Sunday, November 5, 2017

Profound Conflict and the Ways Forward

In again reviewing the works of Glenn Neely, I have run into a profound conflict that can not be reconciled in an impulse count in this current market. This conflict has significant implications as far as I can tell, and I want to explain it to you simply.  The conflict is between two concepts:

Degree versus Zero-to-Two Trend Line

In my post last weekend I showed this chart and stated (under Neo-Wave) in theory, that no part of a third wave should be outside of a line from wave zero-to-two.

S&P500 Index - Neely Trend Line

And, I stated that this would mean that the August peak should be taken as Minute ((i)), with the recent re-acceleration of the market as Minute ((iii)).

But when I had time this weekend to review the implications of that count, I ran into the profound conflict with Neo-Wave's own instructions. That is, if Minute ((i)) were placed at the August high, that would mean that Minute ((i)) would be longer in length than Minor 1! That is not possible. That is a degree violation!

The very concept of degree means that a smaller degree wave may not be larger in price or time than a larger degree wave! Minute ((i)) can not be larger than Minor 1. Let me illustrate.

S&P500 Cash Index - Weekly - Degree Violation Error


Regardless of which location for wave 2 you choose (the Brexit low in July 2016, or the election low in November 2017), then any location for a trend line that does not cut out a wave three results in a Minute wave ((i)) which is too long in price. They are each longer than Minor 1.

In Neely's latest audio interview he says specifically that degree violations are one of the most common charting errors. So, in the current market environment, his system can't have it both ways with an impulse count like this.

In fact, the only way to avoid a price degree violation for an impulse is with the Elliott Wave International style impulse count like the one below.

S&P500 Cash Index - Weekly - Minute Degree Price Resolved

I now clearly understand why EWI has labeled the chart as they have. They have labeled it to be cognizant of price degree. But, there are other problems with this chart in addition to the ones we noted earlier (like the $NYAD nearly at all time highs, and the weekly RSI at a near all time high).

Now some of the sharp one's among you will note that there is a potential time degree problem with the above chart. If minute ((ii)) is really minute ((ii)), then why does it consume more time than Minor 2??!! I can almost "hear" the EWI-style response to the time degree problem. Something like, "Well, time in the wave theory is the most flexible; corrections are goofy, and really Minute ((ii)) was just waiting on the election results. When we got the election results, then Minute wave ((ii)) ended. End of story! And don't ask any more stupid questions."

I presented a chart in the live chat room which can help answer the time-degree problem, and I'm going to present it at the end of this article as long as you understand that there is no price evidence for it, yet.

Let's look at just one more problem with this chart.

S&P500 Cash Index - Weekly - Deceleration, then Acceleration


Why, then, if we were working on a beautiful third wave, why did it suddenly decelerate, break the trend line and then accelerate again? And why is it that we have a wave than can be counted as triangle - right at the arrow location?? The EWI-style count explains it with Minute ((iv)) of Minor 5, with Minor 4 at the April, 2017 low. There is a distinct possibility that the EWI-style count can be completed, as shown below, and it would still explain the recent acceleration of price points higher.

S&P500 Cash Weekly - EWI Style Count Extended

Yes, each of the minute waves in the above chart is fewer price points that Minor 1, and the recent third wave can explain how that weekly RSI is so high at this point in time. To be fair, this count might call for a Thanksgiving swoon, and a Santa rally - which are common expectations on Wall Street. You will also note in this count that wave ((iii)) of minor 5 does not break a line drawn from wave 4 to Minute ((ii)) - not shown. This is also as Neely suggests. But, if that rule works for this wave, then why doesn't it work for first 1,2 in this series??!! And then there is the problem with the time degree issue: Minute ((ii)) of Minor 3 takes more time than Minor 2, and that violates Neely's principle of time degree.

Furthermore, in the above EWI-style chart we are supposed to be in a Fifth Wave of a Fifth Wave, and there is not even an obvious daily triangle or diagonal that can yet be seen? What is going on there? And the wave doesn't even form a parallel trend channel that well?

Well, I already know you are not going to like this. I don't. But the only way I can use all of Neely's guidelines to arrive at a count, is presented in the weekly chart below. It doesn't change anything overall. We would still be in Primary 5. But this chart also makes some quite exact predictions, so let's at least let it see the light of day. I am again going to show you this chart using the ES E-Mini S&P500 Index Futures so you can see that all price travel is accounted for in this chart.

ES E-Mini S&P500 Futures - Weekly - Fifth Extension Terminal

This chart would be of The Fifth Extension Terminal (or Ending Expanding Diagonal) and is well documented in Neely's book, Mastering Elliott Wave. The requirements are Wave (5) longer than wave (3), Wave (3) longer than Wave (1), Wave (4) longer than Wave (2), and Wave (4) overlaps wave (1) but does not travel below the low of Wave (2). Finally, every leg must be a simple zigzag.

So first let's cover the strengths of this chart: the most important of which there are no degree violations! This chart reflects the primary 4th degree at the February, 2016 low. Minute (ii) is shorter in both price & time than is Intermediate (2), and even shorter in time than it's prior B wave. And, the minute degree waves are all shorter in price than their minor degree counterparts. There is no minute degree wave that is longer than minor C of Intermediate Wave (1) in this configuration.

And we know within Intermediate (3), then there is no problem with the length relationships within zigzags. There is no rule stating that wave C can not be longer than wave A, and so that fits, as well.

In this chart, a line from Primary ((4)) to Intermediate (2) cuts off no part of wave Intermediate (3), and a line from Minor B of Intermediate (3) through Minute ((ii)) cuts off no part of wave Minute ((iii) - following the Neely guideline quite well, in fact! Profound conflict possibly resolved!

Further, this chart may explain the $NYAD being at recent new highs, along with the weekly RSI because we are actually in a wave Intermediate (3), and not wave Minor 5 as posited by the EWI-style count.

This chart makes some quite specific predictions. It states that wave Intermediate (4) down must be of the zigzag category, and that it must overlap wave Intermediate (1). To the best of my knowledge there is no one else on internet web-sites who's charts make this prediction! This would also be just a great way for Intermediate (4) to become longer in time than Intermediate (2). And, of course, by the very name of the structure, we don't have to look for a triangle or diagonal any more. We would be in it right now!

Then, after Intermediate (4) concludes, the chart also suggests that there will be a robust but narrow rally - most probably to a new high. And this may fit with the fact that even though sentiment is at extremes, the banks are supposed to now have better capitalization to withstand a draw-down. So, that might make some economic sense, as well.

So, if the chart has all of these predictive strengths, then what is it's weakness? Well, it should be clear this is a preliminary idea. There is absolutely no price evidence for it, yet. The best initial evidence would be if price breaks down out of a parallel. There are quite a number of amateur and even professional Elliotticians expecting the true parallel to hold. Whether it will or not is a matter of speculation.

The second issue with this count is the concept of time degree. I alluded to this issue earlier. Neely is quite concerned about the issue of time in his work. Elliott Wave International, not so much in the short run - although they do pay attention to longer time cycles.

So here is the thing: until or unless the concept of time-degree can be better illustrated or, hopefully, more rigorously proven - even mathematically - then we must hold it up to skepticism. I must admit, that my own internal counts in the live chat room have improved when better considering the time relationships and alternation among corrective wave sequences. But, overall, as a critical issue or element of wave theory, judgement must be reserved. I did have one idea for the longer run that I may work on for a future video. Stay tuned.

And - while we will advance this idea forward - we will bide our time and be patient, as there is nothing yet that says that upward counting is concluded. The best to you!

Have a very good weekend.
TraderJoe












12 comments:

  1. Thank you Joe ! Very interesting analisys. It is not easy to remember and apply all the neowave rules. You never lose the details.

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  2. While Neely's 0-2 trendline rule has always made logical sense, I'm beginning to think that perhaps exceptions have to sometimes be made. His rules certainly haven't helped him in many years. I receive promo emails from him, and from the looks of things, his advisory business has collapsed. He's begging people to give him another chance. I don't know what his current count is, but from the content of his latest email, I don't think he knows what it is either. Relentless trending markets with essentially no measurable pullbacks, like SPX has been for 12 months, tend to steamroll all technical analysis.

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    1. Yes, I am aware of Neely's current track record, although he typically ranks between 5th and 10th as a "Top Ten S&P Timer." I have no way to prove this, but my thought is largely due to the introduction of supposed "new" Elliott Wave patterns like Diametrics and Extracting Triangles. These patterns were not outlined in the original material, and Mastering Elliott Wave thus was predominately original EW with "more definitive rules", "more realistic pattern representations", and "fewer alternate patterns". This is what it set out to do. But now, instead of having alternate counts, he has "alternate pattens", and this is where I think he lost his way a bit. I don't know if he'll ever get it back.

      The problem is that I have found his rules regarding triangles, corrections and the ending and starting of waves so useful that it makes me think he was indeed really on the right track in many respects, but has actually not applied his very own original rules - just like Prechter was ignoring his channeling rule that led me to predict that he (Prechter) could be wrong about a Primary IVth wave. He was wrong, and he had followed his channel guideline he wouldn't be in the reputation mess he is in today. Now of course he shows that channel over & over again - when I showed it first in my YouTube channel in July, 2013.

      The thing is I "do" think there is something else wrong with NeoWave, and I am working very hard now to quantify it. I think it is something basic and relates to some simple founding definitions. When I have more of this work done and have something to share, I will.

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    2. Another remarkable detail is the timeframe. Neely never analyzes times shorter than 240 minutes. Want this say that the rules are not met all in very small timeframes, like 5 minutes?

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  3. "...like the $NYAD nearly at all time highs..."

    NYAD has been diverging negatively for the last two weeks

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    1. Yes. I'm keenly aware, but it is only two weeks. Meanwhile the VIX is very, very near new all-time lows.

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  4. The years ending in 7, average a 20% loss for the markets. So, the Ending Expanding Diagonal makes a lot of sense. The markets crashed 30% in one week in 1929. Risk happens fast and the majority of traders/Investors are not prepared. Everyone believes they can sell in time.

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  5. Bravo joe et félicitation pour ton travaIlle
    Parce que le marché est très compliqué à comprendre en ce moment

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  6. Wow! You definitely work hard on your analysis.

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