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.


  1. Bravo, Joe. Once again a clear thorough analysis of a wave count. A rational counterbalance to my impatient bear.

  2. Thanks Joe but it's clear any chart can have an EW label added to it. I'm interested to see what waves you add when DOW continues higher and the other indices join in. Probably in the next few weeks.

    1. No. That's not at all true. There are rules and guidelines which must be followed. When they are, higher probability turning points are arrived at.

  3. Salut joe Merci pour ton travail
    La phase 4 met du temps à se mettre en place
    C'est pour quand la phase 4 de baisse??
    Merci joe