Another Inside Day

Market Outlook: In Minute ((iii)) of Minor 3
Market Indexes: NQ Futures made new all-time highs; Dow and S&P 500 cash, not.
SPX Candle: Lower High, Higher Low, Higher Close - Doji Candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 Index has closed yesterday at 2,573. Overnight the futures were higher, and there was a small gap up of four points, extending the blue (C) wave up, as we had suspected might happen ("often", not always) in yesterday's post. The market traded up about four points to 2,577, then within the first thirty-minutes turned lower to fill the gap. After trading weakly down to 2,572, the market turned slightly higher again - in the process tagging the 62% retracement level of the down move. This may be seen on the updated chart below.

S&P500 15-Minutes Likely (C) Wave

In the process, the cash market may have traced out an ending contracting diagonal for a (C) wave. Wave 5 is shorter than wave 3, Wave 3 is shorter than Wave 1, Wave 4 is shorter than Wave 2, and Wave 4 overlaps wave 1. Further, each of the segments may be counted as a zigzag.

By the end of the day, price had fallen out of the potential diagonal trend lines, and at the close had just overlapped the upward (A) wave in the downward direction. As always, potential diagonals must prove themselves, and this one must do so by trading lower than the start of the potential diagonal, the extreme of the (B) wave in less time than it took to build it - or before the end of tomorrow.

We also noted that the upward corrective wave has now consumed more time than the downward motive wave (expanding diagonal) did. That was something that hadn't happened yesterday and made me suspicious that more up movement could occur.

So, since the ((A)) wave down is a diagonal, if a ((C)) wave down begins tomorrow, then the ((C)) wave itself should be an impulse in it's entirety, not a diagonal, although either wave (1) or (5) of the ((C)) wave - which are waves of lower degree - may be a diagonal. This is so that there is a good pattern of alternation within the corrective structure.

Those of you who are Elliott Wave students can clearly see the alternation in the ((B)) wave, itself. Wave (A) is a short impulse, and wave (C) is a very long diagonal. This is a very typical pattern of alternation within a corrective structure. Looking for proper alternation can help provide one patience in slow markets.

Again, if a ((C)) wave downward forms properly, we may have the beginnings of an upward diagonal or the continuation of a triangle. We briefed that live chat room on how an overall upward diagonal might happen to finish wave minute ((iii)), pending that outcome. If we get the needed wave structure tomorrow, I will post it here, also.

For now, that's a lot of work for an inside day. So have a good start to your Halloween! I will.
Boo!
TraderJoe

Split Market

Market Outlook: In Minute ((iii)) of Minor 3
Market Indexes: NQ Futures made new all-time highs; Dow and S&P 500 cash, not.
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the NQ futures (NDX, NASDAQ 100) continued slightly higher today while the ES E-Mini S&P500 Futures were lower. The Russell 2000 led the way to down side.

As of Friday, we had noted only three waves up in the S&P500 Cash Index (fifteen minute chart, below). And with only three-waves-up, there was only a (c) = (a) or (iii) = (i) relationship. See chart below.

S&P500 Cash Index - Fifteen Minutes : Three Waves Up and Clear Diagonal Down

The market as measured by the S&P500 Index had closed Friday at 2,581. When the market gapped lower this morning, we began count an expanding diagonal which formed perfectly in every detail. Cash traded down to 2,568. Wave (5) was longer than Wave (3), Wave (3) was longer than wave (1), Wave (4) was longer than Wave (2) and Wave (4) overlaps Wave (1), upward. This diagonal was of the 5:3:5:3:5 variety which means it should, after retrace, be followed by at least one more wave downward.

Following the diagonal there has been a clear three-wave retrace upward, but the retrace may not be over. Often, the retraces of diagonals go quite deep. Not always, "often".

If the full three-wave up move from Wednesday is retraced 62% we might suspect that an upward diagonal is under way to conclude Minute wave ((iii)) from the weekend post. This might explain some of the divergence we are seeing between markets while the NDX rallies.

There is no doubt the "three-waves-up" from Wednesday could also be a "B" wave - perhaps one which is part of a triangle. We don't know for sure. What we do know is that price has fallen out of the Elliott parallel trend channel shown, and has not made a 1.618 extension at this time. Those facts alone should bring wave-counting caution.

Have a very good start to your evening.
TraderJoe

Non-Confirmation & Neely's Simple Game

Market Outlook: In Minute ((iii)) of Minor 3
Market Indexes: S&P500 and NQ Futures made new all-time highs; Dow not.
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Every major stock index made new highs today powered by the preliminary U.S. GDP report, and by the earnings reports of selective technology stocks, including Amazon, Alphabet (Google), and Microsoft. Facebook has yet to report. As you know from the this blog, I employed specific price and time tests to see if a confirmation would occur that we were out of Minor 3 and definitely into Minor 4. Those price and time tests were not met, and the subsequent non-confirmation led to a rally. Now what?

Here's what. I want to play Glen Neely's simple game again. Let's start with an almost blank chart of the S&P500, below. This one is a two-day chart for clarity, but the time frame is irrelevant.

S&P500 2-Day Chart from the Election Low

So now let's play Neely's simple game. Where is a point on the chart in which a second wave would not cut off any part of a third wave?

This first location won't do it.

SP500 2-Day Chart : First location for a second wave won't work.

This second location won't quite do it either.

S&P500 2-Day Chart : Second Location for a Second Wave Won't Work Either

 Yes, you're getting warmer. That means that only this location works.

S&P500 2-Day Chart : Only Location where a Second Wave Works

This suggests that the best count for this cash wave is as follows. (I switched programs to insure all measurements are correct.)

S&P500 Cash Weekly - Minute ((iii)) Count

If it's good for the first 1,2 up, it's good for the next one too. And minute ((iii)) wave would reflect the count acceleration we are seeing now.

Whenever minute ((iv)) begins, it must be longer in time than minute ((iii)) is in time. All the other corrective waves - as shown - are longer in time that their respective impulse waves.

Have a good start to the weekend!
TraderJoe

How to Tell - Part 3

Market Outlook: Minor 3 Top more likely, Waiting on Final Confirmation
Market Indexes: Most major U.S. Equity Markets were higher; $CompQ was lower
SPX Candle: Lower High, Higher Low, Higher Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

They know you're watching. Stocks, as measured by the S&P500 Index closed yesterday at 2,557. They gapped up at the open, ending yesterday's potential impulse pattern, and traded up to 2,567 before starting a slow sideways movement and catatonic drip lower. At 2,567, they ran into the trend line from the top, shown in the chart below. They rode that trend line for the rest of the day for some reason.

S&P500 Cash Index - 15 Minute Chart

Today's higher high occurred on a divergence with the oscillator shown, and then the oscillator itself headed lower, seeming to confirm a lower high. By the end of the day, we potentially had a fourth wave (iv) that is longer in time than it's second wave (ii), and it is longer in length as well. I said a diagonal might be possible if the potential impulse count lower did not survive today's gapping direction. And such a count - of a diagonal - could still be possible. By the end of the day, there was a tiny diagonal downward and the start of a retrace wave upward.

But, like all diagonals, we don't know if that new, smaller diagonal is a leading diagonal for wave .i down to a larger a wave of the current potential diagonal, or if it is an ending diagonal which which is just the end of the b wave, overall. The market is really playing it's cards close to the vest.

Since tomorrow is advance GDP day, it will be interesting to see whether price conforms to the trend lines shown or makes new ones.

What new trend lines could the market make? Well, the last downward gap is not closed yet. We thought that might be the target today, but the market was too spongy. If price gets up to that level, then I completely reserve the right to call the three legs down as only a,b,c instead of (i), (ii), (iii).

Yes, there are some things not to like about a diagonal count. But, so far today, momentum was wheezing. It could all be a set-up for the GDP report, and so, in either case, I remain completely and entirely neutral and in a mode of trying to obtain confirmation in either direction. As far as charting I can only chart what I see. I hope it helps.

In that regard here is the NQ futures chart as of the close.

NQ Futures - Daily

After contacting the daily EMA-34 again, the futures have bounced off of that and the horizontal support shown. Just keep in mind that price may be at the apex of a triangle - which is often the timing for a turn. That remains to be seen yet.

Bottom Line: To start a count lower five-waves down are needed, and they are not in evidence yet.

Have a good start to your evening.
TraderJoe

How To Tell - Part 2

Market Outlook: Minor 3 Top more likely, Waiting on Final Confirmation
Market Indexes: All major U.S. Equity Markets were lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle lower
FED Posture: Quantitative Tightening (QT)


    After yesterday's consolidation day, the ES E-Mini S&P daily futures broke below the embedded reading of 80 on the slow stochastic as we had warned about in yesterday's post. The cash S&P had closed yesterday at 2569, and opened with a small gap lower. By the first 45-minutes of trading several of the requirements for confirming the start of Minor 4 were met. First, Friday's gap was closed while today's gap remained open. After the first hour, the S&P500 overlapped Friday's wave i, up, in the downward direction (this made any smaller degree wave four very difficult indeed!).

   That important overlap is shown in red in the chart below, which is again provided for a short time for your confidence. And, by 11:30 AM eastern, the market made a very clean 1.618 extension of it's first wave down.

S&P500 Cash Index - 15 Minute Chart - 1.618 Extension

This, as you know, is one of Neely's key requirements for considering this wave an impulse lower. The next requirement - that of the lower daily low before the higher high - was met by approximately 1 PM as the cash index touched the 2544 level.

After the 1.618 extension, we are able to count an expanded flat fourth wave as a:3, b:3, c:5 - which ended very near the 38.2% Fibonacci retracement level. These expanded flats are 'supposedly' the most common corrective wave type. We certainly have seen bucket loads of them on the way up in the bull market. Now the question is, "will this one work"? Since we saw a sharp wave for wave ii, we predicted in the live chatroom that there should be a flat or a triangle for wave iv. We need to have good alternation in order to have a good impulse. This would do it.

So far, the cash price has held the 38.2% retracement by close, but this pattern must survive the gap direction at the open tomorrow. If it does, and price gaps lower for a fifth wave we may get a true impulse wave lower. If not, then since the most recent wave we counted is a very clear 'five-waves-up', then the next most likely series would be an expanding diagonal, but it would require overlap on wave i, down.

So, stay tuned. While it is currently interesting to see some downward wave moment for a change, we need to confirm that the key requirements are met. If the futures overlap in the over-night, we might get a diagonal in the futures and an impulse in cash. That would be novel. Or, we could get a diagonal in both.

The ES futures did close above the 18-day SMA, after piercing it to the downside. So, they do have positive bias. Meanwhile, the lower daily Bollinger Band around currently around 2528 might serve as a target if the 18-day is again exceeded lower. Again, nothing in this blog is to be taken or used as trading or investment advice. This information is only helping to try to clarify the possible Elliott Wave position of the market.

Lastly, we want to note that several indexes had follow-through to the downside today, that included lower daily lows in the Russell, the NQ, the ES - as we noted - and the Dow Transports as shown in our prior posts. Here is the chart of the Dow Transports, updated with today's prices.

Dow Jones Transportation Average - Daily

The DJT price bars are getting longer in the downward direction as compared to the upward price bars. And, all this is coming at a time of near rampant bullishness as explained from the sentiment chart in the weekend video.

The ES futures volume picked up to almost 2.0 MM contracts from those 800k days. So, volume is also currently following price lower.

Yes, even on the down-side, patience and flexibility are still needed. There is always backing and filling to consider, and the alternates of diagonals versus impulse waves - or only three-wave sequences. So, after a day like today the best tonic is to "chart & measure, chart & measure". That's what an Elliottician does. They don't have opinions. They don't do "fortune telling". They chart and measure. Chart and measure.

Have a very nice start to your evening.
TraderJoe

Consolidation Day

Market Outlook: Possible Minor 3 Top, Waiting on Confirmation
Market Indexes: DJIA new All-Time-Highs; Most other U.S. Equity Markets Not
SPX Candle: Inside Day
FED Posture: Quantitative Tightening (QT)

With the exception of the DJIA, most other markets spent the day consolidating their losses of yesterday. The S&P500 and ES futures had an inside day. The NQ futures made a daily lower low.

Still waiting on the market to confirm the beginning of a Minor 4. Nothing has changed yet.

After the official settlement the ES futures began to drift lower. Tomorrow needs to be watched closely to see if the daily ES loses it's embedded slow stochastic or not. As of the 4 PM ET close, the %D value was 80.4. If the market opens lower tomorrow, it could easily lose the 80% level, suggesting a return to the 18-day simple moving average.

With today's inside day on the ES futures, Ira Epstein's swing line does not make a trend lower unless a lower low day occurs tomorrow.

Have a good evening.
TraderJoe

How To Tell

Market Outlook: Possible Minor 3 Top, Waiting on Confirmation
Market Indexes: DJIA, S&P500 new All-Time-Highs
SPX Candle: Higher High, Lower Low, Lower Close; Bearish Engulfing Candle
FED Posture: Quantitative Tightening (QT)

I said in my video this past weekend that we had no confirmation that Minor Wave 3 had ended, but it might be close. Today we got the higher high that reversed - on the S&P500 Index - creating the bearish engulfing candle or outside key reversal day down. For your confidence, I'm going to show you the chart of the S&P500 Index that was created & updated live in the on-line chat room today.

S&P500 Index - 15 Minute Chart

The market - as measured by the S&P500 Index - closed Friday at 2575. It gapped up three points at the open, creating a divergence with the oscillator shown, then closed the opening gap - shown with black circle - within the first hour. After 2:00 PM the market had made a new swing low (NSL on the right) below the prior wave iv, and continued to drip lower throughout the day.

We were patient to see if a 1.618 extension of the wave off the high was made. It was, and we drew in the "base channel" you see above. We were further patient to see if a 2.618 extension off of the high would happen. It did. Around 2:30 PM prices made a further new swing low below the low of wave blue .ii of the prior up trend channel (NSL on the left). Further, we noted the level for the cash "key reversal" at 2,567.56, and cash broke down through that, as well.

Throughout the day, the oscillator continued to make new lows, and, as of the close, there is no indication of divergence, yet. By the close the S&P was down -10.23 points, and stopped at the point marked "prior highs" on the left side of the chart.

How can we tell if Minor 3 is over? First, there must not be a new high before a new low. Second wave i, up, of the prior rise must be overlapped downward. And, third, it would be best if the decline to new lows took less time than the prior rise. Since the prior rise took two days (shown), it would be best if the 2547 low was exceeded tomorrow.

With alternation on the way down (wave ii is a long, lazy flat; wave iv is a short quick zigzag about equal length to the total distance traveled by wave ii), it possible - just possible - to count the down wave as a five-wave sequence. Or else, it's fourth wave may still be forming. But, as five waves down, is it a new impulse lower? Or is the structure a big fat "c" wave which is the last wave of a fourth wave of the rise of the prior up trend?

We have seen some very goofy fourth waves - just waiting on some piece of news - so, until the requirements above are met, patience remains the order of the day.

Speaking of some goofy fourth waves, over the weekend - besides making the video I had a look at the August - September 2017 bottom with a special emphasis to analyze it the way Glen Neely might. I'm going to show you that chart below. The conclusion that results from it is stunning, so I hope your will take some time to go over the chart.

S&P500 Cash Index - August to September Low

One feature you will note is that the wave marked (b) did not make a new high over the wave marked (iii). And so, since I initially found this bottom hard to count, I thought I'd revisit it. And what did I find? Well, it is highly likely that 21 August low is only the nominal low (the price low) of the Minute (iv) wave. There is actually possibility of a contracting non-limiting triangle ending on 11 Sept.

This non-limiting triangle (which means it does not limit the thrust out of the triangle to the width of the triangle) may be responsible for the rocket-ship rise that got everyone talking about "what the heck is the Dow doing flying up there by itself??!!". In other words - that rocket ship ride may have been the thrust out of a triangle. And the difficulty for Elliott analysts is likely that it will cause them to have too many waves in their upward wave count. As shown, wave 1 is the first impulse wave that breaks the minute (iii) high.

And once again, because the (e) wave of the triangle is the further wave to the eastern side of the chart (the right of the chart), it now allows for a line from wave (iv) to 2 to not cause any part of the subsequent wave 3 to break that trend line. That is truly amazing because I could not initially count the Aug 21 - Aug 24 wave as a "five", and this may explain why.

In the future I will likely not go into so much detail as it may not be necessary. For now our only job is to see if we get confirmation or not. So, let's be patient and keep some powder dry.

For those who follow the NQ futures (chart below), you know that price got down to the 18-day SMA and that it is in danger of losing it's embedded slow stochastic reading.

NQ Daily Futures

Well. That's more than enough to think on tonight. Have a very good start to your evening.
TraderJoe

Weekend Video - 10/22/2017

We are approaching some interesting junctures in some markets, so I thought I would publish a weekend video.

Cheers and enjoy the charts!
TraderJoe

Just Want to Be Sure ..

Market Outlook: No Confirmation yet of top of Minor 3
Market Indexes: DJIA, S&P500 new All-Time-Highs
SPX Candle: Higher Low, Higher High, Higher Close; trend candle
FED Posture: Quantitative Tightening (QT)

Yes, the market as measured by the S&P500 did make new all time highs today. This on the news of a budget vote in the Senate. We counted five waves up yesterday from the low. We counted another five waves up today to only a 1.27 times the first five-waves up. Why not 1.62 times the first wave up? Besides the fact that Neely tells us to be cautious about calling an impulse when there has not been a 1.62 extension, I thought you might be interested in this clear and indisputable fact.

Daily $VIX - Volatility Index

The above chart is now indicating that the $VIX has not made a lower all-time low as the stock market is still reaching for new all-time highs! We can only say this is true at this time. Could it change? Sure. But ...

This is what one would 'expect' to see near a significant high. Also, note today we have the S&P candle closing higher, and the $VIX candle closing near it's high - not near it's low. Further, Ira Epstein might note that the $VIX has 'positive bias' because it's candle did indeed close over the 18-day SMA. And, the narrowness of  the daily Bollinger Bands might be indicating an impulse soon to happen.

We may have some more to say about the stock market over the weekend. For now, have a very good start to your weekend!

TraderJoe

A Bit of Volume Returns

Market Outlook: No Confirmation yet of top of Minor 3
Market Indexes: Most Major U.S. Equity Indexes were mixed
SPX Candle: Lower Low, Lower High, Higher Close; spinning top candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 closed last night at 2561. It gapped lower in the over-night and traded down to 2548 invalidating both of the potential diagonal scenarios that were seen, and activating the B wave alternate we posted on October 17, two days ago. The market spent the rest of the day chopping higher, and closed the opening gap just before the closing bell.

Overall, nothing has changed. We still do not have confirmation of a Minor 3 top, and are just counting and adjusting wave counts - following the rules. The chart below of the ES futures shows where we are right now.

ES E-Mini S&P Futures - Weekly Chart

It should be very clear - whether you count 1-w-x-y-2 off the bottom or 1, 2, ((i)), ((ii)) off the bottom - that price is well beyond the 1.618 Fibonacci extension. Therefore, we should look for a fourth minor wave to this bull market. Remember, there is at least one major Elliott Wave service calling for this to be "the top". The problem for me with that call is that their third wave doesn't channel well at all. At least the longest part of wave 3 in the above chart does form a channel.

By the count shown for Minor 3 on our chart, it would suggest that the maximum for the rally is at ES 2582.50, because there a wave ((v)) of Minor 3 would be become longer than wave ((iii)) of 3. But, in this count, wave ((iii)) of 3 is shorter than wave ((i)) of 3, therefore wave ((v)) must be shorter than wave ((iii)). So, we are showing that Fibonacci extension in red.

Again, we are using the election night low as the low of wave 2 so that a line from 0 to 2 does not cut off any part of a wave 3. So far, so good.

Today, on the rise, in the live chat room, it was possible to count "five waves up" after the low at 10 AM ET. These five waves up may not be done yet. And there is no evidence the rise is over, but we just need to keep in mind there is a small probability there is a truncation. That's just the nature of the beast.

I have included the volume on this weekly ES chart, so you can see how oddly the volume is falling off for a non-holiday period.

Well, that's enough for now. Patience and flexibility are still needed. So have a good start to your evening!

TraderJoe

Light Volume Continues

Market Outlook: No Confirmation yet of top of Minor 3
Market Indexes: Most Major U.S. Equity Indexes were higher; NQ / NDX lower
SPX Candle: Higher High, Higher Low, Higher Close; spinning top candle
FED Posture: Quantitative Tightening (QT)

Today's small gap up was high enough to allow the Elliott Wave Oscillator in the chart below to register a small third wave. As a result of the gap and the position of the EWO, it appeared the best count was a third wave.

S&P500 Cash Index - Less Likely a Diagonal Now

So, we rearranged the current wave labels to show the fourth wave triangle ending on 12 October, as the gap out of it as a first wave ((i)). That most likely made wave ((ii)) a double-combination which counts as (w), (x), (y) - where the (y) wave is a triangle. Remember, second waves, by rule, may never be a triangle in their entirety. Already a wave ((iv)) could alternate with it, as it's (b) wave did not go over the high. It is also possible for this wave ((iv)) to become more complicated, yet. But, in this count a wave ((iv)) may not overlap 2557.64 in the downward direction because, in an impulse, wave ((iv)) may not overlap wave ((i)).

Because of the current lack of downward overlaps, we are not currently calling this wave as a diagonal (see below). And that may provide further evidence yet, that this upward wave is only Minor 3, and not the entire end of the cycle. The upward move is getting quite gap-ridden, though, and may not be far from a significant set-back. If it becomes required (due to overlaps) to switch back to the diagonal count, then so be it - so see below.

We don't want to harp on it, but the market is shouting something. The ES futures volume today was still in that 720 - 730k range. To see two days in that range for a non-holiday period is astounding!

Now for those who just can not believe this is anything but a diagonal, below is my best effort to sort out how this wave may still be a diagonal, and keep all of it's waves within the confines of a diagonal. This diagonal now appears on the hourly chart of the S&P500 Index cash.

S&P500 Cash Index - Hourly - Potential Larger Diagonal

In this case yesterday would be the interior (B) wave triangle of a wave ((3)) zigzag. And it still places us in a third wave today. But, then, that fourth wave overlap is required. It turns out there is just enough room to make it, and it would still have the required shape. However, for that count wave ((4)) should not travel below 2553.63 in the cash index, otherwise it would become longer than wave ((2)). Clearly in this structure, as outlined, wave ((3)) is already shorter than wave ((1)).

This second count is a novel and surprising count. Let's see if anyone else finds it?! Again, the only reason I have not formally adopted it as the primary count is that the wave ((4)) overlap is not in evidence yet, and it's wave lengths are not yet proven. It is very, very clear the market is keeping it's options open, and so am I. Patience & flexibility. Patience & flexibility.

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

Further Lighter Volume

Market Outlook: No Confirmation yet of top of Minor 3
Market Indexes: Mixed; Dow & S&P500 Index Higher; $RUT & $TRAN lower.
SPX Candle: Higher High, Higher Low, Higher Close; trend candle
FED Posture: Quantitative Tightening (QT)

With today's new all-time high in the S&P500 Index, the center wave is now "too long" for the third wave of a contracting diagonal. Remember, in a contracting diagonal, wave ((iii)) is required, by rule, to be shorter than wave ((i)).

That means, the first diagonal we counted was likely only the "A" wave of a such a larger diagonal as may be counted below.

S&P500 Cash Index - Half Hourly Chart - Diagonal (a) within ((i))

Today's higher high is part or all of ((iii)). We have no information that such a wave has stopped it's upward progress just yet.

This count is so internally difficult that if the entire thing falls apart before a diagonal is completed in a satisfactory way, then that would suggest only a B wave is completing - as an alternate. But, the reason that it is the alternate is there would not be a good pattern of alternation.

Volume on the ES E-Mini Futures wave even lighter today at only 728K contracts - even lighter than yesterday! That again makes it the lightest-volume non-holiday trading day I am aware of this year. However, the elongation of the potential diagonal also extends the time when the correction of the potential diagonal must occur by. Because such a diagonal is not complete yet, we can not state the "must correct-by date" with certainty yet.

The Dow Transports had a lower low day today, and continued to follow-through to the down side.

DJTA - Partial Day Chart - Lower Low Day

The Russell 2000 Futures, lost their embedded slow stochastic today, and actually traded down to the 18-day SMA.

Russell 2000 Futures - Partial Day

When the Russell started to bounce off the 18-day, the S&P500 made it's new high today.

Have a good evening.
TraderJoe

Exceptionally Light Volume

Market Outlook: No Confirmation yet of top of Minor 3
Market Indexes: Most Major U.S. Equity Indexes were higher except $Tran, and $Util
SPX Candle: Higher High, Higher Low, Higher Close; potential spinning top candle
FED Posture: Quantitative Tightening (QT)

The Dow Jones Industrial Average, S&P500, ES and NQ futures made new higher all-time highs today. However, they did so on the lightest non-holiday futures volume of the year (at less than 800k contracts!). Stock volume was quite low, too, at only 2.9 bil shares. Furthermore, advances and declines were mixed, as were up & down volume. The Dow Transports did have a follow-through day to the down side. That chart is below.

Dow Jones Transportation Average - Follow Through Down Day

Technically, the lower low and lower close "activate" the previous day's bearish engulfing candle. There has been both a clear break of the up trend line, a divergence, and a gap fill lower.

The NQ futures exceeded the maximum limit (6,109.50) for a smaller diagonal, and likely have made this triangle. And the trust from the triangle should be in five waves. With today's higher high, five waves can indeed be counted.

NQ Futures - Daily -Triangle Rather than Diagonal

Because the NQ did not make a diagonal yet, we think it actually strengthens the case that we are still only in Minor 3 wave, and not the end of the market cycle as at least one major Elliott wave service wants us to believe. If the NQ goes on to make a larger diagonal (connect the dots of a new upper trend line in your mind), then that may become a different story. It hasn't yet.

The ES Futures on a four-hour basis made a new all-time high today, but continue trading in this wedge shape - which can still be a diagonal.

ES Futures - 4 Hr Chart - Wedge Shape

Due to the significant nature of the higher closes, we don't think the ES counts well as a triangle at all. It is either a diagonal or some sort of B wave. With prices solidly in the "chop zone" right now, it is very difficult to sort out diagonals from B waves. So, we keep our mind open for either. But, we think volume may be a very significant clue. The Russell 2000 futures and Russell 2000 cash index had an outside day, and may be on the verge of losing their embedded slow stochastic reading. Time will tell.

Have a good start to your evening.
TraderJoe

Something to Watch

In Friday's trading, something happened that hasn't happened in a while, and because people tend to focus on certain things, like the Dow, or the Russell, or the S&P, or the futures, we wanted to bring your attention to it.

This chart is of the daily Dow Jones Transportation Index.

DJ Transportation Index - Daily

The chart shows one of the best examples of a "key reversal day" that you may have a chance to see. Note, there is an "outside" bar, with a higher high and a lower low than the day before. And, further, the close is actually below the lowest low of the prior day. And what makes this a "key" reversal day is the highest high is a new all-time high. You don't see them like that too often.

This price bar occurred on a clear divergence with the oscillator shown in the lower panel, and made the largest price point loss for a down day since the recent up trend began at the end of August 2017. Now, by definition, an outside key reversal day is also what's known on a candlestick chart as a "bearish engulfing" candle.

So far, price has not broken that daily up trend line, nor filled the prior gap, although it did fill the gap the bar created on the open. So, this price structure bears watching carefully at this point in time. Usually in Japanese candlestick interpretation, a further lower closing candle is required to confirm the bearish engulfing pattern, and "trigger it".

As it is, the bar is definitely a marker bar because, as Ira Epstein might interpret it, "if the high of an outside day down is taken out in the next two trading sessions, then it might set a trap for the bears." Otherwise, continuation lower might be indicated.

We know that Crude Oil surged towards the end of the day on Friday - which might help "explain" the movement, but it is there none-the-less. It is also possible to see a completed five-wave up move in the Transports to this point in time. And, of course, with this move, all of the gaps in the chart of  the Transports are to the down side as of now.

So, this is one to keep your eye on next week.
Have a good one!
TraderJoe

Trust, but Verify

Market Outlook: Diagonal Top Complete today or Last Wave Up Dead Ahead 
Market Indexes: Most major U.S. Equity Indexes were higher today, except, RUT, $Tran and $Util 
SPX Candle: Higher High, Higher Low, Higher Close : Spinning Top 
FED Posture: Quantitative Tightening (QT)

The title of yesterday's post was, "Larger Triangle, Diagonal or Completed Top". And today, it is possible to count a diagonal top at the high. Still there is insufficient downside movement to draw a firm conclusion today, but it does look promising to get a completed count.

S&P500 Cash Index - Half-Hourly - Possible Diagonal Completion

President Ronald Reagan used to use an expression when dealing with foreign powers, "trust, but verify". And we must take that approach here, too. Everything now depends on the amount of price movement higher or lower next week, and any overlaps that develop.  With the structures we currently have and the current lengths of the downward waves, there is nothing that positively says that a higher wave can't develop. The only thing the pattern says at this point is that further upside progress is less likely. And, there is a big difference between acting on reality, or a proven count, and acting on the probabilities.

So far, the measurements are correct: that wave ((v)) is smaller than wave ((iii)), and wave ((iii)) is smaller than ((i)). Wave ((iv)) is smaller than wave ((ii)), and wave ((iv)) overlaps wave ((i)) downward. And that is as it should be. There may even be a very small truncation of (c) of ((v)) which could be a last wave failure. Chat room participants advised that the SPY did make a new intraday high at (c), which would fit, as well, if that is the case.

All of that said, we know know that wave 3 has been overlapped downward. But to prove out a diagonal, we should look at the time relationships involved. The diagonal took three-and-half days (roughly) to build. That means, if a diagonal is to be proven out, then prices should trade below the low of wave 4, by Thursday of next week, and hopefully - to get clarity - much sooner. 

The NQ futures have come quite close to the maximum measurement for their potential daily diagonal, as below.

NQ Futures - Daily - Potential Diagonal Still Valid

Again, if the NQ exceeds the 6110, then we must assume the structure was a triangle and look for a "five wave" thrust out of it, and not a "three wave" thrust. So far, we can only count three waves up.

Bear in mind, the ES daily futures are still up over their 18-day SMA, and the bias is therefore up, as is the daily swing line, with a fully embedded slow stochastic. Those of you who have read my paraphrase of Ira Epstein's guidelines for interpreting market action know what means. If you haven't read it yet, you can read it at this LINK.

So, that should give you something to chew on to start this weekend. And please remember, nothing in this blog is to be interpreted or taken as trading or investment advice.

Have a very good start to your evening.

TraderJoe

Larger Triangle, Diagonal or Completed Top

Market Outlook: A Larger Fourth Wave Triangle in Minor 3 Completed Today, or Diagonal, or Top
Market Indexes: Most major U.S. Equity Indexes were lower today, except $Tran and $Util
SPX Candle: Higher High, Higher Low, Lower Close : Neutral Candle
FED Posture: Quantitative Tightening (QT)

The market as measured by the S&P500 Index gapped lower today and traded down to 2549 in the first half-hour. After that it began trading upwards and closed the opening gap, making a new all-time higher high by noon, and then again by 13:30 ET. Following the second higher high, the market faded into the close and broke the opening low, trading down to 2548, before rebounding to close at 2,551.

As a result of the two slightly higher intraday highs, and the new lower low, we can now count either a larger triangle, which is shown below, or we completed a diagonal interior to the triangle.

S&P500 Cash - 30-Minute - Larger Triangle or Top

Because there were two slight higher highs today it does allow the alternate count of a completed diagonal. But downward movement was quite nominal.

Yes, the very same waves can also more probably justify the larger triangle or even a larger potential diagonal. But, meanwhile, the NQ futures (see chart below) have done everything that is needed to satisfy the potential diagonal count and, they do not have a lot more room on the upside - unless they, too, only made a triangle and not a diagonal.

NQ Futures Daily - Diagonal or Barrier Triangle

So, while the jury is clearly out, the "look" of the waves are that a top is approaching rapidly, if it is not here already. Impulsing waves should not be struggling like this. And it should be noted again, that all of the open gaps are to the down side.

Again, trading below 2540 cash would likely signal a change in trend that I will have more to say about this weekend.

For now, have a good start to your evening!
TraderJoe

Triangle Completion

Market Outlook: A Fourth Wave Triangle in Minor 3 Completed Today
Market Indexes: Most major U.S. Equity Indexes were higher, except RUT
SPX Candle: Higher High, Higher Low, Higher Close : Trend Candle
FED Posture: Quantitative Tightening (QT)

The market - as measured by the S&P500 cash Index - opened slightly higher and immediately traded slightly lower to fully complete the triangle we suggested was possible yesterday. The running triangle was validated as the (e) wave was below the high of the prior wave 3 but above the prior wave (c). And the purpose of the triangle was to waste time until the FOMC meeting minutes were released.

SP500 Cash 30-Minute Chart - Triangle Completion

After prices left the triangle, they jerked steadily higher. The cash market did not make a new all-time high before the end of the session, but the futures did. I expect cash might make the new high tomorrow. The futures volume was exceptionally low at only 796k contracts, and may be the lowest non-holiday trading volume of the year!

Once this wave wraps up I'll try to put it in a larger context for easier understanding. However, now that a triangle has been validated, it becomes more likely that if prices trade below 2540, it would mark a turn point of a certain degree. And - just a reminder - all of the open gaps are below the market at this point in time, and a triangle often represents the last wave in a particular sequence. But, what should bother the outright bears a tad is this is another running triangle, at the top of the market, and running triangles, with their higher (b) waves still have bullish implications. I'll try to explain more later.

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

Riding Lower Trend Line

Market Outlook: Topped or Fourth Wave Triangle in Minor 3
Market Indexes: Most major U.S. Equity Indexes were higher
SPX Candle: Higher High, Higher Low, Higher Close : Doji Candle
FED Posture: Quantitative Tightening (QT)

The stock market as measured by the S&P500 Index opened with a small gap up today - as might have been expected from hitting the lower channel trend line we showed yesterday. Prices then headed lower until about noon but did not fill the opening gap. Because of the gap up nature of the opening bar, it is very, very difficult to tell if it is a "three" or a "five". See chart below.

SP500 Cash - 30-Minutes - Count Matures

For this reason, if the up wave sequence is a "five", then it is possible to count a top at this degree. And if the up wave is a "three", then it is possible this wave is ending with either a triangle or diagonal. At this time, the above chart shows the top and the triangle option. But, once, again, this is a clear representation of the phenomenon I have called The Fourth Wave Conundrum.

It is what makes calling tops in Elliott Wave work particularly treacherous, and that is the fact that many, many sequences can result from only an a-b-c down after a wave 3.

Because of the lack of a "key reversal" day down, at this point, we must allow that the up move is still in progress while being very, very watchful for such a reversal. Certainly, the 2,540 level is now a key marker for the uptrend. If it is exceeded lower, it would mark a reversal of a certain degree which we will provide an update on if / when it happens.

Please note the Elliott Wave Oscillator did climb back above the zero line, indicating either a continuing fourth wave or a divergence for a fifth wave high. Time will tell.

Again, the NQ futures 'can' be counted as having completed the daily diagonal, but only a clear reversal there, too, will provide confirmation.

Until then, have a very good start to your evening.
TraderJoe

Risk Increases - 5

Market Outlook: In a fourth wave of Minor 3
Market Indexes: Most major U.S. Equity Indexes were lower, except Utilities
SPX Candle: Lower High, Lower Low, Lower Close : Outside Candle Lower, Bearish Engulfing
FED Posture: Quantitative Tightening (QT)

As we suspected, we are likely now at least in a fourth wave lower, on cash chart of the S&P500 Index (Half-Hourly). The chart is below. You can see the lower trend channel hit, and that the Elliott Wave Oscillator is now correctly positioned for a fourth wave, according to our fully disclosed Eight-Fold Path Methodology.

S&P500 Cash Index - Half Hourly - Lower Trend Channel Hit

Today's candle is an outside reversal day down or a bearish engulfing candle, but it leaves a gap at the top of the market. The market had opened with the futures higher and a small gap up, but early in the session the gap was filled, and followed by a lower low.

For this index, the three a-b-c waves down from the top form a sharp wave which would alternate well with the FLAT, at the bottom - just as we called for. Now it remains to be seen if these waves wish to extend the correction lower in a double zigzag (not necessary), or form a triangle (not necessary, but that might be a signal of 'last wave in this sequence dead ahead'), or immediately go up to make the fifth wave. 

That last option might spell that the market is 'tired' after have made the extended fifth wave within the third wave. So we'll see. In any event, risk of wave counting errors and gap fills - lower - is very high here and increasing every day.

While today was an outside reversal day in the S&P, and ES, it was not a 'key reversal' day because an all-time high high was not made today. It would be 'preferred' to see one of those before calling a daily top in this wave - but, it certainly is not required.

The NQ futures (and NDX) which had been higher early in the day reversed to lower, too. As of this morning, on a broad daily chart of the NQ, this is the first time we 'could' count the NQ as a completed upward sequence. But, because we were judging only by the daily chart - we will allow that there could be one more new high - but there doesn't have to be. 

P.S. Sorry to have to show you the charts with the blue "N"'s on it, but I don't have access to my workstation at the moment. The situation should be back to normal tomorrow.

Have a very good start to your evening.
TraderJoe

Risk Increases - 4

Market Outlook: In a fourth wave after a third wave
Market Indexes: Mixed
SPX Candle: Lower High, Higher Low, Lower Close : Inside Candle
FED Posture: Quantitative Tightening (QT)

Prices as measured by the S&P500 index gapped down on the weak employment report, and traded down to 2,544. In doing so, prices re-entered the main channel we had showed for the last several days, and likely made an a wave down at this degree to start a fourth wave. In doing so, the Elliott Wave Oscillator on this time frame, and with 126 candles on the chart appears to be headed for fourth wave territory.

Beginning about 12:30 pm, prices started trading back and forth in what looks like a bear flag on the short term chart, and is likely a b wave.

S&P500 Cash - Half-Hourly - EWO Dropping

After reviewing some internals, I slightly modified the fifth wave extension wave yesterday, but not in a significant way. If this 4th wave wants to make a triangle, that would be acceptable. So would a simple sharp that alternates with the flat wave 2. So far, the mid-point gap is proving it's worth as a measuring tool.

On the chart of the NQ futures, the count is clearly reaching the point where the market must decide if the completion of a contracting ending diagonal is dead ahead, or not.

NQ Futures - Daily - Potential Diagonal

For this count to hold as a diagonal, prices should not trade above 6,109.50 before trading below the low of (iv). If prices exceed that level slightly, and then reverse, then there is some potential the structure is a barrier triangle instead of a diagonal, but, for now, this structure has the right look, including the slight throw-over of the upper trend line.

Have a very good start to your evening.
TraderJoe