Thursday, August 31, 2017

The Fourth Wave Conundrum

Market Outlook: Still in Minor 4 Lower
Market Indexes: Major U.S. Equity Futures were Higher
Today's Candle: Higher High, Higher Low, Higher Close

Stocks as measured by the S&P500 Index closed yesterday at 2458. The futures were higher over night, and the cash market gapped up at the open. Prices traded higher throughout the session, with only a five-point pull-back to hit 2475 by 3:30 pm. Then, there was a four-point pull-back into the cash close to close at 2471.

The S&P500 high of the day was high enough to invalidate the potential triangle shown over the last several days. It's a shame, but it does represent the uncertainty inherent in fourth waves, and why I have coined the phrase, The Fourth Wave Conundrum. You are probably tired of hearing it. You just want to know what your Elliott Wave count is, without excuses. So would I. But the fact is that when a person doesn't know what the count is, then most likely the count is that of a fourth wave or B wave.

As I remarked in previous posts, IF the triangle count had invalidated, then the next best count is the a-b-c-x-a-b-c count of a double zigzag, lower. That count is now shown on the Dow chart below. But the S&P500 can be counted in the same way.

DJIA Cash - Hourly - Beginning of Multiple Zigzag

The upward price movement may not be over, and so, we are not certain the (x) wave has ended. The Dow has one gap above (circled red). The S&P filled that same gap today. The Dow did not. And both markets have the gap up open today. The S&P500 made a second new high today. The Dow did not. With the Payroll Employment Report tomorrow, it is possible the Dow's upward gap would fill.

But, upward movement for the Dow appears to be in a channel, so far, and there were a couple of closes on the 61.8% Fibonacci level. And, we note that at the y location within (x), the up wave now consumes more time than the down wave (in hours).

I have tried to show by labeling the Elliott Wave Oscillator what the support for this count is - the natural rhythms in the EWO, and the depth of the movements below the line, or heights of the waves above the line.

During live chat today, I checked out the measurements for a diagonal down for the S&P500 to the 2417 level, but the middle wave is too long for that, by just a few pips, and I won't break the rules. In some ways a triangle would have been a simple count to manage. This one, might be quite a bit more difficult - because of it's grinding nature and the nature of X waves.

Well, that's it for today. Let's see where things go tomorrow, and have a good start to your evening.
TraderJoe







Wednesday, August 30, 2017

Continued Triangle Count

Market Outlook: Still in Minor Wave 4, Lower
Market Indexes: Major U.S. Equity Futures were higher
Today's Candle: Higher High, Higher Low, Higher Close

The market as measured by the S&P500 Cash Index closed yesterday at 2446. The futures had been higher overnight, then turned lower. There was a very brief dip in the cash market down to 2444, and then prices immediately header higher. By 3 PM, the market reached 2460, and stalled there, closing at 2458.

Because of the brevity of the early morning down wave, and the ability to count another potential five waves upward, we labeled this morning's low as the ((B)) wave, circle-B, of the potential triangle's y wave of the overall minuet (c), and the swift upward move as the potential ((C)) wave, circle-C of y of the overall minuet (c) wave of the triangle. The hourly chart is below to refresh your memory.

S&P500 Hourly Cash

At the end of the day, price came back down to cross back over, or overlap downwards, the w wave of the triangle. This is not yet fatal for the upward count. Blog followers should note whether ((A)) wave up of y gets overlapped in the next day or two. If it does, that would tend to reinforce the triangle count.

There is only marginal evidence (re: breaking of the up trend line from x) that this upward wave is over. But, while upward price movement could be over for a while, we must allow in the short term that one more higher high could be made. The length of the upward wave is currently satisfactory, but price may want to tag that 78.6% retracement level.

When, or if, the (d) wave downward commences, it is not a requirement that it stay above the x wave. It may break that wave low marginally to set a price trap, provided that it remain above (b). Again, if this is a low-volume triangle, then it is doing of it's job of "wasting time and moving price sideways."

Until further notice, the alternate for this count is a double or triple zigzag lower, however, the triangle must invalidate before considering those. Tomorrow is the last day of the month, and there could be some "end of the month window dressing", prior to the first of the month which, this month, sees both the Payroll Employment Report, and possible inflows from mutual funds, 401k's, dividend reinvestment plans, pension funds, and company bonuses.

So, for now, by the price action today, it should be clear to most that even if this downward wave develops as expected, it is still a corrective wave. Price action is overlapping and choppy, and it likely means that at some point, a new high will be made or attempted. Remember, we have shown only the likely direction of the minute ((c)) wave above - we have not attempted to show it's potential length. If it develops, it could be longer than shown.

So, again, stay loose and flexible as the end of eclipse month draws near, and the Labor Day Holiday approaches, as well.

And have a very good start to your evening.
TraderJoe


Tuesday, August 29, 2017

Likely in the Triangle Count

Today's Candle: Lower Low, Higher High, Higher Close
Market Outlook: Still in Minor 4, Lower
Market Indexes: Major U.S Equity Indexes Finished Higher

The market as measured by the S&P500 Index closed yesterday at 2444. Overnight the stock index futures traded down to 2421 on the news that North Korea had fired a missile over Japan. The cash market opened gap-down this morning at 2428, and closed the gap from 21 Aug in the process. That gap is shown by the black circle on the chart below.

Prices then turned upwards, and we were able to count a complete or near-complete five-wave sequence upward. (It can be counted complete as is, or with one smaller new high tomorrow). The lack of down side follow-through after the open, the whippy action, and having 'five-waves-up' at this location most likely means we are in a triangle which served as our Primary count in previous days, even if some down side acceleration did occur today. It was quickly negated.

Here is the hourly chart of the S&P500 Index Cash.

S&P500 Cash Index - Hourly

Remember, this count contemplates minute ((a)), circle-a, triangle minute ((b)), circle-b, and then minute ((c)) downward to finish wave Minor 4. Wave ((c)) can go a lot lower than shown where it is just for directional sake.

This running triangle if it does play out does have eventual bearish implications. But, it is likely that participants are just being whipped around in the light volume now until the Payroll Employment Report on Friday and more participants return after the Labor Day holiday in the U.S.

If you believed the bit about this morning's down move being caused by North Korea, earlier, then you can also believe that the up move was caused by the duly appointed Plunge Protection Team buying the dip to send a message to North Korea that they are not going to play havoc with U.S. financial markets by sending off rockets. As for me, I'll just stick to counting waves.

This leg of the triangle is likely a complex wave, composed of the double zigzag w-x-y. The x wave shown on the chart stopped at the 78.6% Fibonacci retracement level. Thus, the triangle would suspect that the (c) wave would also stop at the 78.6% retracement level, before beginning wave (d) downward.

The good news is that - if this is the complex wave of the triangle - then waves (d) and (e) - when they occur - should be simple zigzags. For now, the impulse down count is kaput, and the best alternate to this could would be a double or triple zigzag, still downward.

Here's an update on The Eight Fold Path Method for the Three-Day S&P500 Cash Index.

S&P500 Cash - Three Day Chart - The Eight Fold Path Method

As you can see, the Elliott Wave Oscillator is still declining since the last update, and price is inching ever so slightly toward the center line of the channel. At some point - likely after the hourly triangle, above - the ((c)) wave of Minor 4 should come down to attack the lower channel boundary. At that point the EWO should go to within +10% to -40% of the zero line versus the high reading.

As I have said many times, fourth waves can be silly and unpredictable, so don't get discouraged. Stay loose and flexible, and keep your eyes on things even if on vacation or planning to go. For those of you familiar with triangles, this is a great opportunity to get some experience. The current triangle would now invalidate only below the low of (b), or above the high of (a). However, a ((B)) wave, up, of the y wave of (c) would now invalidate below the low of the x wave. The very flat nature of the EMA-34 at this location is also supportive of the triangle count.

For now, have a great start to your night.
TraderJoe

Monday, August 28, 2017

Lower high, Lower low, Higher close

Market Outlook: Continuing in Minor 4, Lower
Market Indexes: S&P500, Russell, NDX, Tran were Higher; DJIA Lower.

Stocks as measured by the S&P500 closed at 2443 on Friday. Stock Index Futures were initially lower on Sunday night, then swung higher in the morning. The cash market opened with a gap and rallied to 2449.  Then, as with many recent days, the opening gap was sold off and closed roughly within the first hour, trading down to 2439 by 12:30 pm ET, which filled the gap up open from 25 Aug.

Prices then rallied to 2443, in a slow slog sideways until the close, in what looked to be a corrective pattern, finishing at 2444, one point higher than they closed on Friday.

Here is the S&P500 Daily chart. As the moving averages begin to gain separation, prices overall had a lower high, lower low, higher close candle, more-or-less trapped within the moving averages.

S&P500 Daily Chart

Both of the previous counts we were working on remain on the table. They are minute ((a)) down and now in triangle ((b)) of Minor 4; or minuet (i) down, minuet (ii), up, and now in minuet (iii), down, of minute ((a)), down, of Minor 4. IF we are in the latter count, since today ended with a corrective sequence, upward, then there should be increased downward momentum tomorrow.

There was more declining volume than advancing volume today, and declining issues on the NYSE were ahead of advancing issues. There were more new 52-week highs than lows today in a day with very light volume overall.

Again, take it slow. Be flexible, and keep an eye on things - even if on vacation or thinking of it . A good way to make sure there is less participation in a corrective move is to do it when most people have other things on their mind.

Cheers and have a good start to your evening.
TraderJoe

Saturday, August 26, 2017

Russell Pattern

Since we have presented our overall market views quite clearly over the last several weeks and months, we thought we would take a moment to present an educational post which is relevant to the present. There are any number of people who are interested in the Russell 2000 Index. And this week something has happened which is fairly rare, but still a part of Elliott Wave analysis, overall.  Many, many people don't like to deal with complication and the rules like this, but my hope is that through repeated exposure, one might gain more comfort with some of the basic Elliott Wave patterns.

So, without further delay, here is the hourly chart of the Russell 2000 E-Mini Futures since the low on August 21. We hope you will study this pattern, and read this entire post in detail.

Perfect Diagonal

Russell 2000 E-Mini Futures - Hourly

This contracting pattern upward, is easier to discern for trained eyes, but we think that many beginning wave counters might have a problem with the details. This pattern looks, and counts, like a perfect contracting diagonal.

If you take the measurements, you'll find that wave (5) is shorter than wave (3), wave (3) is shorter than wave (1), wave (4) is shorter than wave (2), wave (4) overlaps wave (1), downward, and each of the waves can be parsed into three-wave zigzags. And that's where the fun begins.

We think the hard section for most wave counters would be the "running triangle" b wave within the wave (3), upward. A triangle somewhere in the middle of a diagonal is actually quite common. It causes the novice analyst to think that wave (3) is over at (b) - which is not an unreasonable thought - until the downward pattern starts to develop at (4), but doesn't show the rapid price drop expected after a completed diagonal.

Another difficult part is that sharp (e) wave drop as the last wave in the triangle, but it does not violate the (c) wave low of the triangle - just as required in a running triangle.

Something else that is quite common. Note how wave (5) just peeks over the top of the upper rising diagonal trend line in a very characteristic throw-over. It is incredible to see that tiny detail.

Well, if that were the end of the story, then it would be a useful enough example, but here are some other tips you might like to note.

First, in order to prove out your work, with 100 or more candles on the chart, you 'should' be able to run an EMA-34 through this pattern, as we have below.

Russell 2000 E-Mini Futures - Hourly - With EMA-34


When you do this, you 'should' find that every numbered wave winds up on an opposite side of the EMA-34 which helps assure "form and balance" in your count. And, as you see above, it does!

Next, if you add the Elliott Wave Oscillator as an indicator on the chart, you 'should' find that if this pattern is truly a diagonal, that the highest momentum will be in wave (1). Let's see.

Russell 2000 E-Mini Futures - Hourly - With EWO

Well, as you can see from the above, the peak of the EWO occurs in wave (1), with lower momentum for waves (3) and (5): with them currently showing as divergences. You will also note that sometimes in a diagonal, wave (4) does not always come back to the zero line, as it does in an impulse. This is often because wave (4) is usually shorter in price & time than is wave (2), in order to maintain the diagonal definition.

We know that some people take a much more casual approach to counting waves, and sometimes if they see any contracting pattern, they call it a diagonal. But, we have seen many on the internet where the prospective analyst doesn't even have overlap between waves (4) and (1). This is just asking for trouble in wave counting. Why count patterns incorrectly when there are numerous example of patterns that follow the rules that can help guide the way to a successful Elliott Wave experience?

For completeness, if there is any error on the chart, it is most likely on the extreme right-hand side of the chart. Due to the compactness of the waves, and difficulty in counting in that area, it is possible that wave (5), up, is really just wave a of (5), up. And that would be reasonable given the lengths in time of waves (3) & (1). But that possibility can be seen in advance, and planned for as needed from a trading perspective. Remember, wave (5) does not invalidate upward unless or until it became longer than wave (3).

Still, the market has already started lower and there is no reason to question the count unless the high of (5) was exceeded. And, in particular, if the low of the (e) wave of the triangle were exceeded lower, it would likely confirm the end of this particular upward wave sequence, and that a move lower was underway.

We hope this type of clear example furthers your Elliott Wave education, and makes you more of a believer that the rules and guidelines can be followed to yield the correct results. There are numerous examples on the web of people who don't follow the rules and guidelines. For example, there is one web-site that even today lists a pattern termed an "irregular zigzag". In other words, it would be, if the pattern existed, a zigzag with a higher b wave than the start of the a wave. The fact is that there is no such pattern. Such a pattern would "break the rules" for the very definition of a zigzag. (P.S. the correct pattern is a flat). Yet, this site keeps brandishing it's version of can do no wrong Elliott Wave, and yet gets all of the major turns incorrect.

In the most recent example, this web-site had bought the bullish fever, and, even as we were looking for a turn for Minor 4, and called the triangle, and the last wave, it was still trying to count a never-ending series of micro waves higher! Wrong yet again. Wrong at the May 2015 top, wrong at the February 2016 bottom, wrong at the August 2017 high. And keep in mind this site wants you to pay handsomely for an Elliott Wave education!

You, of course, are free to do as you chose. We will always admit our errors here, and look for why they occurred - even to further our own education. We think it's as much about the journey as it is the results, and we hope you agree.

Have a really wonderful weekend.
TraderJoe

Friday, August 25, 2017

Potential Inverted Hammer

Market Outlook: Still in Minor 4, Lower
Market Indexes: Most U.S. Equity Indexes weakly higher

Well, in true fourth wave style, a potential gap down lower did not occur today. The market closed yesterday at 2439, gapped up at the open to 2445, and continued rising to 2453 until chair Yellen's comments at the Jackson Hole Summit were released.  This rise closed the gap down from Aug 22, but in the process left another open gap on the chart. But, the price rise did not exceed that day's high.

At that time, we published this potential C wave failure count, and the C wave high was not exceeded for the rest of the day. That would make a zigzag for wave ((2)) and an expanded flat for wave (2).

SP500 30-Minute Chart : C Wave Failure?

Then prices made five-waves-down to 2442, not quite closing the opening gap. Then, there was a near exact 78.6% retrace to 2451 until Mario Draghi's comments were released. Those upward waves moved in a narrow channel, were very choppy and overlapping, and were at a lower angle than the prior upward waves. We counted the upward waves as a double zigzag w-x-y.

Prices then headed slightly lower after Draghi's comments were release to end up at 2443, still not closing the opening gap.

Only the fact that a higher high was not made over wave ((iii)) on Aug 22 keeps a potential impulse count lower alive. The triangle count is still alive too should the above count not prove to be an impulse lower. As a trader on CNBC said today, "2440 is kind of a fulcrum for the S&P500 right now." Makes sense.

The Daily Chart of the S&P500 Index is below. As we said before, one gap was closed (black circle) and one gap was opened.

S&P500 Index Daily - Possible Inverted Hammer Requiring Confirmation


On the daily chart, the daily candle has formed an inverted hammer candle under the EMA-13 and EMA-34. And this candle potentially is supportive of the impulse count, lower. Still, as with most candle patterns, downward confirming closes are needed.

For now, have a good start to your weekend.
TraderJoe


Thursday, August 24, 2017

Cash Outside Reversal Day Down

Market Outlook: Still in Minor 4, Lower
Market Indexes: DJIA, SP500, NDX closed lower, RUT higher

The S&P500 closed yesterday at 2444. At the open, it gapped higher and traded to 2450, again stopped by the resistance of the EMA-13, and EMA-34. This created a slightly larger blue b wave than we showed last night (in the triangle count), or a slightly larger wave ii in the more impulsive ((1)), ((2)), (1), (2) count.

Prices then reversed lower, closed the gap, and traded down to 2439, before rallying to 2447 in a retracement. When news hit of the continuing arguing between the President and the Senate Majority Leader, prices again reversed and traded down to a lower low at 2436. Prices attempted to rally again, but only to 2445, failed and reversed lower to close at 2439.

SP500 Daily - Outside Day Down

The daily candle has a higher high than yesterday, a lower low, and a lower close than yesterday. The futures only has the lower low. Still, no gaps have been filled, and the number of intraday reversals is characteristic of the "grinder" we have referred to in the last couple of days.

Today's trading action near and at the close was suggestive of a gap lower tomorrow. If that occurs, we may get a third wave within a diagonal lower. Since that remains to be proven, I will only show that count if it occurs tomorrow, and discuss any implications then.  Suffice it to say on the cash chart the more impulsive count lower would come into question if the high of today's candle were taken out higher within the next two trading sessions, as this would constitute a "bear trap". The triangle count can survive taking out the high of today's candle.

For now. Keep it simple. There are lower highs on the daily chart, and there are two recent lower closes. Still lower daily lows are expected in this down trend. While this does indeed even 'feel' like a corrective fourth wave - in the way that it is trading - patience and flexibility are still needed because fourth waves, as I have said before, can be quite unpredictable.

Have a wonderful start to your evening.
TraderJoe

Wednesday, August 23, 2017

Inside Day - Within the Grinder

Market Outlook: In Minor 4
Market Indexes: Slightly Lower Closes

Yesterday, the S&P500 Index closed near the highs of the day at 2052.51, at the resistance of the EMA-13 and EMA-34. Prices gapped down to open at 2443.84, trading as low as 2441.42, then trading higher to 2449, before trading lower again to close at 2444, forming an inside candle with a lower close - as shown below.

SP500 Daily - Gap Down and Inside Day

There are now three open gaps on the chart. The advance decline line, up / down volume, and new highs - new lows were slightly to the positive side. The $VIX did however close above both of the 100-day SMA and 18-day SMA's, with the 18-day above the 100-day SMA in a bullish cross.

From an Elliott Wave perspective, the potential triangle we showed yesterday remains a good possibility. Today was certainly slow enough. That count is repeated below.

SP500 Half-Hour : Potential Triangle Count Still Working

But, as with most triangles, should the invalidation level be exceeded lower, it is possible to consider a 1-2-i-ii count lower. (Keep in mind the above triangle also invalidates if, from here forward, the (a) wave, upward, is exceeded higher.

The alternate count is shown below. It is not the alternate because it is less probable. It is only the alternate in this case because there is less evidence for it. The odds are about 50:50 for either, at this point, pending some news event. The second count has the potential gaps of a third wave working in  it's favor.

SP500 Half-Hour : Impulse in Channel Alternate

The above count would assume more credibility if / when the X wave of wave (2) is exceeded lower. Right now, price was exceptionally slow today. If the speed picks up significantly in the downward direction overnight or tomorrow, the second count should be seriously considered. The second wave, (2) in this case is a rather rare bird called the flat-x-zigzag.

But for now, have a good start to your evening.
TraderJoe

Tuesday, August 22, 2017

Grinderoni

Market Outlook: Now in Minor 4
Market Indexes: Major U.S. Equity Indexes were Higher Today

After indicating, after the eclipse yesterday, that prices could head higher in a retracement and find some resistance at the exponential moving averages shown, I'm pretty sure based on feedback today that many people might be confused, as might I be. If I am, so be it. It happens now and then - especially after the only total solar eclipse to cross the U.S. from coast-to-coast in 99 years.

Yet, that is what happened. Prices reacted to yesterday's hammer candle, and gapped up forming one more long candle higher on the  chart. Here is that daily chart. You tell me where price stopped today.


SP500 Daily - Price Retrace to the MA Resistance

And, even though this call was made, I am already hearing people say "I'm confused. This makes no sense". Well, welcome to fourth waves. This is why I coined the term The Fourth Wave Conundrum. Fourth waves are just plain tricky and confusing. They may out-trick you. And they may very well out-trick me. They certainly have before.

But, what if we assume that since it was a grinding market on the way up, then it might be a grinding market on the way down? Certainly, looking at the S&P500 30-minute chart below, it already has 135 candles, and it is already not following The Eight Fold Path Method.

SP500 30-Minute Chart : Just A Grinder?


That suggests this count of minute ((a)), down as circle-a, and minute ((b)), up, as circle-b. The form of minute ((b)), up, would be that of a "running triangle" with the minuet (c) wave up made today, or possibly continuing into tomorrow. Notice, that the Elliott Wave Oscillator (EWO) does not have a divergence at this time.

Downward running triangles are a bearish structures in the short run. And, the purpose of this one could be to keep everyone guessing as to when that longer minute ((c)) wave would start lower. Remember, the pros do not want anyone on board when they do that. They want all the profits for themselves. So, they have to try to throw out a confusing structure to the many.

The only reason I propose this structure is that the waves so far neither fit The Eight Fold Path Method, nor do they fit the structures of either contracting or expanding diagonals.

This running triangle right now, would work for sure on the DJIA, and on the the S&P, as above. It might also work on the NQ futures. For now, we need to see if the upward wave stops at either 61.8% or 78.6% of the downward wave.

That is enough to do for tomorrow. So have a nice start to your evening.
TraderJoe

Monday, August 21, 2017

Lower Low, Lower High, Higher Close Day

Market Outlook: Now in Minor 4
Market Indexes: DJIA, S&P500, closed slightly higher; RUT, NDX slightly lower

Today, overall, was a day with a lower low, a lower high and a higher close, as shown by the SP500 Daily chart below. Prices traded lower as the solar eclipse approached, and then leveled off and mostly traded higher as the phenomenon passed.

S&P500 Daily - Moving Average Cross Over

Some will chose to see today as a "hammer" candle near horizontal support on the day of the eclipse, and that's fine. There is room for retracement. We note the MACD histogram traveled lower, and the EMA-13 has now crossed beneath the EMA-34 in a bearish cross. Sometimes this is the location from which a retrace begins, and there certainly is room and time for a retracement.

The solar eclipse has done it's job.

If price moves higher, I would expect the moving averages to provide some resistance to upward price movement before price headed lower again. Volume was lower today. Advance/declines were mixed, and there were more new lows than new highs again today.

From the standpoint of an Elliott Wave Count, it appears we are only in the early stages of the minute ((a)) wave of ((a)), ((b)), ((c)) to Minor 4.

So, remain flexible, open and patient, and have a very good start to your evening.
TraderJoe



Friday, August 18, 2017

Lower Low, Lower Close Day

Market Outlook: Now in Minor 4
Market Indexes: Major U.S. Equity Futures closed slightly lower

Today, overall, was a "lower low, lower close" day, as shown by the SP500 Daily chart below. The major purpose of today from a technical stand point was likely to close the gap left open at the 2525 level from 12 Jul, shown in the black circle.


S&P500 Index - Daily Chart

As long as price keeps making lower low and / or lower close days, it is best to assume the trend direction is still down. While an upward correction of the down trend could start anytime, look at how many gaps there are open on the chart between 18 May and 29 Jun. They are at risk of filling.

A couple of other things to note. The EMA-13 (green line) is at risk of a bearish cross under the EMA-34 (blue line) in the next couple of days, and the MACD histogram (similar in some ways to the Elliott Oscillator) is making new lows, while the MACD line has crossed below zero for the first time in more than three months.

Keep life simple, for now. I am. It's time to start the weekend, and then to prepare for the solar event of the season!

Have a good start to your evening.
TraderJoe

Thursday, August 17, 2017

One Gap Open, Three Closed

Market Outlook: Confirmation Obtained that Minor 4 is Underway
Market Indexes: U.S. Equity Indexes Closed Lower

Let's get right to the cash chart of the S&P500 Index - Hourly, as it was discussed in the real time chat room today.

SP500 Cash Index - Hourly

When the gap lower opening crossed below the b wave of (ii), it was possible to begin counting a third wave down, shown as .iii on the chart because a contracting triangle (dotted lines sketched in yesterday) was absolutely ruled out at that point. We counted a flat for wave .ii, and a sharp for wave .iv which shows excellent alternation in this down count. Wave .v is now the extended wave in the sequence, and we do not know that it is over yet, as there has not been a good enough retracement wave yet.

Looking at the oscillator shown at the bottom of the chart, you can see that it has made a lower low than August 11, after making the divergence at yesterday's high. At this point, it only confirms the lower daily price low in the index, but it does also offer confirmation that this down wave is a third wave of some type.

When price began to fill the gap from August 14, then we added the beginnings of a channel, and continued to trade below the mid-line of the channel all day. But, price did not travel outside of the channel today. Therefore, to be completely objective at this time, we can only suggest the count is either (i), (ii), (iii) or, as the alternate, (a), (b), (c) lower.

There is no reason to conclude price movement lower is over, but we must remember, we are now in Minor 4. And, this wave should be a SHARP or a TRIANGLE. But, a SHARP can be a zigzag or a multiple zigzag, lower. So, if we are making the impulse downward, then then down wave should likely become at least a 1.27 multiple, and trade outside of the channel, lower.

But, if a multiple zigzag will be made, then price will have a bounce off the channel, and try to get to the other side. So, let's review The Eight Fold Path Method chart we showed you in our weekend post of The Right Stuff.

SP500 Cash - Three Day Chart - Bearish Engulfing Pattern

So, as you look at the chart, you can see that there is plenty of room to make one of several patterns before getting to the lower channel boundary. So, just remember this is a Minor 4th wave, until or unless proven differently. In one manner or another, price should try to attack the lower channel boundary, somewhere around 2250 - 2330.

But, because it is a wave four, one should remain flexible and patient because we will likely also face The Fourth Wave Conundrum as the market tries to fake us out in which pattern it is most likely trying to make. If it does make a triangle, a triangle can come in contracting, barrier, running and expanding types. And, if Minor 4 makes just a simple zigzag, the market can try to make an ending diagonal wave 5. The smartest people now are "open-minded" and "curious". They seek clues as to which pattern is being made.

They are not despondent that a wave 4 & 5 pattern can have lots of unpredictability to them. For, in my Elliott Wave experience, given where we are now, that is the very nature of the beast!

Be careful, and have a very good start to your evening!
TraderJoe

Wednesday, August 16, 2017

Two Gaps Open, Two Closed

Market Outlook: 98% Probability that Minor 3 has topped
Market Indexes: Marginally higher

Because the futures were higher overnight, the cash S&P, which had closed at 2465 gapped up at the open to 2468, and traded as high as 2475. This closed  the gap from Aug 10, but just missed closing the gap from Aug 9th.

The FED minutes were released but prices had already begun selling off on the news that corporate CEO's were abandoning the President's Business Round Table. The President then shut it down. Prices traded lower on the hourly divergence with oscillator shown to fill the opening gap and down to 2464, before drifting higher again into the close, closing at 2468. As the chart below shows, prices traded on either side of the 61.8% Fibonacci retracement level, and closed below it, forming a doji candle at that level on the daily chart.

In doing so, that now leaves two open gaps on the chart in this immediate vicinity (shown in red).


SP500 Hourly - Doji Day

The advance decline line was slightly higher today, although new 52-week lows exceeded new highs but still on very light volume. We will additionally note that the $VIX has now put it's moving averages into bullish alignment again, with the 10-day higher than the 20-day, and both of those higher than the 50-day.

There isn't much else to say about today, except that we can see scenarios that point lower, and one that might point to the 78.6% retracement level (hint: we have sketched it in with dotted lines) or higher.

All-in-all, the market must now provide enough length to a wave to allow more accurate assessment. We remain patient in the summer doldrums. We hope you do too.

Have a good start to your evening.
TraderJoe

Tuesday, August 15, 2017

Three Open Gaps

Market Outlook: 98% Probability that Minor 3 has topped
Market Indexes: DJIA up; SP500, NAS, RUT lower

Below is a chart of the S&P500 Index hourly, It is one I have shown before, but updated as much as possible through today's movements.

SP500 Cash Hourly - 61.8%

The thing that will stand out to most people is that three different times the cash market tried to assault the 61.8% Fibonacci level, and, as of yet, hasn't quite done it. From the standpoint of a downward count, if the 61.8% level is not exceeded higher, then I'd conclude the Aug 11 low is minute (i) of A, lower, and the rise over the last two days is minute (ii). So, it's worth watching the overnight to some extent tonight to see how it goes.

Other than being outside of the up channel - alone just a warning signal - there is nothing critical on the chart in the downward direction yet. The 38.2% Fibonacci retracement level has not been exceeded lower, and so we can't rule out another fourth wave of an upward count just yet. Still it is possible to count only three waves upward as a, b, c of a minute (ii) wave, with only a very tiny truncation in the fifth wave of c.

If prices were to head higher - say to the 78.6% Fibonacci retracement level above - then it would be possible to count the Aug 11 low as A of the decline, and we would now be in the B wave up. Either way, nothing says the downward movement is over.

It is interesting that there are three open gaps on the hourly chart. Further, today declines outnumbered advancing issues again, new 52 week lows outnumbered highs again, down volume exceeded up volume again, and the day both opened and closed with hourly outside reversal candles, lower. So the price action is interesting, but not conclusive yet.

Well, that's it for today. Have a good start to your evening.
TraderJoe





Saturday, August 12, 2017

The Right Stuff

The featured post in our blog is entitled The Eight Fold Path Method for Counting an Impulse. We have posted it in public view for all to see. This same methodology that led us to conclude we were in the fourth wave in February 2016, seen in the lower left hand side of this chart - and not get ultra-bearish - as some websites were leading their readers over-the-edge with bearish calls, can again be seen here in the chart below. And, it's prediction is similar.


SP500 Three-Day Chart using The Eight Fold Path Method

Here again. Remember, the first step in the method is to pick the time frame that provides between 120 - 160 candles on the chart for the wave of interest. So, in this case, that is the "three-day" chart. The ruler and its flag, shows that this time frame now provides 126 candles on the chart - right in the ballpark for our analysis. I need to emphasize this point because some people only adamantly want to analyze the daily chart, or they only want to analyze the weekly chart. Those selections are fraught with problems. They do not recognize that the market is fractal with regard to time, as well as with regard to price.

Now, some people don't even have the software that allows them to do this. But, yes, there is free software, as above, that can do it for you. Oh well. You can lead a horse to water, as they say...

Next, we plot the Elliott Wave Oscillator, and note where it's high point is. The high point will always be in a third wave of some type when you are counting an impulse - just as it is here. In this case, the high point is on wave minute (i) of Minor 3 because within Minor 3, the first wave is the extended wave in the sequence. You can clearly see, that this is where the "kick-off" momentum is, and where there are the most vertical bars. And, further, as we indicated in prior posts and videos, there is no retrace within Minor 3 that is greater than 38.2% - and this is a hallmark of an extended first wave.

But still, the high point of the EWO is within Minor 3, and overall, we know that Minor 3 is the extended wave in the sequence, as it is now longer than Minor 1. So we denote the extended minute first wave within Minor 3 as x (i), meaning it is the extended first wave. And since Minor 3 is the extended wave, it is denoted as x 3. When the first minute wave is the extended wave, then, by definition, wave minute (iii) and minute (v) must be shorter than minute (i), and they are. And, specifically, minute (v), not labeled at the end of Minor 3, must be shorter than minute (iii), and it is.

Next we expect the fifth wave, (v), within Minor 3 to be on a divergence with the EWO, and clearly it is. So, now we would fully expect a wave to form in the downward direction such that EWO will come back to within +10% to -40% of the highest reading within the third wave. Given that this is a three day chart, it may require a few weeks to do that.

The next step in the process is to draw a line from wave 1 to wave 3, and then indicate the channel by drawing the line parallel to it from the second wave, Minor 2. As we expressed in the last few weeks, it is essential to draw this channel so that no part of a line drawn from (4) to 2, cuts off any part of a third wave. This is a guideline from Glen Neely's work in Mastering Elliott Wave, and we want to fully credit him with it. If you dig in to the details, you can see that the minute (ii) location is also the only location that allows this guideline to be met within all of Minor 3.

The purpose of the fourth wave lower, Minor 4, is to attack the lower channel, and to provide some alternation with the second wave in the sequence, Minor 2. So, to get down to that channel, wave Minor 4 may either be a zigzag, a zigzag that starts a triangle, or a multiple zigzag. This is because wave 2 was a "running flat" wave, and a "running flat" predicts a strong up move after it - which it did. And only a sharp or a triangle can alternate with a flat.

Within certain limits, I can have no preference for how wave Minor 4 occurs. This is part of what I have termed The Fourth Wave Conundrum. Fourth waves are inherently unpredictable, except perhaps as regard to depth of the correction, and or alternation. But, that's about it.

In terms of depth of the correction, 38% - 50% of wave Minor 3 is most common. And that provides a range of about 2250 - 2300. Again, if wave 4 forms as a simple zigzag, then wave 5 might expect to be an ending diagonal. And if wave Minor 4 forms as a triangle, then Minor 5 might be one that is a simple quick thrust out of such a triangle. We'll have to wait and see how that occurs. While it will be interesting, it may be frustrating for traders who try to play the choppy waves  that might develop. Remember the very purpose of a fourth wave is to get people to surrender some of their hard won profits from wave Minor 3. And that is probably happening to some already.

I always try to provide an alternate when I see one, and I have already done that several times, but again, there is no evidence for the alternate at this time. The alternate, to refresh people's minds is that 1,2,3 is really only A,B,C of Intermediate (1) of a much larger fifth wave diagonal. The first evidence that such an alternative would be activated is that the 4th wave became larger than 50% x Minor 3, and / or that the Elliott Wave Oscillator (or EWO) went below the level of -40% of the highest point of wave 3. Again, neither of those are in evidence.

So, with that in mind, we remain on The Eight Fold Path, and wish you and yours a wonderful weekend.
TraderJoe




Friday, August 11, 2017

Dead Cat Bounce

Not much to write about today except a 3+ point "dead cat bounce" in the S&P500 Index, so far. Looking at today's structure in live chat, there is no clear "ending pattern" such as a diagonal or triangle (fully formed) at the lows, yet. So, lower lows are possible.

The weekly candle was confirmed to be a "key reversal candle", and probable many people wanted to lighten-up before the weekend. Volume today, on the slim up move, was lighter than on yesterday's down move. Also, declining volume beat out advancing volume, even though there were slightly more advancing issues than declining issues. But, there were more new 52-week lows than there were new highs.

Today's chart is of the daily E-Mini S&P500 Futures. The Bollinger Bands are widening to the down side, and this is the second settlement of the close outside of the lower band.

ES E-Mini S&P500 Future - Daily - Bollinger Bands Widening

We note the 18-day SMA or "line in the sand" is beginning to curl lower, and if it were random chance (which it's not) each day has about a 5% probability of closing outside of the band. So, as each day progresses - as a very rough approximation - you can knock off 1% from that. So, with two days outside of the band, 5% - 2% = only 3% chance for Monday of closing outside of the band.

That's if it was by random chance. But, we know the stock market does not have a typical "normal" distribution like a Bell Curve. In fact, the stock market is known to have a "fat-tailed" distribution. That means that larger price changes happen a little more often that they should otherwise.

That is, in the nut shell, part of the mathematical reason that Elliott Wave counting works. Those larger sized price changes make for big third waves, and big C waves.

So, be careful of the casual mathematics used to describe the chances of being inside or outside of the band. Right now, there is no sign the bands are curling in, and it is possible the 100-day SMA, the dotted green line, will become a price objective since the lower band has not provided support yet. Until then ...

Have a good start to your weekend.
TraderJoe

Thursday, August 10, 2017

Key Reversal Week?

Market Outlook: 98% Confidence that Minor 3 has topped
Market Indexes: U.S. (except utilities), and European Indexes lower

I said I would update my confidence level in a market reversal from 90% once the S&P500 Index overlapped the 2450 level. That occurred today, and more. For the day, the S&P500 closed at 2438, and actually closed for the first time since July below the 50-day Simple Moving Average. That's not a particularly bullish sign, and today decliners beat out advancing issues by a whopping 406 to 2,626 or roughly 1 : 6.5, with anything over 1 : 4 usually indicating impulsive waves.

There is a day to go yet in the week, but if prices either continue lower or rebound only modestly, then we may have a "key reversal week", lower. See an update of the weekly chart of the ES E-Mini S&500 Index Future log chart, below, that we have showed you before.

ES E-Mini S&P500 Future - Weekly - Possible Key Reversal Week

A key reversal week would be one where we traded to highest all time high, over the high of the previous bar, then traded below the low of the previous bar, and finally closed lower. That could happen. It hasn't yet. We'll be patient.

In the event it does, with some backing and filling, it would be possible for Minor wave 4 to travel down to the lower boundary of the Elliott parallel trend channel you see here. Yes! This channel can be later adjusted so it better fits waves 1 & 3. But for now, it is serving it's purpose.

Once again, wave Minor 4 should take the shape of a sharp (zigzag or multiple), or a triangle, because wave Minor 2 is a Flat wave. So far, it looks correct.

For those of you interested in following the daily chart of the S&P, you might note that there is an upcoming gap in the daily chart - which could fill, and you might also note where the 200-day moving average is in the event we begin printing full daily candles below the 50-day.

SP500 Daily Chart - Trading Below the 50-Day MA

Yes, price has been here before. So some might think it would find support. But opposite of that view is that price got more impulsive today, not less. Volume is now picking up a bit, again, which tends to confirm a downside move. Further, all of the major indexes are in gear to the downside, the Russell 2000 is now at or just shy of it's 200-day moving average, and the key indicators have not rolled up yet. The RSI, above, is still pointing lower, after much divergence, and so is the daily MACD (not shown).

Well. That's it for today. Keep your head about you - even as TV commentators and other web-sites continue to be staunchly bullish. We've been here before. There will be a time for significant up waves, but now does not appear to be that time. Remember: nothing here is to be taken as trading or investment advice - we are counting Elliott Waves for educational purposes only - and refer to bullish or bearish as the prevailing sentiment character of a wave. It is not an investment posture or a recommendation of any type.

Have a good start to your evening!
TraderJoe




Wednesday, August 9, 2017

Objectively Inconclusive Day

Market Outlook: 90% Probability that Minor wave 3 has topped
Market Indexes: DOW, SP500, NDX, RUT lower, $Trans Higher

From a wave counting perspective, today was objectively inconclusive. While it was clearly a lower lower low, lower high day, it can not be said for sure that there was a five-wave down sequence. In counting the SP500 5-minute chart, there is one way to count a "five" and another way to count a "three only". Certainly, the 5-minute chart did not follow The Eight Fold Path Methodology, and that is a bit of a warning.

The daily chart of the ES E-Mini S&P500 Index futures can clearly demonstrate this.

ES E-Mini S&P500 Futures - Daily - Yin Yang Candles

Prices opened in the over-night below the 18-day "line in the sand", traveled to the lower Bollinger Band and then rebounded from it. In this view, the down move "looks" like only a three-wave move and so we don't take exception to that view. The candles look like "equal-and-opposite" candles or yin-yang candles.

But, while there clearly is a lower local low (lower than yesterday and several of the inside day candles preceding it), it follows a locally higher high, and so the chart's swing line indicator moves to neutral, while the bias is up because price is over the 18-day day SMA.

But is should be clear that the Bollinger Bands are still narrowing, and, yet, momentum in the form of the daily slow stochastic is down. And, just like Ira does not recommend selling against a lower daily band, neither does he recommend buying against an upper daily band if price should get there. (This is not trading or investment advice - just a paraphrase of Ira Epstein's Guidelines).

So, the picture is clearly mixed, bears can point to the fact that neither the DOW or S&P cash market made a 61.8% retrace yet. While bulls can point to the fact that the daily slow stochastic is no longer over-bought, and price, for now, is over the "line in the sand". Still down volume exceeded up volume, declines exceeded advances, and new lows exceeded new highs.

Therefore, with likely three-waves down, it is still possible an upward diagonal or larger triangle is forming. That is the 10% which is left over from yesterday's 90% confidence in a Minor 3 top. And, of course, on the downside, three waves down could form either A) 1, and part of a flat, or B) part of diagonal downward, with a "deep retrace" yet to come.

Two things were very clear today: 1) the DOW made a lower low at 14:40, while the S&P500 did not. Did the DOW make five waves down, and the S&P500, not? And 2) this chart of the Russell 2000 looks decidedly different from the ES or SP500 daily charts.

Russell 2000 Daily - New Swing Low

The Russell 2000 just made a new lower local swing low - below 1400 - and a fifth daily close below the 50-day SMA. This would appear to be where the deterioration is coming from. So far, our call on the Russell is off by only 2-days and 0.03. That's pretty close, no matter how you cut it.

So, again, remain flexible and open. There are times when down trends (as in the ES) start with the narrowing of the Bollinger Bands, and some sideways movement, first.

As always, have a very good start to your evening.
TraderJoe



Tuesday, August 8, 2017

Thrust out of Triangle And Outside Reversal Day Likely Completes Pattern

Market Outlook: 90% Probability that Minor 3 Top has Occurred
Market Indexes: All major U.S. Indexes lower

Far in advance of today, in the weekend video, I showed this count of the ES E-Mini S&P500 Index futures. Since publishing it, my stance has been cautious. Here is that chart.


Es E-Mini S&P Futures - 2 Day Chart - From Weekend Video

No one I know of on the web has shown you such a detailed picture of price movement with a clear and documented reference from a published Elliott Wave analyst right along side it. As far as we can tell, the wedge in this configuration just clearly ran out of time.

Further, in previous clear blog posts I suggested we were in a triangle, and that the triangle had likely completed. Today's new high was likely the thrust out of the triangle. During the live chat room, the triangle was modified to show a barrier triangle - and one quick five-wave thrust out of it.

That modification is shown below on the hourly S&P Chart.

SP500 Cash - Hourly - Barrier Triangle

Trading below the (e) wave of the triangle, and below all of yesterday's price action likely indicates the reversal. Today was a throw-over the wedge, then reversal, and the reversal is of significant concern.

You'll note that I stated there is a 90% chance that the wave count for Minor 3 is completed right here. I will up that to 98% once the E-Mini S&P500 Futures overlap wave wave (iii) at the 2450 level. I am actively looking for other alternates. I see one. I has to do with the fact that Neely shows that the wedge trend lines do not have to be connected to the origin or zero point. But, I will not be discussing that one until / unless higher highs are made.

Today's losses supposedly occurred on saber-rattling between North Korea, and the U.S. If only it were sabers!  Stay safe. Be good, and be flexible for the time being. We hope to be able to show some price confirmations, soon!

Have a good start to the evening!
TraderJoe

Monday, August 7, 2017

Triangle Appears Completed

Market Outlook: Topping, but breakout of triangle so far.
Market Indexes: DJIA, SPX, ES, NQ, RUT, NDX: Higher

On the lowest volume in years (see the ZeroHedge article at this LINK) the S&P500 Index broke out of it's potential triangle - that we have been counting out for you here - and exceeded the ((D)) wave higher. Here is the SP500 Cash Half-Hourly Chart.

SP500 Cash - Half Hour - Now Above Wave ((D))

We have been watching and noting various volume levels in these markets for years, and this is the lowest ES E-Mini S&P500 Futures volume since 2001! So, at nearly half the average volume, even for a light summer day, it can not be explained by casual observations like "summer vacations", or, "summer doldrums". There is a phenomenon going on here, and we think it is worthwhile to try to understand it.

More than likely, it is more explained by the perception of "risk", and the desire to be prudent as the key Fibonacci levels are being reached.

Having exceeded the ((D)) wave, and the 78.6% upward Fibonacci ratio, it would be entirely possible to label this wave as a fifth wave truncation - which would put the Dow and S&P back in alignment. Such an assignment would make even more sense if the ((E)) wave of the triangle was exceeded lower, but it hasn't been yet. So, we will wait to see if the five waves up we counted is all of a fifth wave or just the first wave of a fifth wave.

Either way, risk is increasing, and the daily Bollinger Bands are narrowing in on price. So, we should note that even though we were able to label a triangle days ahead of today's break above the ((D)) wave, there are still things the market could do to make like difficult. For example, as an alternate, price could travel to between 90 - 100% of the prior all time high and make just a ((B)) wave before turning lower in an elongated ((C)) wave.

We need to take wave labeling a day at a time right now. But, we don't like what we are seeing in the markets from the viewpoints of 1) volume, 2) impulsiveness, and 3) sentiment. That is just what it seems like - but it's based on objective facts and statistics. As just one example, even though market indexes were uniformly higher today, down volume on the NYSE exceeded up volume, and the number of advancing issues trailed the number of declining issues. These are example of the types of divergences we expect to see as significant market highs approach.

Stay tuned and have a good start to your Monday evening.
TraderJoe

Saturday, August 5, 2017

What's Wrong with the Dow?

People keep asking, "what wrong with the Dow?". They compare the Dow Jones Industrial Average to the S&P500 which has not made higher all time highs in seven days, or to the Russell 2000 which has made several lower daily lows, and they can't believe what they are seeing. How can the DOW be skyrocketing - while other indexes only gain a point, or even decline?! Somehow they forget they are dealing with an index of only 30 stocks, compared to the S&P500 which has (sic) 500 stocks or the Russell which has 2000 stocks. So, the influence of one or two stocks, like Boeing or Apple, on an index is a lot greater in a 30-stock average than it is in a 500 stock average or a 2,000 stock average.

But no. Logic aside, many beginning Elliott Wave counters insist something is wrong, somewhere. But the facts are the two charts below will show there is nothing wrong with the Dow. Regardless of which of the two wave scenarios you chose to subscribe to, impulse or diagonal, the DOW is still just traveling along in it's own little channel - as if nothing happened - and, as yet, has to hit it's 1.618 Fibonacci extension level from the election low.

Dow Jones Industrial Average - Weekly - Impulse Interpretation

A lot of wave counters do not wish to subscribe to this interpretation with Minor wave 2 on the Election low. But again, we have showed in our YouTube video how, since the Election Low, due to the lack of pull-backs greater than 38.2%, the first wave up, minute ((i)) is most probably the extended wave in the sequence. That means that minute wave ((iii)) is shorter than minute ((i)), and minute ((v)) should therefore remain shorter than minute wave ((iii)). So far, it is.

But, please look the to the right of the chart. In this interpretation the DOW has not made it's 1.618 Fibonacci extension yet. So, is there something wrong with the Dow? Or is  there something wrong with wave counters who want to ignore the Dow's lonely Orphan Wave at the February 2016 low when compared to the S&P500? We have included this wave in the Dow's fourth wave triangle. What are you doing with it? [Hint: yes, it is possible to see it as wave minute ((i)), and the August 2016 high as the top of Minor Wave 1, with a long drawn-out fourth wave ((iv)) down to the June 2016 low. This would still mean the election low is Minor 2, and even higher highs are possible for the Dow. Just redraw the Fibonacci ruler from those points. But, we warn there is one downside to that count in that Minor 1 would not be on the left-most edge of the parallel channel.]

Is there something wrong with the Dow, or is there something wrong with wave counters who want to count 1, 2, to Jun 2016, and then ((i)), ((ii)) to the election low - even though we have showed them that such a count "cuts off" a part of the wave 3 rise - counter to some of the guidance provided by Glen Neely in Mastering Elliott Wave?

You see, experienced wave counters know that near an all time market high the advance decline line, and several market indexes will diverge from each other - sometimes for months. This would be a totally expected development - not something to cause one consternation and grief.

In the above chart, wave Minor 4 would be expected to be zigzag or triangle structure, to alternate with the FLAT wave Minor 2. So far, it hasn't started yet in the DOW. Then, perhaps, wave minor 5 will either truncate or form an ending contracting diagonal to recognize one of the largest tops in the wave cycle since the 1932 low.

All of this is possible. But, then too, since we have absolutely no preference, we must also allow that the following count - which would only start wave (1) of a diagonal in the Dow is still practical. The downside to it is that it would seem to take much more time to complete. But, it might represent something like the U.S. Federal Reserve vehemently fighting a decline in stock prices.

Dow Jones Industrial Average - Weekly - Diagonal Interpretation

Remember, in a diagonal each of the waves must be a clear three-wave zigzag, and so minor A, minor B, and minor C are to Intermediate wave (1) of the first of five legs to a diagonal Primary wave ((5)). The advantage to a count like this is that much more severe divergences could develop over the longer time cycle. But, besides the fact that such a count - should it occur - would likely require more time to complete, there is no evidence for it yet in the way of overlapping waves, so it remains the alternate at this point in time.

And, now you can clearly see why since the low of the S&P500 in February, 2016 we have repeated that we have no preference of impulse or diagonal: and that is precisely because of our dictum in The Eight Fold Path Methodology that A,B,C is the same as 1,2,3 until it is not (that is until 1,2,3 is disproved or otherwise invalidated by overlap or an other disallowed measurement). Both methods of counting allow for either a "3rd wave wonder to behold", or an "unrelenting C wave that has few pull significant pull-backs."

But, here is an item of significance, while in the impulse count, wave minor 4 could be a zigzag OR a triangle, in the diagonal count wave (2) must only be a zigzag. Wave (2) could be a zigzag where the B wave of the zigzag is a triangle, but it must not be a stand-alone triangle in it's entirety. If only a large triangle appears in the Minor 4 location, then we know, we are likely dealing with the impulse count. But, if only a zigzag appears for Minor 4 or wave (2), then we will not be able to tell - by shape - which form the ending wave will take. We may be able to tell by depth, but not by shape alone.

But, once again, we do not want to put the cart in front of the horse. Relax, and seriously think things through over the weekend. As best I can tell, there are many more waves to play out yet - some of them lower, and some of them higher. We'll try to keep you abreast of the highlights. Most importantly, try not to to be confused. What we are dealing with here are historic cross-currents of sentiment. While, the market may be historically choppy in such a situation, as for example with a historically low $VIX, and an S&P500 that hasn't made more than a 1% move in quite a while, that should not be a confusing situation for a logical thinker. What if it persists for a while?

Have a good weekend.
TraderJoe

Friday, August 4, 2017

Little Change - 2

Market Outlook: Topping, but possible triangle
Market Indexes: SP500, Dow, RUT, Trans, ES, NQ: Higher

The S&P500 closed yesterday at 2472, and rallied eight points on an opening gap to 2480 on the strength of the employment report. This rally, which closed yesterday's down open gap, was sold within the first 15-minutes. Then prices turned and "nearly" closed the opening gap, within the first half hour. But, the gap remained open by 0.01 throughout the remainder of the trading day (somebody sure has got a sharp pencil!).

It has now been seven days trading in what could be a triangle, which can resolve to the upside.  For the triangle count, the internals would resolve something like this.


SP500 Cash - Half Hour - Plausible Triangle Count

Such a triangle can be resolved into all zigzags and and ending triangle in the ((E)) wave. The only item that seems odd is where ((B)) and ((D)) slightly exceed a 78.6% retracement, then ((C)) only slightly exceeds a 61.8% retracement, so it's proportions are slightly off. If this is a valid triangle, then it would likely resolve to the upside, and it would be one of the few daily triangles we would have had that was not a "running triangle" - with a higher B wave. Running triangles in the upward direction are bullish, and this one would only be "neutral": it would have less power to make higher highs than a running triangle would.

But, the price changes are so small, we are not sure about the triangle, even though it appears valid. Triangles must prove themselves, in this case by making a higher high than the ((D)) wave, at least, and this one has not yet. Also, there are still other ways the ((E)) wave could resolve. For example, Monday could open lower and/ or travel lower, and make the ((E)) wave a double zigzag, lower.

If the triangle does resolve to the upside - again at least over the 78.6% Fibonacci ratio - whether or not a new all-time high is made - then we would likely conclude the overall upward wave there, as it would be more in-synchronization with the Dow Jones.

For now, we must remain neutral until there is a more clear resolution. But remember, even if this is a triangle, triangles usually precede the last wave in the sequence.

What if it's not a triangle? As we stated before, it is possible to have a truncation at the first (B) at 2483 on 27 JUL, and five waves down that day to start a larger movement. The exact downward count would depend on waves made next week, but let's not put the proverbial cart before the horse.

Have a good start to your weekend.
TraderJoe



Thursday, August 3, 2017

Little Change

Market Outlook: Topping, but possible triangle
Market Indexes: SP500, ES, RUT, NDX down, DJIA up

The S&P500 Index closed at 2477 yesterday. The market gapped down at the open, and traded six points lower to 2471. Then, the market traded largely sideways for the afternoon, making one lower low at 2470, then started to rally to 2475 until the announcement by the Wall Street Journal of a Grand Jury being empaneled in the Russia probe. At that point, the index sold off to a perfect 78.6% Fibonacci retrace at 2469. It could make a possible B wave within a triangle.

By the end of the day, the NQ futures which had previously lost their embedded slow stochastic were back at the 18-day SMA (the "line in the sand"), and the ES futures had lost their embedded status by the settle, but need to be watched to see if they gain it back (the next day only).

Daily NQ Futures - Back to 18-day SMA

With today being a low volume "inside day" in the S&P500 and the NQ (but not in the RUT, with a lower low day), both the impulse count downward, shown yesterday, and the triangle remain viable forms. The market is probably waiting on the Payroll Employment Report, tomorrow morning, to better define the direction.

Have a good start to your evening.
TraderJoe

Wednesday, August 2, 2017

Flexibility and The "Hard Right-Hand Side" - 3

Market Outlook: Topping but a possible triangle at several different time scales
Market Indexes: Dow, S&P500, NQ Higher. RUT Lower

The S&P500 closed yesterday at 2476, then gapped higher to 2481 on the overnight to-do about Apple's earnings results. Finally, that 78.6% Fibonacci level was broken to the upside, as shown. But, the 90% level, interestingly, was not hit - which tends to rule out a flat-style wave.

The gap-up was immediately "sold-on-the-news" and an apparent five-wave sequence in good form was counted out on the intraday chart. Based on these considerations, since there was no fourth and fifth wave apparent in the opening spike, it looked like the thrust out of another triangle. The y wave up finished on that spike, and appears to count like that in the chart below, in which it's .b wave was yet another triangle.

SP500 Cash - 15-Minute Continuation

The five waves down broke both the prior (e) wave, and  the (c) wave of the former x wave triangle, filling the gap from two days ago. But this wave had insufficient power to break the low of 27 Jul. Then prices began the upward march toward  the end of the day, ending at the underside of the larger (green) channel that was broken lower today, forming a smaller (turquoise) channel.

The sideways nature of the EMA-34 at this time, and whippy, but narrow point-range action suggests that either yet a LARGER triangle is under formation, or we topped at y. It is too early to say which yet.

For those having trouble envisioning a larger triangle, I will sketch it out below, along with the alternate. The idea behind such a triangle is that it might be a pre-payroll employment report triangle, since this number might affect whether the FED raises interest rates in September, or not. This triangle uses the hourly chart, and, again, is an idea only. Triangles have to form properly in every detail.

SP500 Cash - Hourly - Possible Larger Triangle

The black count is the triangle, the blue count would be a downwardly pointing impulse - which is the usual opposite of a triangle. For this hourly triangle, it would invalidate below 2459, as shown in red.  The purpose behind such a triangle might be to even out the counts on the Dow and the S&P500, to allow them to top more near each other.

And, yes, again for the curious ones, there is even a larger potential triangle on the chart, starting on 18 Jul if you want to try to sketch that one out. (Hint: it results in two less waves at the end).

Well, that's it for today. Stay alert and flexible as the market makes it decisions. Once again, as an Elliott analyst, I don't make the waves. I can't make them happen according to some preordained plan. I can only count the gyrations as best as possible, following the rules, with an eye to the couple of logical possibilities at the time.

Have a good start to your evening.
TraderJoe