Tuesday, March 28, 2017

Three Equal Alternates - 33% Each

When the probability is roughly 50:50, I will tell you that. At this point in time, even though upward price movement has started, the probability is roughly 33% each of three equal alternates. Going all the way back to my weekend video, I have been considering the very strong possibility of an ending contracting diagonal for the Primary V wave. I showed this DOW chart, below.

DJIA - 2 Day - A,B,C of Intermediate (1) Up of Primary V

The completion of an A,B,C up for Intermediate (1) would mean that we are now in Intermediate (2) down which would need to form as Minor A, B, C, downward. That is one clear alternate. The chart below of the Hourly S&P500 Index shows the current partial count for a Minor A wave down as an expanding leading diagonal.

SP500 Hourly Count for a Potential Minor A Wave Down of Intermediate (2)

For this count, there are five minuet waves, (i) through (v) to the minute ((i)) wave of Minor A. Then, there are three minuet waves, (a) through (c) up to minute ((ii)) at just about a 78.6% retrace. And then, there are five minuet waves, (i) through (v), down to minute ((iii)) in a wave than is longer than minute ((i)).

Today's up wave may have completed or been part of the minute ((iv)) wave of such a diagonal, and it is already longer than minute ((ii)), as required by the rules in a potential expanding diagonal. If minute ((iv)) ended here, it would technically be ok, but it wouldn't have the right look, and it could easily go on to form another 78.6% retrace upward.

Then minute ((v)) would also need to form as five waves, and be longer in price than the minute ((iii)) wave.

But, diagonals are somewhat rare structures and we must keep that in mind.

So, countering the downward diagonal idea is the upward idea that wave C of the Dow's 2-day chart above has not completed yet. There are two ways that can happen.

In the first of these two, minute ((i)), ((ii)) and ((iii)) in the above chart are just minuet (a), (b) and (c) of minute ((a)) of a larger triangle, for a fourth wave.

SP500 4-hour Chart - Wave 4 of C As a Triangle with Wave 5 Yet To Come

Such a triangle could help equalize the net distances traveled by waves 2 and 4, because in a triangle the distance measured as "net" is from 3 to ((e)), not from 3 to ((a)), and a triangle could put wave ((e)) back inside the blue box.

While this is possible, it, relies on a triangle, and triangles are a bit more rare, too. But, also there would be two very sideways looking structures. Still, there would be a "clear indication" from a triangle that a "last wave up is dead ahead". This is the second alternate.

Finally, it would be possible just to assume that the March 27 low is the low of wave 4, as a-b-c. And while that would break some wave guidelines, it would not break any wave rules. All it would mean would be that wave 4 would be deeper than expected, and outside of the usuall guidelines for the Elliott Wave Oscillator in an impulse. Well, given how high up we are in the wave structure, such a case is not impossible. The simple zigzag downward for wave 4 would provide good alternation for the sideways wave 2, but, then, it would be shorter in time, than wave 2. Not impossible, but odd. And that is the third alternative.

So there are two of three alternates that spell higher prices, and one that spells lower prices first. At this point in time each alternate has it's advantages and it's disadvantages. But as I said, speaking for me only, I do not wish to get caught up on The Slope of Hope, waiting for a fourth wave that doesn't materialize properly, so I am letting the market tell me - day by day - which count is correct. I am personally neither bullish or bearish : just neutral, patient, observing and counting until the alternates fall by the wayside.

This is a clear example of The Fourth Wave Conundrum, as I have termed it, and is probably the single-most reason why most people dislike Elliott Wave work. Many people (me included) would probably just rather have the correct answer to the puzzle be apparent, rather than work for it. But the market has a different idea. That's just the nature of Elliott Wave work.

For now, have a good evening, and as alternates get killed by various invalidations, we will let you know here.



  1. Thanks Joe for being so thorough and detailed in your analysis. Taking your advice too and waiting for clarity.

  2. Thanks Joe..(Health care article was very nice)
    Do you have any view or long term chart on TSX(Canada) and its housing market.

  3. Do we have to be in a forth wave? There are so many bullish charts with many stocks making new highs. The market is still under accumulation, with leaders continuing to consolidate and break out higher.

  4. Thanks very much for your continued detailed analysis. Always good to be reminded that there is no 'definitive' path forward.

    Regarding the expanding leading diagonal, I have a question please. Shouldn't the sub-waves for ALL diagonals (contracting or expanding) be in 3s rather than 5s?


    1. Hi Purvez, thanks. No, unlike ending diagonals which 'are' always 3:3:3:3:3, leading diagonals, by contrast can either be made up of all three's or 5:3:5:3:5. Your lack of clarity on this topic tells me you haven't read a recent edition of The Elliott Wave Principle, by Frost and Prechter - where this is clearly explained.

    2. Thanks Joe for clearing that up. I haven't read Frost and Prechter for a while now.

      I know what I'm about to say smacks of heresy but.... I've reached a point where anything above 20K DJIA is in 'lalala land' (fundamentally) and therefore I don't bother with ANY wave count.....not just EW.

      Thanks for educating us continuously. MUCH MUCH appreciated.

  5. Thanks Joe. Once again, I am going to offer yet another still valid alternate count. This count works in every cash index. The opening high of 3/21 at SPX 2382 down to the low of 3/22 at 2336 is a wave 1. From there it's an expanding flat wave 2. Wave A of the expanding flat stopped at the 50% retracement level at 2359. Wave B at 2322 was 1.618 of A. Wave C has now come to the 61.8% retracement level. This count allows for one more slightly higher high at 2365, but if the market blows through that, then it will invalidate.

    1. Yes, I have considered that, but there is less evidence yet for that count until or unless there is a down side invalidation first. Please see the 3/29/2017 update for the rationale.

    2. The reason I'm favoring that count is because not only did COMP and NDX make their highest high on 3/21, but the 3/21 high in W5000 exceeded its 3/15 high. Therefore, I think the 3/21 high was a truncation in all the other markets. In either case, SPX has to close below 2365 tomorrow for this to remain valid, and of course, NDX and COMP can't make new highs.

    3. Valid points but size of truncation seems rather large and unacceptable