Saturday, January 28, 2017

Specific Limits

If we use The Eight Fold Path Methodology for Counting an Impulse (see Featured Post), then the correct time frame to contain the "wave under study" for Intermediate wave (3) with 120 - 160 bars is the three-hourly chart, as below.

Intermediate (3) in the SP500 3-Hourly Chart

So, that using this chart, and keeping the Dow and S&P500 synchronized with triangles ending on the same day, this now provides specific limits for Minor wave 5. Since, on this chart we can see all of the minute sub-divisions within Minor 1, and Minor 3, we expect we are seeing the sub-divisions within Minor 5, as well.

Further, if we define Minor 4 as the end of the triangle, and wave Minor 5 must still remain shorter than Minor 3 (since Minor 3 is shorter than Minor 1), then the farthest Minor 5 can travel is to 2347.11 in the most generous assessment. Yes, it can fall short of that. One common target when wave 5 is the shortest wave is 0.618 times the length of wave 3, at 2312.70, but that is not a required limit.

Further, the above chart shows a beautiful example of what the Elliott Wave Oscillator looks like for a triangle (forming a triangle pattern itself - brown reference line), and it is to be noted that price is currently on a significant divergence with the EWO (blue reference line) - something which can continue for a while, but not too long. That does cause concern that this portion of the rally is nearing an end, so the 0.618 target may hold. There is no magic here: either it holds or it doesn't. Again, it is not required to hold.

You will also note that the RSI is also diverging. Because of the intraday time frame we picked RSI-11 while generating this study, but checked, and RSI -14 shows a similar result. So, that is another cause for concern.

Having a valid triangle, with a clear minute-e wave (circle e) also provides us with a very specific invalidation point. No matter what, the upward wave (Minor 5) is over if price breaks below 2257.02 before higher waves are made. And, when Minor 5 completes, this will be the confirmation point of completion of the wave, as well.

Have a good weekend,
TraderJoe

14 comments:

  1. It's fun reading your analysis (outstanding) and outlook, than comparing to the outlook presented on OEW's website. You yourself have mentioned the broad disparity in viewpoints. OEW feels that a rise above 2304 will validate a larger bull market trend, just as your outlook says the current move may well terminate at 2347. Which view will prevail? We'll have to wait and see, but it will be interesting to see how OEW handles manages if it turns out the bull market is ending just as they are anticipating a massive wave 3 multi-year uptrend.

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    1. It probably won't be possible to discern in the very short term because after Minor 5 of Intermediate (3) wraps up, we would still expect an Intermediate (4), downward, and then an Intermediate (5)th wave upward after that.

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    2. OEW said we were at the start of a multiyear bear market last year and then suddenly said we are at the start of a multiyear bull market. If it turns out the bull market is ending, they will say again we are at the start of a multiyear bear market!

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  2. I'll also point out that the upward thrust out of a triangle typically tops at the apex of the triangle's trendlines, which appears to be the 3rd hourly bar next Thursday.

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    1. meant to say "intersection of the triangle's trendlines"

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  3. What if 2347 is exceeded before 2257?

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    1. Then the EWO would likely have broken it's divergence.

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  4. Joe, Your detailed analysis and the explanation of that analysis in this situation has inspired me to order both books that you have recommended on Elliott Wave. Plus, the questions asked by people who follow your blog are excellent and your responses are educational as well. Hopefully, in the future, I will be able to ask good questions as well. Thank you very much.

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    1. Very glad to hear it. Not only are you welcome, but your comment was much appreciated.

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  5. What books? I would love to read more about the 8 fold method and any book that you recommend

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    1. Jules .. there are some free references at my main web-site, the url for which is below; copy and paste it into your browser.

      http://studyofcycles.com/Tutorials.html

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  6. Top notch, Joe!
    I'm still struggling to accept your take on waves 3 & 4, especially the latter being way too large compared to wave 2.
    Plus, doesn't it make sense to turn to futures market for the ZERO point on the election night rather than use the cash market? Volume was huge then and the market traced out a perfect 150pts impulse off the low witch I prefer to see as wave 1.
    Thanks for your fantastic updates here!

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    1. The proper way to measure wave 4 when it is a triangle is from 3 to e, making it (..what we call the net distance traveled by the wave) actually less than 2. But, I know this seems weird, but there is much more leeway in counting a diagonal in the futures from the Feb 2016 low than there is in the cash market. And I presented an idea in the live chat room as to how it may make sense.

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