Elliott Wave labels aside, here is a chart just to view the general shape and pattern, and for you to just ask yourself a question (following the chart).

NQ Daily Futures without Wave Labels

Ask yourself, "why is this market in an obvious overlapping wedge?" And, "why has this market continually hit the resistance line across the tops and been turned back?". If you arrive at the same answer I did, you might see it as support for the wedge impulse on the S&P500, as well. While it does not prove the count on the SP500, it certainly does lend evidence to the case. We have a good idea what the actual count is here, but we'll leave that exercise for your homework (hint: just remember all of the full and completed legs of a diagonal may only be zigzags, and not FLAT waves - although some B waves within each zigzag can certainly be flat waves).

But we do want to note that any downward price movement below 4850 would create more downward overlaps that would be difficult to reconcile with a bullish case.

Speaking of the tech sector, because of the Yahoo! fiasco, I have thought it prudent to close that previous email account (Elliott_Trader@yahoo.com), and can now be reached by email only at the following address.

MAIL LINK

I would appreciate it if you do not send emails, unless needed, to that address. I will otherwise be happy to answer select questions on the blog.

Thanks and have a great pre-holiday week!

Thursday, December 15, 2016

Minor 4 Continues

No changes at the present time. Minor Wave 4 of Intermediate (3) continues as either a complex correction or a triangle. It has a higher b or x wave that alternates well with Minor wave 2 not having a higher b wave.


SP500 2-Hour Chart Impulse Count

It is still expected that the Elliott Wave Oscillator will come to within 10% of the zero line, or lower (not lower than -40%) and price and EMA-34 will cross before this correction is over.

Cheers!

Wednesday, December 14, 2016

Let's Keep It SImple

This is the count that seems to best apply to the 'election rally'. It's looking like four minor waves with the fourth wave still in progress.

Election Rally in the SP500 - Do You Believe in Santa Claus?

That fact that we have only four possible minor waves tells us that we are still in Intermediate wave (3). The waves would be described as an extended first wave, a short second wave, then a 3rd wave which is just under or slightly over 61.8% the length of wave 1.

So far waves 2 and 4 have a very nice pattern of alternation, with no higher high in wave 2, and definitely a higher high in wave 4. On this time scale of a two-hourly chart, wave 4 might still be expected to travel lower to cross the EMA-34 for form and balance. But, the blue box indicates that the lowest a wave 4 should travel would be about 2235 - to travel about the same net distance from 3, as 2 did from 1. The blue box is the size of wave 2, and it is positioned at the top of wave 3.

So far, we have a sharp for wave 2, and a flat for wave 4. Isn't that wonderful? Just remember, a FLAT could also start a double flat, or a flat-x-zigzag to make life difficult enough to create the time needed for the  consolidation. It is also possible to consider the highest high as wave 3, and perhaps a triangle is even starting to form . Each of those structures would fit well in the fourth wave position. And there are many other variations, as well (triple flat, etc.)

But notice how high the EWO is. It's not even close to the zero line, yet. So perhaps - just perhaps - the correction needs more time. That is what I mean in my YouTube video, A Critique of Elliott Wave for Trading, that fourth waves are very difficult to predict in their entirety, and I have given it the name of the fourth wave conundrum.

So even though the EMA-34 has not been crossed yet, could the correction be over? Well, there are ways for it to go further sideways but not go much lower in price. Maybe the EMA-34 will catch-up to price, rather than the other way around.

Also, I want to note two things specifically. First, the DOW made a higher high today where the S&P500 did not. Secondly, by way of a specific invalidation target, wave 4 may not overlap wave 1 for an impulse count. There is no evidence that the market is not impulsing in this wave, yet.

Cheers!

Tuesday, December 13, 2016

Elephant Head

Call me what you wish. I have a long memory. This is the OEW analysis in the Weekend Update on July 2, 2016.

Paragraph 1

"As we have been noting for a couple of months now. A Primary V in the NYSE to new highs, and an irregular Major wave B in the four major indices, would put all five of these indices back in alignment. Even though the SPX/DOW/NDX/NAZ would be labeled B wave advances. The NAZ daily chart is carrying this potential subdividing/extending Major wave B count. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 pivot."

This "loss" of the major B wave label is confirmed in this past weekend update dated December 10th, 2016, which states, ..

Paragraph 2

"The Primary III bull market that began in February 2016 continues to make new all time highs in most of the major indices. We do not believe this advance from February is a fifth wave, as it did not quantify as a fifth wave using OEW."

Well, as you may have noticed today, the NYSE has now made that new all time high. But, as of today, the OEW weekly S&P500 Index Chart is labeled with Primary III; not major B? Hmm .. just where did that "major B" go??

Hello. Anybody there? Do you see how this OEW stuff works? You write something in July and then you just ignore that later in December. You don't apologize for it. You don't say, "something might be wrong with our system". You just continue to drive on. The point is, if I'm a reader, why would I pay any attention to Paragraph 2 after reading Paragraph 1, and seeing it contradicted by paragraph 2? In fact, why would I pay attention to either - ever?!

It doesn't make any logical sense, and I won't entertain a word about it to the contrary. Someone is out to snare people into purchasing the OEW tutoring. Someone is selling a false sense of security in bullet-proof, mistake-proof, wave labels that have no meaning whatsoever!

The fact is all of the major US markets are now in their Primary Vth wave. And this wave could go on for quite a while.

For our part. We are just going to honor the holiday spirit and provide you (free of charge) with a true Elliott wave chart you won't see published anywhere else - as far as I know - because it is completely original. Although I did show a 'partial view' of the same count in the live chat room last week, and I stated wave 5, up, is definitely not done, based on internal daily counts. Here is the weekly Crude Oil futures contract (CLF17).

January, 2017 Crude Oil Contract - Contracting Diagonal


As you can see by this weekly bar, so far, my call that wave 5, up, was not done was exactly correct. Prices leaped higher this week, prompted in part by the non-OPEC members agreement to supposedly curtail some production (yeah, right).

This count of a diagonal is currently correct in every detail. Wave 5 is currently shorter than wave 3. Wave 3 is currently shorter than wave 1. Wave 4 is shorter than wave 2, and Wave 4 overlaps Wave 1 as it should in a diagonal count. Equally important, because of overlaps each of the legs stands out as a three-wave zigzag at the present time.

Make of this count what you will. Is it the Intermediate first Wave (1) in a (gulp) OEW supposed bull market? Or is it just the Intermediate (A) wave of an (A), (B), (C) correction, upward? Or is it just the Intermediate (C) wave of an Expanded FLAT correction for a fourth wave flat that started Sep 2015?

You will have to be the judge of that. Regular Elliott Wave says it could be any of those possibilities. But regular Elliott Wave also says, many diagonals are 'A' waves. Still I will leave it up to you. Why? Because I want you to experience the true nature of Elliott Wave. There is uncertainty inherent in all wave counts. It's a game of probabilities. And, when someone says, "once a wave is quantified, it will always remain quantified" then I want to tell you it's the biggest bit of 'fake news' on the planet. Don't fall for it.

Learn to live with the uncertainties. And more importantly, learn to look for the simple invalidation points. It should be crystal clear by now that if wave 5 became longer than wave 3, then the pattern that looks like a pattern is not a pattern at all. In a contracting diagonal wave 5 is not allowed to be longer than wave 3, because wave 3 must be shorter than wave 1, and wave 3 can not be the shortest wave.

But, if wave 5 does stay shorter than wave 3, then quite a pull-back could be in store.

Cheers!





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.

Cheers!

Thursday, December 8, 2016

Set Aside

Well, because of the lengths of various price movements, we can now officially set aside the diagonal count in the Dow. The clear rationale is below in chart form.

DJIA - Daily - Contracting Diagonal Can Not Be Completed


I alluded to this yesterday in the blog post. This morning made it unequivocal. If the November low was seen as Intermediate (2) in a diagonal count, then the upward price movement has now proceeded to the point where the same price movement downward (shown by the upper blue box) will no longer overlap Intermediate Wave (1). That means a contracting diagonal is ruled out quickly and completely.

So, in terms of impulse counts, as stated yesterday - we are definitely in Intermediate Wave (3). But there are two styles of impulses to consider: one in a channel, and one still in a wedge. Both charts consider than Intermediate Wave (2) is at the low of the Elliott Wave Oscillator. That is an objective observation, and so it is critical. (See the circled trough on the the EWOsc).

This first chart is a channel impulse, and considers that perhaps the S&P500 can get past 2343 where wave Primary V = Primary I.

SP500 2-Day Channel Impulse


This count uses the exact wave formations we used in the corrections lower. And, it uses exactly the same upward count as we did in Intermediate (1). Nothing changed there. But, it considers the upward wave in July and August to be a three-wave X wave as it is not in a channel. You might not like that count, because you might see that X wave as a "five". It is possible to do that. I certainly saw it as a five-wave C wave of the now defunct diagonal.

If, instead, it is actually still "five", then the best impulse count I see is the one below : in a wedge.

SP500 - 2-Day Wedge Impulse


In this case, Intermediate Wave (1) topped in August of this year. And the correction was a shallow 23.6%. This is the usual Elliott Wave formula for an "Extended First Wave". When the first wave is the extended wave in the sequence, then the second wave usually is a shallow retrace between 23.6 and 38.2%. And, in that case, Wave Intermediate (3) would be likely only 61.8% times the length of Intermediate Wave (1). When the first wave is the extended wave, that obviously means the third wave can not be longer than it.

This is now the preferred count. And one of the reasons it is the preferred count is that within wave Intermediate (1), wave minor 5 would be 0.618 times the net distance traveled by waves minor 1 through minor 3 : the second of  the two Elliott Waves that help predict the length of a fifth wave. You remember how I pointed out in the defunct diagonal count that the wave shown as 5, above, was originally C of (1), and it was 0.618 x A of (1), where A was formerly the wave at the April high?

Another reason it is my preferred count is that the construction can be seen as limiting Primary V to around that 2343 level, where Primary V = Primary I. (It doesn't have to be exact to the point). And, a third reason that I prefer the count is the wedge reflects the situation of the poor momentum which should accompany a Primary Vth wave.

Let's take it step by step and see how it goes. We are in Intermediate Wave (3) until further notice. We have quickly and concretely answered the question of whether we are in a contracting diagonal wave or not, and shown you how to do it.

By way of invalidation, wave Intermediate (3) should not now overlap the 2182.30 level until five waves up are complete. We'll try to advise when we do have five waves up.

Cheers and enjoy the evening!

Wednesday, December 7, 2016

There is Nothing Wrong

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

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

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

SP500 Two-Weekly Chart

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

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

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

SP500 Two-Daily Diagonal Possibility

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

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

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

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

Hourly DJIA - Three Wave Count

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

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

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

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

Thanks for reading, and have a good evening!

Monday, December 5, 2016

En Garde!

Some market commentators have us about to explode in a minute iii of 3, upward. The DOW says something different at this time. It tells us to be on guard for a sharp reversal soon.

DJIA - Hourly - Be On Guard

The pullbacks along the way are so shallow as to make one hunt to find even a B wave. That, of course, looks most like the running triangle in the middle of the pattern that we commented on in prior posts.

Then, today, in live chat, we began counting out a likely contracting ending diagonal in the (v)th wave position of minute v (circle v) of the Minor C wave.

Just look at the divergence with the Elliott Wave Oscillator - a clear warning! Many, wave counters are probably being fooled in the count because the DOW made a lower low at the point shown at 0, while the S&P500 did not. They are likely counting one extra wave where the DOW says that's not allowed for this count.

Have a great day!



Saturday, December 3, 2016

No problem

By the time you read this, the figures below will already be hopelessly out of date. But, here, courtesy of USDebtClock.org is the U.S. debt, as of Saturday morning.

US Debt at $19.9 Trillion

The current debt is $19.9 Trillion, rounded down. (What is the other $29.4 billion between friends?) And this debt is currently growing at about $1 MM per minute. Now, some market prognosticators and web-sites say a great economic boom is about to begin. Gulp! Really?

It is true we have just been through a period of economic growth - since the Great Recession of 2007 to 2009 - but that growth is uniformly described as "tepid", or "the most sub-par in history after a recession".

From an Elliott Wave perspective, this sub-par expansion we have just enjoyed fits best in the fifth wave position, after an age of Golden Economic growth from 1932 - 2000, which is best described as being in the third wave position, with the years 2000 - 2009 being best described as being in the fourth wave position - with the marginal new high of 2007 in the major indexes, the most classic of all Primary B waves.

So, now we have a republican president elect, and a republican congress - still pending the vote recount challenges outstanding - and some will ask, "What will a fiscally responsible - yeah, right - republican congress do?" Remember, Ronald Regan and George W. Bush were supposedly of this ilk, and they did nothing but expand the debt either.

For my part, I don't think it matters. As interest rates have risen recently, the rate of increase in the debt has increased even faster & faster, and not because of spending! This is a situation of the tail wagging the dog. It would be one thing if the debt was increasing to increase spending and fiscal stimulus - but now the debt is increasing even faster, not due to increase spending, but just to account for the increasing interest rates.

This is a growing problem, not one of more and more irrelevance. And, even so, fewer and fewer Americans went to polls to express their desires. Stock market bottoms are defined by crisis and panic. Stock market tops are defined by boredom and ennui. Welcome to the latter, as evidenced by the lowest voter turnout in 20 years, according to CNNPolitics! There's a sentiment gauge for you.

So, what will the new congress do, if allowed? Will they implement a flat, fair and simple tax that you can fill out on a postcard - and cause significant unemployment in the IRS? Will they dismantle several of the regulatory branches of government - like the Department of Education in an effort to cut spending - again cutting more government jobs? Who knows. But actions of this type - if they occur - are contracting, and not expansionary in nature. Or, will they just continue the sham, and continue to talk a good game while they, too, increase the debt?

No one knows for sure. But we already have evidence - by the GDP growth of the last eight years - that even this level of debt is a 'drag' on the economy. And, increasing interest rates are causing the debt to grow faster at this time. Just imagine if we have this level of debt and contracting types of policies are enacted into law. Even with a help of a friendlier Federal Reserve - if such is appointed by President-elect trump - economic growth could waffle even worse.

If 2016 - 2017 results in being the Primary V top, of the Cycle 5 top (the fifth we noted above) of SuperCycle 3 - the great period of U.S. expansion, then SuperCycle 4 would represent a potentially unprecedented level of sideways volatility in U.S. Indexes. A SuperCycle 4th wave would be difficult to predict (it could take on one of several forms - from a triangle, a flat, etc.), and it would likely contain very "jerky" movements upward and downward which could ruin accounts - while going largely sideways in the end from a millennial perspective.

As viewers of my video channel know - fourth waves are particularly difficult to predict. I have even given a special name to this phenomenon called the fourth wave conundrum in my video entitled, A Critique of Elliott Wave for Trading. But perhaps this fourth wave - when it begins - will initially mirror the personality of the president-elect. What has Donald Trump been, if unpredictable? That is the one constant of every purported news story about him.

And, maybe, just maybe, there is more here than the work of man. Given that the planet is growing warmer and warmer so far, with the hottest years on record in many cases, and that many people deny it - even given the evidence of polar and glacial melting; given that many areas are still experiencing either unprecedented drought or cycling between that and flooding; given that world population growth is still increasing and taxing planetary resources; given that there are few restraints currently on corporate growth or corporate irresponsibility; given that the political process put into office the person who got the fewer popular votes, then maybe the resulting downturn in social mood that is occurring or will occur is nothing more than nature's way. And, maybe the candidate elected is simply a reflection of the current natural state of social mood.

And, maybe, just maybe, if we are careful and true to it, Ralph Nelson Elliott's principle of natural stock market movement will help us navigate the trying times ahead. Let's hope so.