Lest We Forget

In weeks past, I showed how a different conclusion than the Elliott Wave International count on stock indexes was possible, if two things were considered: A) the low of the election night in the futures were considered as a wave 2, and B) if Neely's consideration of the meaning of the wave three trend line is that no part of wave three should break below a line connecting waves 0 and 2.

With those two ideas in mind, I can now only offer the following chart as an objective assessment of the current situation.

ES E-Mini S&P500 Futures Weekly

Because of the measurements on the right-hand side of the chart, I don't have to say too much. First, at Friday's high of 2517.75, we have not quite made the target of 2518.25, yet. Fractions away. And, yes it is possible for a 1.618 to be over-shot slightly. But, not by much ... otherwise something else is going on. Hence, the reason I contended in Friday's post that risk is increasing.

Student's of Elliott Wave know the importance of a 1.618 measurement. But do any of us appreciate what really happened on election night, with the drop of more than 100 points in the futures, and then regaining all of it and more in less than twenty-four hours? Lest we forget ...

Have a good rest of the weekend,
TraderJoe

Supplemental: To answer questions regarding the current status of the market versus The Elliott Wave Oscillator, I have attached this supplemental chart of the S&P500 Index on a three-week basis. That is the time-frame that provides between 120 - 160 candles from 2009. It currently provides 149 bars.

S&P500 Cash - Three Weekly - The Eight Fold Path Method

The monthly chart - at this time - would provide only 8 yrs x 12 + 5 = 101 candles. On this time frame, the EWO has diverged and is currently red. It is also worth noting where current price is in relationship to the upper channel boundary.

Pop out of Triangle

Market Outlook: Still in Minor 3, Risk Increasing
Market Indexes: Major U.S. equity indexes higher
SPX Candle: Higher High, Higher Low, Higher Close; Trend Candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 did make higher highs today, most likely out of the triangle formation we saw yesterday. Here the continuation of yesterday's 15-minute chart which shows that pattern best.

S&P500 Index 15-Minutes

Apparently the target of the wave is the 1.62x Fibonacci extension level shown at the top of the chart at the 2521 level. Again, the very purpose of the triangle was to equalize the net price distance taken by wave iv versus wave ii since 27 September. It did that. Further, since wave iii is longer than wave i, then wave v can be any reasonable length.

I did label the 25 Sep wave high as 'a'. But, in checking now with the daily chart, this type of wave count makes the most sense.

S&P500 Index - Daily Chart

So, even though we got the up wave that a triangle would predict (on the 15-minute chart), an expanding triangle at the high - the previous (d) wave count - would now look disproportional, and would result in wave iv of (v) having a much larger point travel than wave ii of (v). Therefore, I have simplified the count to a simple flat for wave iv of (v), and we are now impulsing upward. That may change that 25 Sep 'a' wave to a '1' wave. If it does, that's OK. A top is not evident yet. Maybe close, but not evident.

The chart that currently looks the most straight-forward is this chart of the NQ futures. Granted that looks can be deceiving, the pattern is what it is.

NQ Futures Daily - Potential Diagonal

In case you are wondering, we tested all sorts of intra-day diagonal patterns on the S&P500 today. We were flexible and open-minded, but, in the end, none of the required measurements held water. The NQ futures would have to do the same. A wave (v) would have to remain shorter than a wave (iii), and it should cross the high, but is not required.

It is interesting to note that the EWO is now back near the zero line in fourth wave territory, and another high would likely provide the final likely divergence.

Have a good start to your weekend.
TraderJoe

Testy Market

Market Outlook: Down trend continuing, probably Minuet iv of Minor 3
Market Indexes: Major U.S. equity indexes higher, NDX lower
SPX Candle: Lower High, Higher Low, Higher Close; Inside Candle
FED Posture: Quantitative Tightening (QT)

If you have not read yesterday's post, please read it for perspective. The market is being a bit testy from a short-term wave counting perspective.  I said a fifth wave up, v, would make a lot of sense in the c wave of (d) wave of an expanding triangle. The market opened slightly lower, made three waves down, but did not invalidate a wave iv, yet. But the downward wave is exceedingly long.

S&P500 15-Minutes Top or Triangle?

So, after the three-waves-down, a five-wave sequence did form in the shape of a near-perfect diagonal, which could represent the high of wave v, with a very slight truncation. But it did not go over the high. So, with three-waves down, and a long wave iv, that makes us question the possibilities of a failure for wave (d) of the expanding triangle on the daily chart, or the possibility of a triangle in progress for wave iv, as shown in the chart above.

If a triangle forms it's purpose would be to even out the lengths of the waves between wave ii and wave iv. The net distance traveled by a wave four is often similar to or less than the net distance traveled by a second wave, and now, only a triangle would do that. Otherwise, with a deep wave four, a failure at the high has to be suspected. For this potential smaller fourth wave triangle, above, it could be a contracting triangle, a barrier triangle or a running triangle.

By-the-way, here is how we counted out the diagonal on a three-minute chart, just as it was in progress today in the live chat room. As you can see, wave (v) is shorter than wave (iii), wave (iii) is shorter than (i), wave (iv) is shorter than (ii) and overlaps wave (i), and they are all zigzag sequences. You can also see a beautiful little leading diagonal for wave a of (v), itself. Amazing. The only thing not perfect about the diagonal was it was missing the characteristic upward 'throw-over' of the upper diagonal trend line.

S&P500 Index 3-Minute Chart Perfect Diagonal

The high of the diagonal was not exceeded by the close, but it could be if the futures gap higher tomorrow. One point to note is that prices closed around 2,510 level in cash, and the low of the diagonal is at about 2,502. That means that only eight points separates a continuing up wave from the start of the next down leg. The other point to note is that since the diagonal is inherently a triple zigzag, it can be counted as a "b" wave of a triangle at it's high, already, also. In which case, there may have already been a "c" down in the triangle, and a "d" wave up. So, stay tuned.

Yes. That is precisely the reason there are alternates in Elliott Wave counting : because a contracting triple zigzag can either be the triple zigzag, or it can be a diagonal, if the rules are met.  It is one way of the market insuring that it has options and that it's future path is not certain.

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

New ATH

Market Outlook: Down trend continuing, probably Minuet iv of Minor 3
Market Indexes: Major U.S. equity indexes higher, S&P500 new ATH
SPX Candle: Higher High, Higher Low, Higher Close; Spinning Top
FED Posture: Quantitative Tightening (QT)

How can someone conclude that a new all-time high means that a down trend is likely continuing? It's because I think with today's tax announcement, which made new highs on some indexes, but not others, is still part of a fourth wave.  As a result of the new high, I did switch to my alternate count, shown previously in the live chat room. I present that count on the daily chart below.

SP500 Daily in Minuet iv

The minuet wave iv is an expanding triangle at the present time. I do not see it as an ending diagonal at present. There should be an opportunity for the (e) wave and wave iv to cross under the EMA-34 seen on the chart above.

The simple reason for the adoption of this count is that I can not count the internals of the recent waves, including the new high on the fifteen-minute chart, as being in anything other than an expanded triangle with the waves we currently have. Here are those internal waves.

S&P500 Cash - 15 Minute Chart - Internal Waves

It would be best if the current upward wave had a slight new high or a slight truncation tomorrow in order to complete a clean five-wave sequence to c of (d) of the expanding triangle. However, it is very clear to me that the waves from 20 Sep to 22 Sep have that running triangle in the middle of them which stopped all downward movement. That requires that the count of these waves to fully consider that triangle - which this count does.

Further, you will note that blue .c wave is under the low of the blue .a wave today! That also requires that these waves be considered as part of a FLAT wave. I do think the higher high today, and the two new highs in the Dow Transportation Index once again puts the Elliott Wave International style count in significant jeopardy.

Of importance, with today's new high there are again no gaps above the market. All the gaps are below the market - for month & months & months.

Well, that's it for tonight. People are 'piling' into the Russell. That's probably not going to turn out pretty. I remain flexible and patient. I hope you do too.


Have a good start to the evening.
TraderJoe

Does Elliott Wave Work on All Time Frames?

Market Outlook: Down trend continuing, probably Minor 4
Market Indexes: Mixed, $TRANS new all time high
SPX Candle: Higher High, Higher Low, Higher Close
FED Posture: Quantitative Tightening (QT)

Before we get into the discussion of all time frames, we first will note that within the S&P500 10 Minute Chart, shown yesterday, we appear to have completed the (4)th wave upward of the potential diagonal, then made an A wave down, and a B wave up to the 78.6% Fibonacci level, as shown in the cash chart, below. I am again showing this chart not to confuse any issues. Wave (4) is now longer than wave (2); it is 1.27 x (2), and it overlaps wave (1), and counts as a zigzag. All as required.

SP500 Cash - 10 Minute Chart - Continuation of Potential Diagonal Count

So, during the day, it was possible to count the fourth wave starting as a Leading Contracting Diagonal A wave, as shown. Five waves in a contracting pattern, actually as 5:3:5:3:5 this time. Then, a short B wave down, and the gap up C wave to (4). As you probably know, this morning's opening gap higher was indeed closed within the first two hours of the session.

Then, we counted a five wave sequence down to the A wave of (5) lower, and were looking for a B wave upward, which occurred, and, as shown retraced to the 78.6% Fibonacci retracement level.

Because everything was so choppy, and relatively slow, for fun, we thought we would count the B wave up on the one minute chart - just to see if it would make any sense. The count below was developed minute-by-minute, in absolute real time, and I guarantee you that no part of the count was hedged or fudged or reverse-engineered after close.

SP500 - 1 Minute Chart - B Wave Count

So, the B wave count started with a clear five wave sequence to the ((a)) wave.  This meant there should be "at least" five more waves to follow in the upward direction.

This was followed by three waves down to the (a) wave, and then a "hammering" at the 2497 level that constituted the lower boundary of a triangle. You can clearly see each of the three-wave sequences that formed the triangle, and the fact that (c) and (e) are no lower than (a). The key to the triangle was the mid-triangle whip-around: very characteristic of a triangle. And then the contracting trend lines required of a running triangle. This running triangle is temporarily bullish and portended higher waves to follow. The presence of the triangle is what allows the ((b)) wave to take more time than the ((a)) wave.

So, then a five-wave sequence was counted out, live, and in detail, including the alternation in wave (iv), versus wave (ii). Wave (ii) is a sharp, and wave (iv) is a very slightly truncated flat. This ((c)) wave took more time than the ((a)) wave, and is another good sign of alternation within a corrective pattern.

Then occurred the most unmistakable ending contracting diagonal with a slight vth failure wave. Perfect to end the B wave overall, at ((c)) = 1.27 x ((a)).  This diagonal was completely retraced in less time than it took to build it - confirming it's diagonal nature, and this constituted wave ((i)) back down to the lower boundary of the trend channel drawn.

When wave (a) up was spotted, it was too short in time to correct all of wave ((i)) down, so, I hypothesized we might get a flat wave (b) which did occur, and, then, an ending expanding diagonal for a (c) wave, up. The key to spotting this diagonal was the little "hitch" in the middle of wave 3, up. If this diagonal was true, then it could not upwardly exceed the high of the previous ending diagonal's failed vth wave. And, it didn't, by tenths of an S&P point!

Then, again, true to form, the start of the diagonal was exceeded lower in less time than it took to build the diagonal, validating this latter expanding diagonal and most likely initiating wave ((iii)) lower, after making a flat wave. Notice how the Elliott Wave Oscillator now confirms a third wave in progress with the lowest low on the chart!

So, look things over and consider the question seriously, "does Elliott Wave work on all time frames?" You bet it does! Speaking of time frames, the greatest single lesson I have learned in Elliott Wave work is to give the corrections a lot of time, often more time .. in terms of numbers of candles .. than the impulse waves. Once I saw the A wave down within the likely wave (5), that is what allowed me to have the patience to count out the B wave up in this excruciating detail. I certainly will not do that every day.

But I think for this particular example, it was worth every minute! What do you think? If you review this one chart in detail you will find, included is about 80 - 85% of everything you need to know about Elliott Wave theory, period. No gimmicks, no broken rules, no unheard of patterns - just real high energy and accurate wave counting.

P.S. With the Dow transports new recent all time high. It likely confirms that the overall upward wave signature is not over. I will discuss best options on the weekend.

For now, have a very good start to your evening.
TraderJoe

One of Two Choices

Market Outlook: Downtrend Likely Under Way
Market Indexes: Most Major U.S. Equity Indexes Closed Lower, RUT higher
SPX Candle: Lower High, Lower Low, Lower Close
FED Posture: Quantitative Tightening (QT)

When the expanding triangle we showed you yesterday failed to produce significantly higher highs today (we warned it could fail), we recognized immediately what had happened. If we look at the hourly count of the SP500 below, we can see a completed count.

S&P500 Index - Hourly - Potential Top

The count has a contracting ending diagonal wave ((5)) of c of (z) which has already been exceeded lower validating such a potential upward diagonal. Such a count ends exactly on the FED meeting day. And it ends with the slightest truncation in a (z) wave. Interesting! Now while we must at least allow for the possibility of one more higher high, we must conclude the wave count could be over - at least for a while. That higher high would be made possible by the "last ditch" wave ((4)) flat count shown in brown on the right of the chart, and the fact that the NQ may not have topped yet.

Because of the length of the downward wave from c, we may indeed have started a down trend.You will note that wave (1) upward of ((5)) has been overlapped downward, but wave ((1)) has not yet been. That overlap, and the shape of the wave, in general give a significant warning.

Further, we want to remind you that since we counted (w),(x),(y),(x),(z) to the high, that may have the same implications as the expanding diagonal (i), (ii), (iii), (iv), (v). This is a very dicey situation indeed. If that is an ending diagonal, then it is possible (but not required) to agree with the proposed count by Elliott Wave International, as below.

DJIA Three-Day Chart EWI-Style Count in Which Entire Bull Market is Completed

The strength of this count is that is does end in an ending diagonal - the same one we showed you above, on the hourly S&P500, which can be counted identically in the DOW. The weakness of this count is that there is no touch of the lower trend line (yet). Further, the Elliott Wave Oscillator has not traveled to the zero line within about 160 candles - which is where we should start to expect a fourth wave.

That means the alternate count would still be the Minor 3 wedge-style count - which may be counted like this.

DJIA - Three-Day Chart - Minor 3 Count

And, if, instead, that is just a triangle for minute ((iv)), as suggested by reader mblcta, then it would not be a diagonal, and it would not necessarily have to end the whole wave sequence. It would just signal the end of Minor 3.

We will be among the first to remind readers, 1) that until there is unqualified downward overlap, there is no positive conclusion that upward movement is over - only that the probabilities continue to grow; 2) that the point loss from the top is quite benign, and the only way we can count from the top in a true downward count now is with an expanding diagonal shown below, and 3) even if Minor 4 begins, it should begin with a sharp zigzag which might travel to the lower channel boundary.

Here is the potential expanding diagonal, below on the chart of the SP500 10-minute time frame. In order for this diagonal to work out, there must be overlap of wave (4) on wave (1), and wave (4) must become longer than wave (2) - which it has not yet. (Addendum: after the close, the futures did make the upward overlap. We are likely to see that tomorrow).

The overall problem for an impulse downward count is there is a very clear "running triangle" in the middle section of wave (3). And, since we recognized that triangle, the waves we have been calling have worked out very well in real time. Thus, we are using a diagonal count, lower.

S&P500 10-Minute Chart - Potential Expanding Diagonal Lower

The problem for the market is that if wave (5) does become longer than wave (3), as required in a true expanding diagonal, than it can do some real structural damage to anyone's upward wave count, because this downward wave will become quite long compared to the prior upward waves.

So, let's take this one step at a time. One thing to be sure of - we never concluded - like some web sites that we were in some nearly never-ending series of micro third waves that had to unwind yet. We have always been exceedingly cautious on this market, and we are still. It keeps breaking down, now, rather than completing upward counts, so far.

If we get a valid downward wave, I will let you know. And then the market must also make a valid retrace that does not take out the prior all-time highs. Regardless, my mode of operation right now is not one of dogmatic rigidity. As I have said before, this is the time for patience and flexibility as the market attempts to fake us all out.

Have a good start to your evening.
TraderJoe

Dow - One Million!

This is no joke. In today's issue of Barron's Magazine, famed investor Warren Buffet began talking about Dow 1,000,000. Granted he is referring to one-hundred year's hence in 2117. This is happening, of course, as our weekly bullish sentiment indicator is stuck at the level of 60.4 - a second week in a row over that level. While, we offer no opinion on Buffet's price level, it sure seems a bit frivolous to me to try to be making a prediction one-hundred years in the future. A lot of things could happen between now and then.

For our part, we would rather address serious Elliott Wave counters, and ask from the chart below, "why is it that an expanding triangle can be counted perfectly at this level?" You've seen part of the chart in several near-real time posts before. Here is the rest of the chart.

DJIA Cash - 15 Minutes - Expanding Triangle

Why is it that this pattern was able to be counted out for you in such detail, including the complex double-zigzag of the triangle, before the rebound began, and importantly, the predicted 'throw-under' of the (a) to (c) trend line, just as we said Neely penned was most usual?

Why did this all occur - and with you having notice on this web-site in advance of the last moves? Is the market trying to tell us - just as many web-sites and pundits are still projecting much higher highs - that the last high in five-waves may be dead ahead (even if it fails)?

The answer is that I don't know for sure. I do know that expanding triangles are exceptionally rare birds. So few of them have been seen that there are very few samples to study to have high reliability in their predictions when they occur at the end of impulses versus the end of corrective waves.

So, while we are grateful to have discovered this pattern and counted it out, this will certainly be a moment for me to learn and to be flexible as to result. As we have showed before, there is one way to count the entire bull market as complete with this next move up. There are other ways for it to continue, but we will be in better position to judge over the next several days. The one thing that is usually true is that a triangle usually precedes the last wave up in a sequence.

We will also point your attention at this time to the 4-hour cash chart of the NDX, and this potential wedge count - which could easily turn into a diagonal.

NDX Cash - 4 Hr Chart - Potential Wedge

We do not necessarily go around looking for wedges, diagonals, and/or triangles. But sometimes we need to find them because that's what the market is actually doing, instead of using arbitrary or pre-ordained methods of wave counting - especially when the Elliott Wave Oscillator shows a declining level of momentum on each peak. You will note that with a tighter wedge line, there is a way to count the pattern as over. But, we will give this one some time, yet, and see if it wishes to make that classic 'throw-over' of the upper trend line.

So, again, either way, patience and flexibility are the key.

Have a very good rest of the weekend.
TraderJoe

Mid-Day Update

See yesterday's post. This may be updated later tonight.

DJIA Cash - 15 Minute Chart - Expanding Triangle

The potential expanding triangle seems to be developing well, with a new low below the prior c wave, suggesting an a wave down in the 'complex' leg of the triangle. Neely suggests that 'usually' the lower trend line of an expanding triangle is exceeded lower. Let's see if that occurs. And don't forget there is a gap to the left of the chart.

And here is what the hourly looks like. The attack of the lower channel boundary is definitely under way - just as predicted.

DJIA - Hourly - Attach of the Lower Channel Boundary

The S&P500 has not decided yet if it is in a larger triangle or the flat we outlined yesterday. A flat might have the edge, but either would be acceptable.

If you're starting your weekend early, have a nice one!
TraderJoe

Inside Day

Market Outlook: End of Minor 5 (60%), Still in Minor 3 (40%)
Market Indexes: Major U.S. Equity Indexes were lower
Today's Candle: Inside Day, Lower
FED Environment: Quantitative Tightening

With today's inside day, the S&P500 Index still best counts as a potential triangle. It may break down to a FLAT, as an alternate, but that is not certain, yet. I will show the last SP500 15-minute chart for this wave at the end of the posting. Instead, I said yesterday that I wanted to have a look at the Dow Jones Industrial Average. So I did that this morning in the live chat room, and I want to show you the first chart posted.

DJIA Cash 15-Minute Chart : Potential Expanding Triangle

So, it appeared to me that we were having a contracting triangle in the S&P500, or possibly a FLAT wave there, while we are having the potential expanding triangle in the DJIA. Here's how the chart of the Dow developed as of the end of the day.

DJIA Cash 15-Minute Chart: Development as of the Close

The first three waves down were the first three waves down of a very grinding Leading Diagonal a wave down. And, from there, in a perfectly timed call, the b wave up, or part of a b wave up began.

So, with five-waves down from the (d) wave high, confidence in expanding triangle went up to about 80%. So, how would this expanding triangle fit into the overall hourly wave count on the DOW? To help answer that question, we generated this hourly chart of the DOW early in the day.

DJIA Cash - Hourly Potential Channel

So, that if an expanding triangle, and it's (e) wave can attack the lower channel boundary, then a last wave up may follow the lower channel boundary attack.

Now, Neely indicates that a fifth wave following a limiting expanding triangle does not have to make a new all-time high. That would be a fooler, wouldn't it?

We are still labeling the overall up move as (w), (x), (y), (x), and (z), the triple zigzag B wave OR as the same expanding ending diagonal. So, in short, nothing has changed. Here is the S&P500 Index cash chart on the 15-minute time frame, as we promised, above.

S&P500 Cash 15-Minute Chart : Potential Triangle or FLAT

For the triangle, an (e) wave should cross under 2098.50, or so, but stay above the (c) wave. For the FLAT wave, it would be acceptable to trade under the (c) wave.

Other than noting that gap above the market at the (d) wave, we'd like to wish you all a good start to your evening. (The Dow does not currently have such a gap).

Best regards,
TraderJoe

Quantitative Tightening (QT) Begins

Market Outlook: End of Minor 5 (60%), Still in Minor 3 (40%)
Market Indexes: Mixed with SP500, DJIA and RUT higher; NDX Lower

The Federal Reserve announcement today, that the Fed will being to roll off the balance sheet beginning in October to the eventual (data dependent) tune of $600 Billion per year, put a little kink in the original potential ending diagonal - if you follow the rules.

If you did not read the prior post - posted this morning - you are encouraged to do so. First, there was one higher high this morning, as anticipated. But additional higher highs did not occur by the close. They could happen tomorrow. Instead an awful lot of three-wave sequences occurred instead - both lower and then higher.

Here is the S&P500 short term chart. It is getting messy as all get out. But that's OK with me. I'll just follow the rules until we get an understandable pattern. Because of the the depth of the correction made on the FED's announcement, it did change the overall pattern to that of either a barrier triangle or a larger diagonal - perhaps one that will play out on the hourly chart, instead of the fifteen minute chart.

S&P500 15-Minute Chart

Without higher highs, we are now counting the potential triangle (in green). With additional higher highs, we can consider a larger diagonal, and only with a lower low than green (c) can we consider a very ugly flat wave.

Again, the market is taking it's time to figure it out. That's OK. We will too! I also want to take some time to see how the DOW compares to this S&P chart. It may tell a little different story. Stay tuned.

Have a good start to your evening.
TraderJoe

Before the Bell - Sep 20

I thought it might help to have a healthy dose of objectivity with the morning coffee this morning, so this chart might prove instructive. The point of this exercise was to look for elements of the wave count that it would be hard to argue with. So, here is the daily chart of the S&P500 Index.

S&P500 Cash Daily

The very first element that seems hard to argue with is that, when measured in this manner, wave minute ((iii)) would be at the 1.618 Fibonacci extension from wave minute ((i)). Besides just being a measurement, one can count how many daily closes there are on the 1.618 level providing temporary resistance at that level, which makes it more difficult to argue against it.

The second point that seems very hard to argue with is that there is overlap at the 2405.77 price flag. And that's just because, there is! From an interpretation standpoint, then, looked at in the cold light of day, that wave fits 'best' as a second wave because wave fours should not have overlap.

The third element that seems hard to argue with is that if you draw a line from 0 to ((ii)), then a wave ((iv)), as drawn, sits on that line and had a slight break of it.

And, the last element that seems hard to argue with is that the DOW made a lower low at 0, than the S&P500 did. That's because, it did! So, that seems like where the bottom is, in a slight truncation for the S&P500.

From that, one could interpret that this wave count provides FLAT and SHARP alternation for waves ((ii)) and ((iv)). That is the interpretation that seems most straight-forward to me. That leaves only a fifth wave up - no matter how it is counted. Even if it is the expanding diagonal fifth wave.

But, you don't have to agree with that interpretation. You could also possibly still have a FLAT for wave ((ii)). Then, you could have a very ugly TRIANGLE for wave ((iv)), ending in the beginning of September to provide alternation. This possibility was suggested by reader mblcta, and I want to give him credit for it. There is only one issue with that interpretation as I see it. And that is the fact that such a triangle would have awful proportions - just like a similar one in the DOW would. But then, from there, one expects a more simple impulse as the last wave from the triangle.

The major point is that, in either interpretation, a fifth wave at minute degree is most likely. Not some cascading series of third waves. And, particularly, in the second interpretation, the triangle would likely mean that "the last wave in the series in dead ahead".

This likely means one should at least be planning on the market returning to the fourth wave of the previous degree at a minimum after this up wave completes. It could go much lower than that, depending on what wave label one has placed at the March 2017, high. Either way, one comes out with a similar answer.

Have a good start to your day.
TraderJoe

Supplement: Added this chart after the bell. The a wave occurred on schedule and with a minor new high. We now have two smaller fractal diagonals most likely inside a larger diagonal. The upper trend line has now been tilted up.

S&P500 Index - 15 Minute Chart

Some Clarity Today

Market Outlook: End of Minor 5 (60%), Still in Minor 3 (40%)
Market Indexes: Mixed to higher

I am posting this one just a bit early today to get some things done and ahead of the FED meeting tomorrow. This is being posted slightly before the close.

The market as measured by the S&P500 Index opened with a small gap up that was quickly and completely filled. About mid-morning, the potential failure wave high from yesterday's five-minute chart was exceeded marginally, then prices reversed a bit, and reversed again - all for small point loss or gains.

Based on that I decided to back off to the 15-minute chart to review the wave internals. The chart of that review is below.

S&P500 Cash - 15-Minute Chart

So, the above count is predicated on the most recent bar or bars making a new high above the brown (iii) wave. If that happens in any form then we may have the a wave of a wave (iii) of yet another diagonal. And, yes, it would likely be yet another Leading Diagonal within a larger diagonal.

Over on the left-hand-side of the chart, you can see the original diagonal I had counted out on the 5-minute chart. It turned out to be an a wave, itself, the a wave of the first wave, (i), of this diagonal. Remember, there was a retrace wave within that 5-minute b wave - even though that has disappeared on this larger time scale.

The fifth wave of a leading diagonal for this a wave may not fail. It must make a higher high than the wave (iii). If it does, we're good and it will give us a measuring tool, because wave (iii), up, may not exceed the length of of wave (i), up, of the larger potential diagonal. It could do this today or early tomorrow, but it must happen - or something else is occurring - like a regular triangle. But, so far, all the waves are counting properly, and it looks like this potential diagonal would then last into the FED meeting.

Remember, within (iii), there would first need to be a b wave down, then a c wave up, for (iii) that must cross the high. That would likely happen between now and tomorrow.

For students of Elliott Wave, it is very interesting to note how many "flat" b waves there are within the zigzags of these diagonals. They are waves which can literally cause a wave counter to scratch their head, and say, "whuh?" over & over & over. Further, if this happens properly, it is amazing to see how the smaller diagonals would be smaller fractals of the larger diagonal. To an Elliott analyst, that is a market almost screaming for reversal. But, it all has to play out properly first ...

For now though. Have a good start to your evening.
TraderJoe

Failure?

Market Outlook: Minor 5 Complete versus Minor 3 Continuing (60 : 40)
Market Indexes: Most major U.S. equity futures closed higher after all-time highs in DJIA, SPX

Not me. The market may have failed. It was quite clear to me from the overnight prices that the diagonal sketched out for you on Friday was, in fact, a diagonal. It turned out to be a smaller leading diagonal, not an ending one. Thus, we opened with a small gap up. Not every diagonal is an ending one. (The alternative is that it was a triangle).

A continuation of the five-minute chart is shown below - just as shown in the real time chat room.

SP500 5-Minute Chart

You can see the end of Friday's diagonal on the left. But, then, when you start looking for the companion wave iv, for the gap wave iii, you are left with really only two choices. Either we have had a triangle, and a failure at the high, as shown by wave v? or everything since the high of iii is a very large wave iv, that missed downward overlap by 0.25 points!

If there was a failure at v? then that is the location of the z wave or of wave (v) of the hourly ending expanding diagonal shown over the weekend. In that case, wave v would have had a higher closing high, but not a higher intraday high.

And if it is wave four at the 14:30, low, then there should only be one more wave up.

The market can't have it both ways. It must pick a path. If there is a downward count started, it can only be counted as an expanding diagonal as shown in the above chart. But, then, lower lows are needed. And, if lower lows are obtained, then a wave iv becomes invalidated!

A worse situation occurred in the hourly NQ futures where a downward overlap of a previous first wave did occur.

The charts are getting quite messy and quite ugly. Even the Dow had a "double top" for some reason today. This does not seem like "standard impulsive" wave formation. Something quite different seems to be going on. And keep in mind, even though an upward gap opened up this morning, all of the gaps are to the down side. With today's movement in almost all indexes, there are no gaps above the market! That is some food for thought.

Have a good start to your evening!
TraderJoe

Sunday Sentiments

Here are a few charts to have a look at this Sunday, intended to be more thought-provoking than necessarily definitive. And so there are a few questions to ask oneself.

Proprietary Sentiment Model

Why did the percent bullishness leap by more than four full points last week - in one week alone, and what does it mean for market direction? Is the possibility of a 'revenue neutral' tax reform plan really that bullish for individuals and companies? And has or hasn't the market fully discounted such a tax plan - if it happens - anyway? Isn't that what the supposed 'Trump Rally' was premised on?

NYSE McClellan Oscillator - Daily

Why is the McClellan Oscillator diverging with Friday's new all time high stock prices? While not a highly reliable indicator in itself, the pattern is certainly interesting at this point in time.

Daily Bullish Percentage of the S&P500

Why is the percent of stocks in verified bullish uptrends on point-and-figure charts double-diverging from Friday's all time high prices? This doesn't mean more stocks can't turn bullish, but the statistic is interesting at this point in time.

ES E-Mini S&P500 Commitment of Traders

Why are the number of long positions owned by "large speculative' market players - those that are usually "trend followers" at a new recent high? Meanwhile commercials have switched to net short.

Finally, people ask about the Wilshire 5000. Here is a chart below with a possible count that would synchronize the major indexes.

Wilshire 5000 Daily - Potential Expanding Diagonal

People see the recent August decline, and how it is a larger decline that overlaps other waves and  they tend to 'give up' on counting it. But the Wilshire is the only major index in which waves (2) and (4), as shown, do not have higher b waves and may be considered zigzags allowing the count of a potential expanding diagonal. So, in this case, waves (1), (3) and (5) would all be three-waves in nature.

Now, the information in the first four charts is just that. Information. The potential count in the last chart is an 'intentional effort' to synchronize some major indexes in time. Is this chart and it's message correct? Heck if I know today. But, it appears to be a valid way to count. And, the key point about the Wilshire - like many 2000, 3000 or 5000 stock indexes is that they will likely be "downwardly biased" by the weaker stocks in the index. Meaning, "near a top some stocks must rotate into a more weak position". This evidence can be seen in bullish percentage chart above. That's what would be the 'cause' of the (B) wave in the Wilshire.

Is a bearish view on U.S. equity markets correct at this exact point in time? Nothing is for certain. But the above information gives a rational person something to consider, instead of only letting their animal spirits roam. And, oh, yeah, there sure are a lot of down side gaps, and none currently above the market. All-in-all some warning signs to ponder and hopefully to keep one open-minded and flexible.

Have a good rest of the weekend.
TraderJoe

Did The Bull Market Just End??

So, it can't be denied that the people I first learned anything about Elliott Wave Counting from, Robert Prechter and the folks over at Elliott Wave International, are publishing a count, below, in the Dow Jones Industrial Average which has an awful lot going for it. Since they taught me the most about counting waves, it would be almost criminal not to bring you their ideas, supplemented with a couple of my own.

Here is their overall count.

DJIA Three-Day Chart of Intermediate (5) with count as per suggestion of Elliott Wave International

To which, I will add my own thoughts that I have counted out for you in near real time the possibility of an Ending Expanding Diagonal in the Hourly DJIA and, now, with yesterday's move over 2499, the S&P500 Index, as well. The count from Minor 4 is on the chart below.

DJIA Daily - Count from Minor 4

To be fair, these counts have an awful lot going for them. Here are a Fibonacci-five important wave characteristics noted. 1) The high of the RSI-14 would be on Minor wave 3, and there is a divergence to Minor 5. 2) The lengths of the waves and lack of overlaps work out properly in this context, and in particular wave 5 is nearing the length of Wave 1, and within wave 5, minute wave ((v)) is approaching the length of minute wave ((i)). 3) You can see even just visually that within Minor 3, then minute ((iv)) is a smaller wave in point size than minute ((ii), and you can see the same is true within Minor 5. 4) Although the overall wave does not channel particularly well, there is no escaping the fact that Minor 5 channels beautifully. 5) There are two potential ending diagonals at two different degrees of trend : the hourly has the expanding diagonal shown in red, above, and the five-minute has the contracting diagonal shown in yesterday's post.

From a time perspective, Prechter has done studies showing that an end to the bull market in 2017 would provide a neat cycle top on several degrees of trend. We do find that timing work, at this point in time, quite compelling.

We want to be quite clear that we picked a pretty big bone with EWI when they did not recognize the Primary Vth wave as we did - because the DOW still hadn't channeled yet, on a time scale from 1982 which it has now.

But, there can be no doubt. Five waves up can indeed be counted. Sentiment is running hot as I have shown in previous posts.

So, besides the overall wave not channeling well, here are a Fibonacci three points detracting from this count. 1) the NYSE advance-decline line has recently made new highs; that is usually a sign a bull market is continuing, 2) while you can find alternation between the wave two's and four's, it is not as obvious in shape as it might be. Minor 2 has quite a high B wave, and Minor 4 has a much lower B wave. But, it is true in both of the cases of the fourth waves  that they are shorter in time than their second waves. That would be an odd curiosity, but it doesn't break any rules. It is actually possible to consider that as a valid form of alternation. And, finally, 3) the market has again just made new daily highs, without showing significant weakness.

The major issue I see is that if the current channel breaks down, or if what people propose as wave fours become longer in points than their companion wave two's, then the above count may be dead on the money.

Another minor irritant would be that the waves don't exactly follow The Eight Fold Path Method, but for the very last wave in the sequence - this high up in the order of waves - maybe it is actually indicative of the character of Primary V - to drag everyone into the long side of the market almost without respite or recourse, and not make the 38.2% retracements expected in the fourth waves.

For now, one can only speculate. The key point is I was indeed expecting five-waves up from the February 2016 low, and they may have now occurred. I do not want to ignore the possibility that it may be happening in front of our eyes, especially when diagonals have just been properly counted.

I know that a lot of you will also point to some particular index and point to problems with it. I do understand. Yet, Elliott's work was based on that average of the thirty stocks, and again I just ask that you consider that other averages and the leverage in the futures may be introducing complications due to the number of stocks in the index, the weighting of various sectors and / or the inclusion of derivative products.

So, remain flexible, as I currently am. As an experienced wave counter, I can see this possibility clearly, but I can also see a longer third wave scenario. And I would present that one if, and when, it becomes just a bit more clear - like if the current diagonals do not work out for some reason.

For now, have a very good weekend!
TraderJoe

Supplemental: I am adding this ES futures daily count to show that - counted in this fashion - there are no issues with overlaps or waves which are not the correct size.

ES Futures Daily Count - Can Agree with Dow Jones Count

Wave (iii) is longer than wave (i), and there are no overlaps of wave (iv) with any part of wave (i) or wave (ii). In this count all of wave (iii) is above a line from wave 4 to wave (ii). And, within wave (iii), there are no issues with the overlap of wave iv triangle with waves i or ii. Wave .i is the single first candle up, from wave (ii), and wave .ii is the 50% retrace of that candle shown as the wick. That also means there are no problems with overlap by wave .iv triangle.

Exact Accounting - Part 2

Market Outlook: Still in Minor 3, probably a (b) wave up.
Market Indexes: SP500, DJIA new All Time Highs
Today's Candle: Higher High, Higher Low, Higher Close

Yesterday, we stated we were likely making the last several wave of five waves up within ((C)) of the z wave of a triple zigzag. Today, in a rare special treat, I will provide the chart that was done "live and in real time" in the chat room. Five waves up; wave for wave, on the five-minute chart of the cash S&P500 Index in a contracting diagonal.

S&P500 Cash Index - 5 Minute Chart

There it is, and unmistakable. Wave (v) is shorter than wave (iii), wave (iii) is shorter than wave (i), wave (iv) is shorter than wave (ii) and overlaps wave (i), and each of the waves can be clearly counted in a zigzag.

Wave (ii) had just over a 68% retrace. Wave (iv) had a 50% retrace. The proportions and trend lines are near perfection. The S&P500 Index hit 2,500, and had a slight characteristic throw-over of the upper trend line.

The pattern is there. There is nothing to be made up. Nothing to be contrived. No alternates. No bent rules or guidelines. For this ending contracting diagonal to work, then wave (v) must remain shorter than wave (iii) on Monday, and the diagonal should be fully retraced - below the point marked 0 - in less time than it took to build it. IF the pattern should not work, it's not because the pattern isn't there. It's not because an analyst can't count waves. It's for some other reason, perhaps like a news story. The DOW can also be counted in a similar manner.

Again, what you do with the pattern is up to you. We do think it highly suspicious that the market ended on an all-time high when we have just had two back-to-back natural disasters. That's all we can say for now.

Until later, have a very nice start to your weekend.
TraderJoe

An Exact Accounting

Market Outlook: Still in Minor 3, probably in a (b) wave higher
Market Indexes: Mixed, DJIA & SP500 new All-time High
Today's Candle: Doji

Here is an exact accounting, wave by wave on the hourly chart of the cash S&P500. It is the best I can provide. No wave has changed overall since the bottom. This morning's single wave down of -6 points was likely the C wave of a fourth wave - shown as (4) and in the vicinity of the prior wave 4.

S&P500 Index - Hourly - Cash

I hope the chart really speaks for itself. We are likely now making very, very small degree waves up from (4) to (5) of ((C)) of z at this time (today's new all time after the opening gap was closed makes that quite likely). The waves are getting so small and compressed up here it is truly getting difficult to count them. It is worth noting there is very nice alternation between waves (4) and wave (2) in the current ((C)) wave of z, up.

Hope this helps, and do have a good start to the evening.
TraderJoe

The Dreaded Megaphone Pattern

Market Outlook: Still in Minor 3
Market Indexes: Major Equity Indexes eeked out gains, except transports and utilities
Today's Candle: Higher Low, Higher High, Higher Close

I am pretty much going to let this chart speak for itself. Because, in the Dow Jones Industrial Average cash chart, a wave (v) is now longer than a wave (iii), and wave (iv) is longer than wave (ii), and wave (iii) is longer than wave (i), with wave (iv) overlapping wave (i), but not traveling beyond the low of wave (ii), with all three-wave sequences, then the pattern of an expanding diagonal - or megaphone - may be seen.

This one even has trend lines that look the part! In other words, the wave pattern almost has exactly the right look. If wave (iv) took a little longer in time than wave (ii), it would be perfect.

DJIA Cash - Hourly - Triple Zigzag or Expanding Diagonal (Megaphone)

There is no doubt that the above structure - as shown in black - is a triple zigzag. The issue is this: usually - most often - ending expanding diagonals usually occur 'over' their wave ((iii)). This one occurs inside it's wave ((iii)). So, there are three possibilities now. First, triple zigzag B wave. Second, ending diagonal. Third, leading diagonal. And, usually, the fifth wave (v) of an ending diagonal almost always occurs over it's wave ((iii)).

The pattern is there. The question is what to do with it. We'll leave that up to you. We will note that the ES futures are right up against their upper daily Bollinger Band, but the slow stochastics are now embedded for the third day.

The pattern of the EWO is quite amazing; the peak of wave z, is taller than the peak of wave y, which is taller than the peak of wave w. And the trough of wave (iv) is lower than the trough of wave (ii). This is the usual and customary pattern of an expanding diagonal on any time scale.

The only thing we can say is that if wave (v) were to conclude above the high of wave ((iii)), and there is a quick retrace, then the ending diagonal pattern gains considerable credibility. For this to happen, the downward wave must travel below the start of the diagonal at ((iv)). If this does not occur, then the pattern is either the B wave or a leading diagonal.

Even as I write that last sentence, having a leading diagonal at an all time high in the market makes me gulp, gasp, and shake my head, tsk, tsk. But, I've been fooled before. Let's see how it goes.

Have a good evening.
TraderJoe

New Cumulative $NYAD Highs

Market Outlook: Back in Minor 3
Market Indexes: New SP500 All-Time High, Not So Yet in DJIA, RUT, NDX
Today's Candle: Higher High, Higher Low, Higher Close

Some Elliott Wave web-sites have been calling for the end of the bull market. A major Elliott Wave service did not / was not counting the end of the bull market since Primary IV as a motive wave or typical Elliott Wave structure. Yesterday, we said our count had another wave up in it today. It did. It may have more.

To be objective, I was looking for Minor wave 4 to go immediately to the lower trend line of the channel, either in a double zigzag or barrier triangle. It did not, and I was incorrect. So, let's back up and look at a study we have shown before. That of the New York Stock Exchange Advance / Decline line. This one is weekly from the February 2016 low of Primary IV.

$NYAD Weekly

I have noted numerous times that as long as this index is making new highs, it is not likely that the market has topped yet. I have also noted that the most recent downward wave - no matter it's shape - was a corrective wave. I have also noted that new highs were not only possible, but likely. They did happen - quite a bit sooner than I anticipated.

So now, let's also use The Eight Fold Path Methodology to better define which wave we are in. First, as always, the first step in the process is to determine the time frame that provides 120 - 140 candles on the chart for the wave of interest. That time frame is the two-day chart - which currently has 125 to 127 candles for this wave. The chart is below.

S&P500 Two-Day Chart

Next referring to the position of the Elliott Wave Oscillator (EWO), it is clear where the low of the second wave is. And, it is clear where the low of the fourth wave is. They are circled on the zero line. It is also clear the EWO can be interpreted as being in the fifth wave up. It is green, and above the line, and on a divergence with price.

This count puts minute wave ((iv)) in the vicinity of the prior minuet wave (iv) - wave four of one lower degree. Next, we have drawn in the channel as best as possible. You'll see the current wave is not in a perfect channel, and so, we may still have Neely's wedge working.

And, we said yesterday, we are still working on a triple zigzag in the upward direction. Unfortunately, until we know more, we do not know if the triple zigzag is a potential expanding ending diagonal for wave minute ((v)) of wave Minor 3, or if it is just the minuet (b) wave of minute ((iv)) as a flat. Either of these are certainly possible.  Next, let's put the EMA-34 through the chart.

S&P500 Two-Day Chart with EMA-34

From the EMA-34 you can see that every numbered minute wave is on an opposite side of the EMA-34 for form and balance. So, this count is potentially correct. But, right now minute ((iv)) has only three waves down, and often, not always, fourth waves take a longer time than their second waves. So, the position we are showing for minute ((iv)) may only the minuet (a) wave of minute ((iv)), and this is the minuet (b) wave up.

Again, it is nearly impossible to tell - because of The Fourth Wave Conundrum - which happens at every degree of trend!

Two things are for certain. The first is that "at the present time" the upward triple zigzag is not the suggested length yet: it's fifth wave is too short for an expanding ending diagonal (megaphone). But, and I need to emphasize this, the final wave is not too short for just a triple zigzag. There is a small possibility it could have ended in a contracting diagonal fifth wave of c, this afternoon.

S&P500 Cash Index Hourly Chart & Potential Triple Zigzag

Ideally, according to the above hourly chart of the S&P500 Index, one would want the (z) wave, as currently shown, for (b) or wave v in the expanding diagonal to be longer than 2499 in order to meet the strict definition of an expanding ending diagonal - or megaphone.

The second thing that can be seen is the pattern does not have the right look for an expanding diagonal or megaphone. Normally, in an expanding diagonal, the fourth wave - or the second (x) in this case - would be longer in time than the first (x), which would be the second wave of such a megaphone pattern. So, even if the wave lengths should become correct, the time signature is not.

Bottom line: this could just be the (b) wave of minute ((iv)) to provide better alternation with the minute ((ii)) wave, when it is counted as a sharp and not as a flat. Either way, we are, right now, back in Minor 3.

Well, that's it for the night. You can see why Elliott Wave counting requires a lot of perseverance and the ability to face some uncertainties, because the way waves are inherently structured there are some times multiple possibilities at once. Let's see how it goes.

For now, have a very good evening!
TraderJoe