Wednesday, January 25, 2017

An Open Book - Today

You've heard of open book exams? Today I want to walk you through some things we discussed in the live chat session today.

Because the Dow made a new all time high, that made some things a lot easier at the moment. The first one of which is this count on the Dow for Intermediate (3).  It looks like the rare expanded triangle was the right form for Minor 4.

DJIA - Daily - Rare Expanding Triangle for Minor 4 in the Dow

In an expanding triangle, there must be all zigzag sequences for each of four of the legs (remember we couldn't count the upward d leg as a potential diagonal in the Dow like we could in the S&P500), and wave b must be higher than wave 3, wave c must be lower than wave a, wave d must be higher than wave b, and wave e must be lower than wave c. All of that occurred, and the higher high as of today confirmed it.

With that as the case, it also helps clarify the S&P500 count, as well, to be that of a running triangle, as below.

SP500 Daily - Running Triangle Synchronizes it with DJIA Count

Remember in a "running triangle", wave b must make a higher high than wave 3, and all of the rest of the waves must contract which they do. But further, wave e, must close back under the high of wave 3 to be corrective to it, and it did. So, while ugly, and it's proportions were questioned, it doesn't violate any rules, and this seems the best way to "keep the peace" between the markets.

For those who have been tracking the upward wave since, below is the five-minute chart of the SP500 I was tracking in real time today.

SP500 5-Minutes Three-Wave Sequences after 4?

So, the start of the count proceeded in the channel shown with wave 2 as a sharp, and wave 4 as a Flat for alternation. Measurements showed the up wave to 3 made a 2.618 Fibonacci extension (to be accurate it was the higher b wave of 4 that did), and last night we said the wave didn't look complete. It wasn't.

And then, after the gap up (which seems like it is an "exhaustion gap" for a fifth wave), overlapping three-wave sequences began to appear in the count. We didn't ask them to. They just did. And the wave starting "riding the upper channel line" - a sign of "grinding", until it broke into the channel interior.

Within wave 5, we currently have (3) is less than (1), (4) is less than (2), wave (4) overlaps wave (1), and (5) is "currently" less than (3). In order to remain less than (3), wave (5) should not cross 2301.26 or there is some other count at work that is not a short term diagonal. (A larger B wave would be an option.) If the count holds, then a retrace to below wave 4 would be expected in less time than it took to make the 5th wave if the diagonal is an "ending" one.

We'll see. The daily chart does look like the typical "thrust" out of a triangle, and triangles often precede the last wave in the sequence.

There is also the concern on the daily chart that minor wave 5 should not become longer than minor 3, because minor 3 is shorter than minor 1, but we will deal with that in future posts.

For now, we want to note that the New York Advance / Decline line is still at all time highs, as below. There is no divergence in sight.

NYAD Line Still at All Time Highs - No Divergence

Keep that in mind, but also that it seems to grinding on the trend line, as well, and not impulsing away from it - at least not yet.

Lastly, it is worth noting that the two-daily S&P500 can now have Intermediate (4) downwardly overlap an Intermediate (1) wave by only 5 points as of today, and remain shorter than wave (2). That's a pretty slim margin. I have called it "Precision Flying" if that should happen. Let's see how it goes, but, as always, I am still flexible to say that we can still be in the impulse count up in the S&P, since we are likely so in the Dow count.

Well, that's about the extent of it, so far. Stay patient and flexible!
TraderJoe

8 comments:

  1. TJ. Nice summary. I am confused on a couple of items. (1) How far can 5 go in both the Dow and ES before we conclude that there is something else (I think it is the ES 2301 you referenced); (2) does a larger wave 4 come after this wave 5?

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    1. Thanks. And don't be confused. (1) was not stated. A lot of things can happen in the futures market and not invalidate cash. The limits are strictly provided for the SP cash. (2) Yes. A larger wave (4) would be likely after Minor 5. But remember, there is not yet confirmation that Minor 5 has ended. We 'could' only be in Minute i of a larger Minor 5, for example, but there is absolutely no evidence for that yet. If the diagonal holds, it may well end all of Minor 5.

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  2. Hello Joe,
    Regarding impulse wave 1 in 5 min. the SP 500 chart. Is it of concern that EWO peaks in sub wave 5 instead of 3? Is the 3 of 3 expected peak a guideline that sometimes doesn't happen rather than a hard and fast rule?

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    1. Hi PT. I made the same observation while counting. I realize many people want only one tool to work all the way down to the 1 minute level, and I can not promise that for The Eight Fold Path. It seems to work well at about 30 min-1 hr, and above. It worked really well on the three-hour chart of the S&P - which is what was needed to get the 120 - 160 candles for all of Intermediate wave (3). Wave e of 4 of the triangle is slightly below the zero line on that chart, and wave 5 is climbing now in the green.

      So, I would say to use the technique properly, always use it with the Minor degree of wave under study, and nothing less.

      When people want tools that work at the 5-minute or 1-minute level, they are really looking for tools that compete with the professionals - such as co-located servers, and "news reading" programs that respond to the key words in published news stories. It is hard to "out-gun" tools like that on that level, and I'm not trying.

      Hope this helps.

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  3. Hi Joe,

    Thank you very as always.

    I want to verify my understanding:

    1. For a valid wave 5, which is not exceed 2301.26 in cash.
    2. Once wave 5 done, a pull back could start and take it to lower than wave 4, WHICH IS 2257.02.
    3. And the pull back should be very quick, say if it start from tomorrow morning open it should take less than two days, to take out 2257.02. (since wave 5 took 2 days)

    Thank you very much.

    - David

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    1. Your understanding is correct, provided an ending diagonal proves itself. Diagonals and triangles must 'form properly' in every detail, and can not be called until their fifth waves are completed properly. We have seen a few potential diagonals get blown out to the upside. So, caution, patience and flexibility are still the by words. And, if you have not read the article on a paraphrase of Ira Epstein's Guidelines for Trading, you may want to do so. http://studyofcycles.blogspot.com/2015/11/paraphrase-of-ira-epsteins-rules-for.html

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  4. Hi Joe,
    After the wave 4 mentioned above...where do u see the spx complete wave 5? 2330 or 2350ish?
    There fomc meeting next Wednesday. We could see the drop you are talking about Monday and Tuesday and a snap back up Wednesday

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  5. I am also tempted to count the move up in SPX from nov7 as a double zig zag, with a 'w' ending on 11/25, x ending on 12/2, and y about to end around 2300 ish.

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