Friday, March 31, 2017

Lower Low Day - Twice

Yesterday, in a very short term five-minute chart, we showed you some of the benefits of using our fully disclosed methodology, called The Eight-Fold Path, to count a minute ((a)) wave up. See the previous post, entitled, "Five Waves Up", and / or click on the featured post entitled, The Eight-Fold Path Method for Counting an Impulse wave.

In the post yesterday, we called for at least some downward movement today, as a result of the count and an anticipated "window dressing" day, and, today, there were two lower lows than yesterday, and the S&P500 closed down -5.34 points, and still not the end of the world.

We will show you one more five-minute chart, as things were left at the end of the trading day today.

SP500 5-Minute Count from the Truncation High

So, yesterday I had noted that, from the truncation high, we had "three waves down, and three waves back up to over the 90% level" which likely meant more down side to come. The open was the expected gap down, and then price began trading sideways all day. Today's high broke yesterday's secondary high, shown as ((w)), but did not break the truncation high - clearly indicating the truncation was the correct call. The truncation high survived by -0.01, and then prices headed lower again at the end of the session.

Of importance, wave ((iii)) downward has broken below both the A wave downward, and wave ((x)) downward at the end of the session. So, as far as I can tell, today's high was just a larger B wave upward. The intraday count was tortuous and whippy, causing a couple intraday re-configurations, but because of the various lengths of the waves involved, this wave simply can not be considered as any part of a triangle. So, that leaves the conclusion that a C wave lower should finish, possibly Monday,  before any more upward movement begins.

You might say something like, "who cares about a five minute count?". And, just so you know, in general from here forward they won't be shown. But, my purpose in showing this chart is not just to provide you with some idea of what occurred today, but it is also to clearly show you a wave that does not follow The Eight-Fold Path Method. No part of this wave yet follows the method, and this is one way that can help distinguish corrective waves from impulse waves.

Now, it may come to pass that the C wave down will follow the method - as an impulse wave - but it doesn't have to. First of all, there is absolutely no evidence of a fourth or fifth wave yet. None. Second, predicting the future is an exercise in probability. There could be about a 25% chance that the C wave down will form an ending diagonal, instead of an impulse. But there is also about a 5% chance that the down movement is, in fact, over. (In that case, the entire movement from the truncation would just be counted as a larger W-X-Y, with yesterday's low as W, today's high as X, and today's low as Y.)

Don't think much of a 5% chance - think it is too low to ever see the results of a 5% chance of something? Well, here is an example where you can see a 5% chance more times than you might think.

ES Daily Chart : Probability of Closing Outside of a Band ~5%

By the way Bollinger Bands are constructed using two standard deviations, if price movement were at random, then the chance of closing outside of either band is only 5% on any given day. Yet, there it is! And it is repeated numerous times over. There are more example on the chart, than I have highlighted. Can you find them?

The point is to learn to use probability as best as you can, and to use it to your advantage. Wave counting almost demands it. Remember, Monday is the first day of a new month and a new quarter. And that sometimes, often times, not always, means inflows from mutual funds, 401k's, retirement plans, stock dividend reinvestment, and/or company bonuses. Let's see how it goes.

Tread lightly and enjoy the start to your weekend!


  1. Thanks Joe. I'm still favoring the downward count as a 1-2-i-ii from the March 1st high to today's high. I see the rally from Monday's low to today's high as an a-b-c-x-a-b-c.(x is where your 4th wave is.) In the DOW, it would be a-b-c-x-a-b-c-d-e. (ending with a non-limiting contracting triangle.) The monthly candlestick is extremely bearish,imo. It's also interesting to note that the initial move off of the 2009 low lasted 14 months, and today marked the end of 14 months from the 2/16 low. Until the market proves otherwise, I think the next destination is 2200, not 2400. Thanks again for providing your blog for us to read and for allowing us to comment.

    1. You're welcome, but maybe not paying attention. The count you are suggesting is not possible or logical because in your count, wave ii has more points in it than wave 2. This violates the very concept of "degree". A smaller degree wave needs to be 'actually' smaller. That's what "degree" means.

      I'm not opposed to downward alternates right now because I am completely neutral. But, I think the best shot at a downward count is a diagonal, or possibly a 1, down, and a flat for 2. But, there is absolutely no evidence yet for a downward count because there is no 1.618 wave downward.

    2. It's been about 25 years since I've read an EW book, but I don't recall any EW rule stating that smaller degree waves must travel less points than larger degree waves. The only thing I recall reading about degrees is an absolute Neely rule that states that all patterns (of the same degree) must take at least 1/3 the price or time of an adjacent, same-degree pattern (usually, both minimums are met). Taking it to the other extreme, a same-degree pattern can also take up to 3x’s the price or time of a prior pattern and still be considered “the same degree.”

      Nevertheless, I can also count the entire move from 2401 on 3/1 to 2370 on 3/31 as a 1 down followed by a running 2.

  2. Trader Joe- a question on EW, can there be a expanded B after ED...i thought the move in oil today was an ED but then at 4 pm a slight higher high was made (which i am wondering could be B)...thanks

    1. Did you even 'try' The Eight Fold Path method on the hourly CL chart from the 22 Mar low? When you do, and you measure the Fibonacci ratio from the low, let me know if it changes your perspective at all.

    2. yes i did - my ewo is a little off so I see 1 and 3 clearly but i am not sure if friday was either the end of third wave (Ed) or the start of fifth wave LD)..

  3. although given that atleast my ewo reading is not clear--this can be read as a flat