Saturday, February 11, 2017

IF the Market gets Testy

You know your best friend, or perhaps one of the children, or perhaps a classmate: You always expect them to be on their best behavior, but every once in a while one of 'em gets a little "Testy". It never happens to you, or I, of course, but we always have to be on guard to keep our cool if we see such things.

This post is about what happens if, while everyone is proclaiming "green lights" for the stock market, the 'ole girl just decides to get a little Testy. Before I even post this chart. I want to be clear that this idea is just an alternate at this time. There is, as it says on the chart, very little evidence for the count other than the potential shape of the current wave. It's not even fully formed yet. But, none-the-less this scenario is now 'possible' because of the wave lengths, and so we will present it with some very big caveats.

SP500 Daily Potential Wedge Alternate

First, one thing to like about this count is that it is one way Minor 5 could remain less than Minor 3, and still be in exactly the same wave location at the present time: minute ((iii)). Second, it would be taking place on a divergence in the Elliott Wave Oscillator. And, third, a count like this would tend to fill the upward gaps on the chart sooner rather than later. But, that's about it.

So now for the caveats. First, and foremost, we do not know minute ((iii)) is even over, upwards yet. Even in the live chat room it seemed as if the waves in progress were slightly unfinished as of now. Second, in this wedge or diagonal scenario, the diagonal must prove itself in every detail. A minute ((iii)) must remain shorter than it's minute ((i)) counterpart. Third, therefore, there must be an overlap of wave minute ((iv)) downward over wave minute ((i)), and that down wave must remain shorter than minute ((ii)). Fourth, a minute ((v)) wave upward would need to remain shorter than minute ((iii)) overall, and be in a three-wave zigzag on some smaller time-scale. And last & Fibonacci fifth, we note that the EWO is not even red yet so even developing the plan may be premature.

So, there you have it. A viable option: a plan B, as it were. And not a lot of evidence for it. It would mean that the DOW and the S&P ended their Minor 4th waves at two different times, and the S&P did not make a triangle while the Dow did. The scenario where they both made triangles is the preferred one for the obvious logical reason of keeping the indexes in-synch.

Once again, this chart is only an alternate, and is labeled that way. Right now it is just a plan on a piece of paper. Perhaps it will work out if Chair Yellen sneezes too hard in front of Congress in her testimony this week - or for some other reason of the market's choosing. All we do with alternates is a) keep them in mind, and, b) perform measurements to see if they remain viable. It does not mean we change our wholesale view on things, until or unless we see the evidence needed.

It does mean will will advise you if any of the upcoming price movement prevents such a diagonal from occurring in the proper form. I will add at the present time that such a scenario would invalidate overall above about 2335 because in the case where Minor 4 is not a triangle, then Minor 5 would become longer than Minor 3 at that level - given the new location for Minor 4.

Until then, have a great weekend.


  1. I wouldn't even consider this an alternate as it has a less than 1% chance. Why? When you have a range so narrow for which the count must adhere to (2319-2325) logic says it's extremely unlikely. I realize a truncation is possible, but they are more rare within ED's than ED's themselves.

    1. Hi Steve. You wouldn't consider it for what? It's just something to look at and measure at this point.