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.


  1. what about running triangle in play before the final move in sp. thanks

  2. Replies
    1. i think starting around 27 july when A went from 2494 to 2860

    2. So, if A was a down move from 2484, as you said, the there would be B up, and yesterday would only be the C wave down. It was your use of D label that was confusing. As I said, the 10% is for a larger triangle or diagonal.

  3. Put/call ratio seems too high for any significant sell-off. August should be a strong month for stocks according to the 1929 parallels I'm following. That would imply a 5 to 10% move up in the Dow/S&P by the end of Aug. Pretty big move, but not out of the question.

    1. Not headed in the right direction, so far.

  4. Aug 9th, 1929, DOW dropped 5% in one day. Aug 30th, 1929 DOW closed 13% higher than the Aug 9th lows.

  5. Salut tim C'est quoi ton scénario pour la suite?