Friday, December 1, 2017

Higher Risk of Incorrect Wave Counts

Market Outlook: Expecting Higher Volatility
Market Indexes: All Major U.S. Equity Indexes were lower
SPX Candle: Lower High, Lower Low, Lower Close - Hanging Man Candle
FED Posture: Quantitative Tightening (QT)

We said yesterday that we could expect a fourth wave to begin at any time. Apparently one has, or maybe even worse, on political news reports today. Today's downward wave overlapped a bit of wave ((2)), which broke a guideline, but did not overlap wave ((1)), which would have broken a rule.

One thing we understand is the difficulty in counting fourth and fifth waves. So, on an update of yesterday's chart, we will show an alternate count in red which could mean a top is in place. The black count suggests there is either a triangle or diagonal building, instead.

ES E-Mini S&P500 Index Futures - 2 Hr Chart - Expect More Volatility

There are again two entirely plausible wave counts on the above chart. We are happy to say we did recognize an "extended fifth wave" in the live chat room, and cautioned about deep retraces. That said, the news today did present something of an unexpected surprise - as far as the news goes. And the market took quite an initial hit today, with the EWO getting quite close to that +10% level. In the process the potential ((4))th wave also crossed below the EMA-34, as is typically expected.

The amount of buy-back at the end of the day leaves the chart almost entirely indeterminate. From wave ((3)), we could have the first a-b-c of a triangle for ((4)), or since a-b-c is a sharp ((4)) could be done and over. And if ((4)) is over, a diagonal upward could be underway. And there are downward alternates, such as a diagonal, as well.

There's no amount of cogitating or noodling that will answer the question in advance. It's all part of The Fourth Wave Conundrum - once again. The reason I have titled the post what I have is this will be a difficult time for people not familiar in detail with wave counts and their typical alternates. And most importantly, this is not a time for opinions.

I may have something more useful to present later this weekend.

For now, have a very good start to yours,


  1. Joe, I always enjoy your charts and education on EW. Are 4th waves in general much longer than 2nd waves.Thanks Sam

  2. Good day Joe. For educational purposes. Referring to your words “……overlapped a bit of wave ((2)), which broke a guideline, but did not overlap wave ((1)), which would have broken a rule”. My question is, if wave 2 is “expanded flat” or “running flat” where the end of “B” is higher (or much higher; how much higher is allowed and do not break the exp./running flat formation ) than start of “A” and next wave 4 is the sharp zig-zag which penetrates the area of wave 2 but still does not penetrate the area of wave 1. Is it allowed (to break the guideline) or only in special circumstances allowed??? Thanks.

  3. Thank you again for your detailed analysis!
    Surly the 4th waves can be a real troll, and darn hard to "decipher".

    Again I learned a ton from your analysis!

    Bent B. Jensen