Monday, July 31, 2017

Flexibility and The "Hard Right-Hand Side"

Market Outlook: Dow changed from Diagonal Count to Impulse Count
Market Indexes: SP500, RUT, ES and NQ lower, DJIA higher

Regardless of Elliott Wave counts in the past, traders often say, "It's the Right Hand Side of the Chart that's the Hardest". This is true, and we'd like to clearly demonstrate why some flexibility is needed in Elliott Wave Counting, especially near a top.

First, this chart is in reference to the down move to 2460, on 27 July, shown below in one count in the S&P500 Cash 15-Mminute chart, below. After, the downward move, we can STILL only count three-wave moves upward. Shown as blue.

SP500 Cash - 15 Minute - The Right Hand Side of the Chart

We said, it was entirely possible price was either making a triangle or a double-zigzag. And, with today's small gap up, then gap fill, we did invalidate a smaller B wave triangle, and clearly got the higher high needed for the y wave of a double zigzag upward. But still it did not hit the 78.6% Fibonacci retracement level.

The three-wave structure is clearly shown with the blue .a and .b providing the interior waves. But then, as the day progressed, and prices hugged the unchanged line it seemed like a triangle might be forming - especially given the larger reversal candle as the last bar of the trading day.

Now, we know tomorrow is the first day of a new month, and might have some inflows again from pension funds, company bonuses, dividend reinvestment plans, 401k's, etc., and so now one has to ask, "Is this another triangle for another x" wave, before a final z wave up on the new money, as shown above?

Or, is it a downward pointing triangle after a first wave, lower? Such a downward triangle would count like this:

SP500 Cash - 15 Minute - Downward Triangle Option

Neely tends to indicate that purpose of such a triangle is so that the wave 2 precisely hits it's target at the 61.8% retrace level - which I find to be an extremely interesting and cogent observation. Prechter also allows second waves where the Y wave of the 2nd wave is a triangle.

And the bright ones among you will even realize that since we don't know if downward movement is entirely over, couldn't the whole structure be an upwardly pointing triangle, as some sort of fourth wave?? And, the answer is, why, yes, it could!

It's at time like these that any Elliott analyst who says they are "certain" of the next price movement is probably smoking locally grown products from Colorado. Or, they have exceptionally good market metrics - much better than what we can find.

Yet, while it is often best to stand-aside from a definitive wave count and let it "shake out", that is precisely the actual benefit of Elliott Wave in real-time. You see - each of those potential triangles, whether pointing upward or downward,  has clear points where they must invalidate from an Elliott Wave perspective.

And that is exactly how the count becomes clearer, and leaves fewer and fewer options until there is only one. So, stay tuned, as we go into seasonally one of the more difficult months for the stock indexes.

And have a very good start to your evening.

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