Thursday, June 15, 2017

GAP down then higher

The Dow and the S&P500 both gapped down strongly at the open, and then ground higher for the remainder of the day. Because of the level where the gap stopped, from a measurement perspective yesterday's potential ending diagonal for the S&P500 did not invalidate. That count is still on the table as a way to gracefully count the end of the (b) wave higher in that index.

But, also because of exactly where that measurement stopped, we were also able to validate that another alternate for the S&P500 Index is now this triangle - also shown on the SP500 2 Hr Chart which was also published in the live chat room.

SP500 2 Hr Chart - B Wave Triangle Alternate

Because the ((e)) wave down overlapped the A wave, the potential triangle has the right requirements to follow the rules for a running triangle. And, at the end of the day, price just barely latched back on to the lower channel boundary. Interesting, is it not?

Today's down gap was not filled, yet, on either the Dow or the S&P. If it is, it would lend more weight to a potential triangle, but, still the potential triangle must prove itself by getting up over the ((d)) wave - and that still leaves open the possibility of yesterday's contracting diagonal, as well. Just tilt the upper green dotted trend line higher instead of lower.

We don't know if a slight higher high will be made. We can just see the potential for how it could, in two different ways. We can also see the possibility of a truncation, where shown, but not the reality of it yet. The blue B wave would be where the green ((c)) wave is now in that case.

In terms of invalidation, any movement below wave ((a)) would invalidate both the triangle and diagonal possibilities. The third and last possibility would be that if the ((a)) wave is violated that somehow the blue B wave would become a flat wave to extend the correction on A in time. But, there is no evidence for that, yet. So, it is only worth noting at the present time.

Because of making the C = 1.618 x A Fibonacci ratio as we pointed out yesterday, I am not bullish. Right now I am neutral and just counting waves to see if this overall (b) wave, up, can come to a nice clean end. Maybe yes. Maybe no.

And since there is the potential of a triangle or a diagonal involved, and thus far, has been little follow through except from the NQ's (see daily chart below), the market must set the tone. Not me. I just try to count what I see according to the rules and guidelines as I understand them.

Daily NQ (NASDAQ 100) September Futures

Today, the NQ's hit the lower Bollinger Band, and then rebounded off it quite strongly. This tends to emphasize one of Ira Epstein's key guidelines for trading, that "one does not sell new against a lower Bollinger Band, because that is where the Smart Money is likely taking some profits on their short positions". And that is because the probability of being outside the bands on any one day - on the down side in this case - is only about 5% of the time. I only am again paraphrasing Ira's guidelines as I do not offer trading or investment advice.

The NQ price is still below the 18-day SMA so the bias is still down. That is not the case with the ES, so there is a bit of a mixed picture still at this juncture.

Bottom line is: (b), up, is done, or has just a bit farther to go. Have a nice evening.


  1. Thanks Joe. I think there is no doubt that SPX is in a contracting triangle, but I'm still counting it in the other direction, meaning that today's slow rally was wave e. My count is the same that I posted on June 5th, with the only change being that the triangle has extended out in time.
    From the 2353 low in SPX:

    a-b-c(2376-2365-2388) (c=a)
    a-b-c(2417-2403-2440) (c=a)
    a-b-c-d-e (2446-2416-2444-2419-2434)
    a non-limiting contracting triangle that 'might' have already ended today at 2434. Higher tomorrow is still okay, as long as 2444 is not exceeded.

    1. What happened to the May 18 2355, 2365, 2360 wave?

    2. Joe, I don't see what you're referring to. I have the initial wave from 2353 subdividing as 2369-2358-2376.

    3. Right .. the running b wave would be illogical. The gap tends to indicate it is 1-2-i-ii

    4. Today is Monday, and there is a new market high. There were three problems with your proposal. 1) The missing wave I described above, 2) the fact that a 'triple' or a-b-c-x-a-b-c-x-a-b-c-d-e usually does not 'follow' other waves. In other words, triples are usually complete patterns in themselves, and 3) the ending triangle scenario - while Neely sees it as valid - is so rare that it is difficult to find them in practice, scanning across several markets. The reason for the reply is so that readers try to understand to go with the 'higher odds' patterns first, rather than the lower odds ones.

  2. Joe, Since one of the things being contemplated is an ED for primary 5, I was doing some reading on ED's. While nothing was mentioned, I did notice that in the examples, wave 2 of a 5th wave ED went down slightly lower than the top of wave 3 of the impulse. Is this a guideline or a rule? Or does it just depend on the depth of wave 4 and the length of wave 1 of the ED.

    1. Hi Tom. What is a guideline or a rule? In other words, can you make a more clear and precise statement about what you think the guideline or rule is?