Thursday, January 19, 2017

Further Notice!

I stated in my blog post of December 7th (which I encourage you to again review), "we are in Intermediate Wave (3) until further notice". I also rejoined, "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."

Well, I am happy to say, that today very likely constitutes "further notice!".  Let me be as unequivocal as I can be. "Today's outside reversal candle lower in the ES has just upped the odds that Intermediate (4) is now in progress." And I have some very, very good news. In the S&P 500 and in the NQ futures, it means we may be able to count this halting, whipsawing upward progress as a contracting diagonal overall - just not the Dow Jones Industrial Average. But the DOW is most likely in it's Intermediate Wave (4), too.

So, let's look at the daily chart of the S&P 500. If the market has, in fact, reversed course here, then it is possible to count Intermediate (3) at the prior high in a Ending Contracting Diagonal in the S&P500. The half-hourly ending diagonal we showed you on January 9th in the article entitled, Intermediate (3) May Now Be Done.

Daily Diagonal in the S&P500 Index

It is now just barely possible in the S&P500 Index for an Intermediate Wave (4) to form from this location that is shorter than Intermediate Wave (2), and still overlaps wave (1). What makes it possible is counting the Election Night rally as an "A" wave, not as a "1" wave in itself.

As we showed earlier, this is not possible in the Dow Jones Industrial Average (although we continue to look and monitor for it).

Yet, the reason we think that Intermediate (3) is done is specifically because the Dow has broken it's prior wave Minor 4 low. See first chart below.

DJIA Daily - Break of Prior Wave 4 Low

In wave theory, the only way the count above can still be counted as a fourth wave, is as an expanding triangle, as below. (But we caution such structures are extremely rare, and the S&P 500 can no be so counted as an expanding triangle at this point in time.)

A Possible But Less Likely Wave 4 in the DJIA Daily

Besides the S&P not being able to be counted as an Expanding Triangle at this time, there is something that would be "odd" about the above potential triangle which makes it less likely, also.

Usually in expanding triangles, each new wave takes more "time" than it's predecessor wave. They not only expand in price with required higher highs and higher lows, they also expand in time. And, while that works for waves b, c and e, it does not work for wave d. Wave d takes less time than wave c. So, this is a real watch-out to the bullish case. It's almost as if the Dow and the S&P topped on the same daily bar for a reason.

Only time will tell, of course. But, if the S&P500 begins to make higher highs by even 20 points, or so, it will ultimately become impossible for that Wave Intermediate (4) to overlap wave Intermediate (1) and still have (4) remain shorter than (2).

I will continue to research the DOW to see if any diagonal makes sense for it. But keep in mind - it is not required!

Cheers and enjoy the day!


  1. Hello Joe,
    It has been a perplexing few weeks. I wanted to get your opinion on a possible count that represents still being or just today finishing minor 4 of Int 3.
    After clicking on the link, click on the chart to expand. I find it interesting that the triangle depicted by the pink lines still finishes at the blue uptrend line which connects minor 2 and the previous minor 4 points.

    1. For some reason the link did not take.
      If you highlight it and then right click and select open link, it will take you to the chart

    2. Tom, are you looking above? The DOW has just invalidated that kind of triangle. That doesn't make it impossible, but it greatly lowers the odds. Also, the b & d waves in your proposed triangle can be counted as "fives" which also greatly lowers the odds of a triangle. The 'b' wave can be counted as 'five' as the diagonal I counted out on the 30-minute chart in previous posts. And the 'd' wave is the five wave sequence you, yourself counted out!

  2. Yes, I know it is sloppy. Was just trying to consider all things. No matter how I look at it the market action just looks bizarre

    1. I will have some information tomorrow that I think you will find very supportive.

  3. Thanks Joe, informative and a pleasure to read.

    Cheers and good weekend from Sweden!

  4. Is it possible that i is A, ii is B and C is an ending diagonal of wave (3)? Ending diagonal for C will also cause a rapid reversal to overlap wave (1) by FEB beginning.

    1. I don't see that or on which chart you are referring to. Please be more specific.