Thursday, June 1, 2017

Congratulations are in Order

At the close of trading today, some investors (not you, of course) paid the highest possible prices in history for the S&P500 Index, the NQ (NASDAQ 100 Futures, and ES E-Mini S&P 500 Futures). Interestingly, those in the Dow, the Transports and / or the Russell still seem to be balking. What's wrong with them? Maybe they will get a chance to pony up later. While there are no trading or investment recommendations made here, it's not my personal preference to pay the highest prices ever for something. You please do as you like, and make your own decisions. I just express an opinion.

On the wave counting front, due to overlaps, this upward wave in the S&P500 - if it is still a minute (b) wave can be counted like this.

S&P500 Index Daily - Possible Count for Minute (b)

As a reminder, we have three waves down to wave (a), and wave minute (b) has not yet attained the 138.2 x (a) level. For the most part the upward waves are both overlapping and in a channel. And each wave has a "three-wave" look to it. At least, so far.

As we said earlier, neither the DJIA, nor the transports have made even a new all-time high yet, although we suppose they would. Based on a short term intraday chart, the S&P500, and the Dow appear to have unfinished waves at the top, as yet. We'll be watching for that over the next couple of days.

Today was the first day of the month. We said to be on the watch for the inflows from pension funds, 401k's, company bonuses, etc., and they are likely, in part, what fueled the market today. We also said we wanted to see lower lows rather than higher highs before proclaiming the (b) wave over. We thought it was possible the fund flows were weaker in the summer. That did not happen today, but we were were prepared for it. (While some 'first of the month days' have been 35+ points, this one was weaker - only 19 points.) Yesterday's diagonal was simply an ending one in the downward direction (actually probably just a widening triple zigzag which has exactly the same structure), and not a leading one.

And we suggested, yesterday's downward wave could be a .b wave, as we have marked above.

If the minute (b) wave finishes properly, then the next expectation would be for a large (c) wave down of an expanded flat for Minor 4. If, on the other hand, price prints full candles above the rising channel shown, it would mean something different.

Well, now what for the rest of June? Certainly, a valid question. There are elections upcoming in Europe, and a Federal Reserve rate decision, too. At present, funds and certain classes of investors are buying without abandon in the absence of any return from rates of interest. All of this while price diverges from the indicator. So be it. Let's hope that they don't abandon the return of their principal in the upcoming weeks.

If you are interested in why we think the wave up 'might' not yet be finished, below, in the top panel is a 15-minute chart of the DJIA. (We were comparing it to the S&P500 in the bottom panel).

DJIA vs SP500 15 Minute Chart

Since price has not yet tried to attack the lower channel boundary, we think a wave 4 could move price lower to do that, and then make a wave 5, up. Also, in relationship to wave 2, wave 4 at this location would currently be shorter in time than wave 2. That is possible, but not the usual set of circumstances. Further, in real time, after price made the three-wave a wave down from wave 3, we said new highs in a potential b wave up could be made to make a FLAT or triangle wave 4 to provide alternation with the likely sharp wave 2. It did! By crossing over the top, the Dow and the S&P have certainly activated and met the 90% requirement for the potential b wave of a flat wave. Rules are rules!

Cheers and have a good night!


  1. Love this post! I see more conviction from you. Thank you. I respect the transport divergence too.

    1. Wait. I don't think the divergence (not hitting a high) in transports is an issue. I just looked at both transports and Russell. They look fine. In fact, they both look like a good buy with today's bottom as a stop. I think both of them could continue up for several weeks minimum.

    2. The IWM definitely looks poised to finally break higher. If we can get a couple of good weekly candle closes above the all time high. It should be a nice return. Leaders did well again today, showing very little weakness. Get bullish

  2. Great post Joe!

    thanks for taking the time to post these updates!

  3. Hi Joe, any possibility that we are in an expanding diagonal 5th wave up? That is, 4th wave is a simple zig-zag that has ended on 27th March low.

    With reference to your S&P500 daily chart posted today,
    - Your W wave = 1st wave of expanding diagonal
    - Your X wave = 2nd wave of expanding diagonal
    - Your Y wave = 3rd wave of expanding diagonal
    - Your X wave = 4th wave of expanding diagonal
    And 5th wave of expanding diagonal is in progress now.

    May I also query on the rules and guidelines of x wave?

    Thank you and have a nice weekend ahead! Cheers!

    1. Addendum: The time taken by "4th wave of expanding diagonal" is shorter as compared to "2nd wave of expanding diagonal". :)

    2. You'd have to find a way to count wave 2 of the expanding diagonal as a single zigzag. The position of the overlaps and number of internal waves make that difficult. I had previously tried, but didn't find it to work easily. Right now, it counts best as double zigzag. Further, since the DOW has that lower low in mid-April, it definitely doesn't work on the DOW. Then, there is that problem that the 4th wave doesn't expand in time - as you cite, above.

    3. Thanks Joe! Appreciate your perspectives and comments.

  4. Joe I like your posts but this sound like sour grapes that your preferred count is wrong. Investors bought at the highest prices in history over the past few years saw massive returns. Can easily happen again.

    1. Hi Joe,
      Agree. I think we are in for several more months of upside until this market shows us a reason to be concerned. Todd Gordon from CNBC called this a 3 wave a couple of weeks ago. His count seems to be correct. He can be wrong, but he seems to be decent at EW, if that's your thing.

    2. We are still in Primary V. I just think there will be better values to be had.

    3. Maybe. But there are good trades that can be made now. Leaders are strong. Rotation is happening and there are little signs of institutional selling. This is far more reliable then any EW count I have seen.