Wednesday, December 6, 2017

Counter Example

Market Outlook: Expecting Higher Volatility
Market Indexes: Most Major U.S. Equity Indexes were mixed-to-lower;
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Since the markets were mixed-to-lower today, I thought I would take this brief opportunity to try to present an instance of "learning by counter-example". By this I mean, we will try to construct The Eight Fold Path Method for counting an impulse on this down wave, potentially in a triangle or diagonal, and see what happens when we do.

Before I do, I just want to reiterate that nothing has changed. The Long Candle still has not been exceeded lower, so a triangle or diagonal can still be on the table. Prices today ended up between 62% and 78% retrace levels, but did not exactly touch the 78% level.

OK. Now let's look at the example on the ES 30-min chart below.

ES E-Mini Futures - Half Hour Chart - Not an Impulse

So, I specifically tried to count this chart out so that it is NOT the complex wave of the triangle, meaning that it is NOT a double zigzag. And, in this case from the Elliott Wave Oscillator with about 106 candles on the chart, the primary thing that you can see is that a potential third wave lower has less momentum, the EWO is higher, than the first wave down.

That should be just about all one needs to conclude that we are not in an impulse wave following The Eight Fold Path Method. Simple!

What is not simple is where the market goes from here. If we are counting a-b-c downward, then within c, as long as wave i, down of c has not been overlapped upward, we can still be in that c wave. There was a clear expanding diagonal at the end of the chart that was presented in the live chat room today.

And that is either an ending diagonal for wave .c of iv of c, OR it is a Leading Diagonal for the next wave up in the triangle or diagonal.

So, either c is over, as in the alternate count in red,  and we head higher, or c is yet to have it's fifth and final wave lower and should end sometime tomorrow. Notice today's upward wave overlapped the a wave downward and there is almost proof positive that we are not in an impulse downward, again proving the value of The Eight Fold Path Method.

Once again, we are in The Fourth Wave Conundrum, even within the potential triangle or diagonal! And, this happens for fourth waves at every degree of trend! 

But, besides illustrating the Fourth Wave Conundrum again, I hope it also illustrates to you just how powerful a tool The Eight Fold Path Method for Counting an Impulse can be. Because here we can use it to show a wave that is likely not a downward impulse at all!

So, we hope this brief counter-example helps, and helps you have a good start to your evening!


  1. Trader Joe, this is such a useful example. I hope you do more like this as the negative mind approach helps focus on the positive we are looking for.

  2. Sorry Joe, for once I would like to use a different count. When watching the e-mini S&P 500 futures, the top from 2665 to 2620 perfectly count as 5 waves down (wave 1 ends at 2650, wave 3 ends at 2634.75 and perfectly stops at 161.8% retracement, and wave 5 ends at 261.8% of wave 1. We are doing a zig-zag correction upwards and I expect it to reach 2637 (as we speak not it is at this level) or 2648, which is the 61.8% retracement level before the wave 3 down. Time will tell if I am wrong.