Tuesday, January 24, 2017

Mea Culpa

You probably get tired of hearing everyone say how good their market predictions were; that they predicted this wave or they predicted that wave. Instead of that, today I want to show you how easy it is to make a simple error with Elliott Wave - even if you know the topic well. I did that in yesterday's post, and I will walk you through what the error was. No excuses.

Today's updated 2 hr SP500 chart is below, annotated to show where that error was. Even though we were counting "upward" in live chat today for a minuet second wave, the wave quickly got ahead of that count, and even made new highs in the S&P while the Dow did not.

SP500 2-Hour Chart

As you might know, yesterday I published a blog article that said the probability of new lows versus new highs was about 70 : 30 in my view because the market had started to make new lows. While, I did see that it was possible we were still in a triangle (...the other 30%), and while I did see that the Jan 6th diagonal to new highs was possibly an "a" wave of a larger diagonal (see previous days blogs and comments), I failed to factor in a key fact and kept driving on.

The key fact I ignored was: that the upward "a" wave diagonal in the S&P was not fully retraced in less than the time it takes to build it. In fact, it was not, and has not, been fully retraced yet. And that likely makes it a Leading Diagonal, and not an ending one. That's the error. It's that simple. I did not focus properly on the timing and extent of the retrace of the diagonal, and I have once again learned from that. By the time that .a wave occurred, an ending diagonal, by contrast, should have been fully retraced. It was not.

So, we went up and made marginal new highs again today. Volume in the futures was awfully light, worse than "summer light", although cash equity volume was good at about 3.7 bil on the NYSE.

And, bottom line, we do not know that the upward wave is part of a larger ending contracting diagonal for Minor 5 of Intermediate (3) still. It has the potential to be, but there are many, many waves to count before concluding that. We don't even know that Minute (i) of such a diagonal would be fully completed .. looking at the upward wave on shorter term charts - it doesn't look quite finished yet.

So, don't fixate on the tentative trend lines we have drawn in. They are just that ... tentative. The invalidation point for an upward diagonal at this point is if wave (ii) should travel below wave Minor 4.

Be careful in the whip-saws. As I have said before, I am not fond of this market. Today is an example of why.

P.S. We now need to see if the SP500 Intermediate Wave (3) is now "too long" for the larger two-daily contracting diagonal. I'll try to report on that tomorrow.

Best to you always,


  1. Joe, I really appreciate the intellectual honesty. It's a very rare commodity, which is why it's so valuable.

  2. Joe, it seems to me that the entire move in SPX from 2084 on 11/04 can be counted as an ED. 2278-2234-2282-2254-2284.

    1. Just keep in mind that for a count like that, every wave must be clearly discernible as a zigzag. (And only b waves within the zigzags may be flat waves). One can't just pick five overlapping points. The December wave seems much too complicated to be a zigzag and has 90% waves in it - which at least 'qualifies them' for flat waves. So, I'll leave it to you to tell me where the a's and b's of those zigzags are if you're up for a puzzle. I will grant that today could be (iii) of a such a diagonal in the SP500, but not in the Dow because the Dow did not make a new high today.

    2. 1: 2214-2187-2278
      2: 2254-2274-2234
      3: 2264-2245-2282
      4: 2265-2275(an irregular b wave flat)-2254
      5: 2279-2257-2285

    3. I had a feeling you would say that. All of a third wave may not be an ending diagonal in itself; and the count does not work in the Dow.

    4. I'm not counting the third wave as an ED. I'm counting it as a 5-3-5 zig-zag. I realize that this count doesn't work in the Dow. The Dow, SPX, and QQQs have not been in sync since election night.

    5. Lots of problems counting 2278 to 2254 as the first A wave down (as a five or as a diagonal). It clearly doesn't look like an impulse, and the largest wave down is a clear "three" but the middle leg is longer and the last leg is shorter, also ruling it out as any type of diagonal that follows the rules. And you are counting the whole structure as a 5:3:5 zigzag which is part of which larger structure?

  3. can the move from dec 13th be a running triangle ending yesterday under 4th wave. thanks

  4. Thanks Joe. It does feel that for quite a while now when a few scenarios emerge the one that is most bullish seems to be the likely outcome. I guess you'd expect that in a bull market.

  5. Nice stuff, Joe!
    In my amateurish view, that cursed EDT ended wave 3 (I remember your argument against it though) followed by WXY and making the current move wave 5. The entire impulsive sequence "might" actually be done as of now unless 5 decides to extend rather than be a mono-wave.

    1. See the following night's post for an update, and some different thoughts.