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!


  1. Thanks. Quite interesting. Is your wave 2 bottom in the chart above at 2084?

    1. In only the daily cash chart. Yes. In the weekly futures chart it's at 2028.60. Remember the election low was almost 100 pts lower in the overnight.

  2. Joe, thanks again for sharing. Wave 2 in your weekly chart above took a long time to complete. Is it reasonable to assume that wave 4 will alternate with that and take much less time to complete (say a Fib 38% of the length of wave 2)?

    1. Hi. Doug. And welcome. If wave 4 is a simple zigzag, then, yes, it can alternate by taking less time. If wave 4 is a triangle, then, it can alternate by taking more time.