Tuesday, January 31, 2017

No Assumptions

Here is an update of  the S&P500 3-Hour Chart. From the high, we have fallen off to the 78.6% retracement level, downward.

SP500 3-Hr Chart

So, from the 2301, level price retraced 78.6% (61.8% in the NQ) to the 2267 level. But, so far, wave Minor 4 has not been exceeded lower yet. And, the downward wave has taken more time to complete than the upward wave. So, the downward wave may be considered as corrective to the upward wave, even though it can be counted as a five-wave sequence. The downward wave can also be considered as a complex corrective (w-x-y) lower, based on the very small wave off of the top.

Therefore, unfortunately, we can make no firm statements about the nature of this wave yet. If the high is exceeded, it could be minute iii of Minor 5 that does that. If the high is not exceeded, and wave Minor 4 is, then downward counting may begin.

Today, we had APPL earnings which lifted the NQ futures in the after-hours (but not to a new high, yet). And tomorrow is both the first day of the month - which sometimes sees price gains from the inflows from retirement accounts, dividend reinvestment plans, 401k's, company bonuses, etc. - and it is a Federal Reserve policy day. And Friday is the payroll employment report. So, new highs are very possible, and so is a reversal on one piece of news or another.

As a result, we make no assumptions at the moment, and simply count waves until something looks completed in one direction or the other. We do see that there is an "island top" leaving two open gaps on the above chart, and it is certainly possible that one or both fill.

Best wishes in the chop and whipsaw-type market conditions.
TraderJoe


Saturday, January 28, 2017

Specific Limits

If we use The Eight Fold Path Methodology for Counting an Impulse (see Featured Post), then the correct time frame to contain the "wave under study" for Intermediate wave (3) with 120 - 160 bars is the three-hourly chart, as below.

Intermediate (3) in the SP500 3-Hourly Chart

So, that using this chart, and keeping the Dow and S&P500 synchronized with triangles ending on the same day, this now provides specific limits for Minor wave 5. Since, on this chart we can see all of the minute sub-divisions within Minor 1, and Minor 3, we expect we are seeing the sub-divisions within Minor 5, as well.

Further, if we define Minor 4 as the end of the triangle, and wave Minor 5 must still remain shorter than Minor 3 (since Minor 3 is shorter than Minor 1), then the farthest Minor 5 can travel is to 2347.11 in the most generous assessment. Yes, it can fall short of that. One common target when wave 5 is the shortest wave is 0.618 times the length of wave 3, at 2312.70, but that is not a required limit.

Further, the above chart shows a beautiful example of what the Elliott Wave Oscillator looks like for a triangle (forming a triangle pattern itself - brown reference line), and it is to be noted that price is currently on a significant divergence with the EWO (blue reference line) - something which can continue for a while, but not too long. That does cause concern that this portion of the rally is nearing an end, so the 0.618 target may hold. There is no magic here: either it holds or it doesn't. Again, it is not required to hold.

You will also note that the RSI is also diverging. Because of the intraday time frame we picked RSI-11 while generating this study, but checked, and RSI -14 shows a similar result. So, that is another cause for concern.

Having a valid triangle, with a clear minute-e wave (circle e) also provides us with a very specific invalidation point. No matter what, the upward wave (Minor 5) is over if price breaks below 2257.02 before higher waves are made. And, when Minor 5 completes, this will be the confirmation point of completion of the wave, as well.

Have a good weekend,
TraderJoe

Friday, January 27, 2017

TIme Has Run Out -- Mid-day Update

As of 11:15 AM today, time has run out for the diagonal to be an ending diagonal. As a leading diagonal it could be sub-wave .i of minute v; as below.

SP500 Time Has Run Out on an 'Ending Diagonal'

Although the correction can deepen if it wants to, it does suggest there will be 'gap support' of some type and new higher highs are possible. Again, 2301.26 was only the limit of the diagonal, not the limit of upward price movement in total.

P.S. There is an another, equally valid, way to count .i as the first wave of a diagonal overall - just count 2284 as A of the larger diagonal, 2280 as B, and 2301 at C (the diagonal would be the C wave) of minute (i). In either case, the upward wave does not appear over just yet.

Cheers!
TraderJoe

Thursday, January 26, 2017

Time, Time, Time .. See What's Become of Me

Here is the time relationship in regard to a potential ending diagonal or not. Remember, if there is a valid ending diagonal here, the diagonal could be fully retraced in less than the time it took to build it.



SP500 15-Minute Time Relationship

Just for information at this point.

Best always,
TraderJoe

An Update from the Live Chat Room - 11 AM Special

There is now a slight breach of the lower diagonal trend line. I am convinced that with four attempts on 2301, without breaking 2301.26, and now a breach of the lower diagonal trend line, that there has indeed been a diagonal of some type. Now the question is whether it is "ending" or "leading".

SP500 15-Minutes : Diagonal "Of Some Type" Has Occurred

Now that a diagonal "of some type" has occurred, it could: 1) end the entire move wave v, or 2) be either an "a" wave in a larger diagonal, or a "i" wave as a sub-wave in a further move up. Only the depth and speed of any retrace will tell us that with certainty. Remember, an ending diagonal would need to be fully retraced in less than the time it took to build it.

Wednesday, January 25, 2017

An Open Book - Today

You've heard of open book exams? Today I want to walk you through some things we discussed in the live chat session today.

Because the Dow made a new all time high, that made some things a lot easier at the moment. The first one of which is this count on the Dow for Intermediate (3).  It looks like the rare expanded triangle was the right form for Minor 4.

DJIA - Daily - Rare Expanding Triangle for Minor 4 in the Dow

In an expanding triangle, there must be all zigzag sequences for each of four of the legs (remember we couldn't count the upward d leg as a potential diagonal in the Dow like we could in the S&P500), and wave b must be higher than wave 3, wave c must be lower than wave a, wave d must be higher than wave b, and wave e must be lower than wave c. All of that occurred, and the higher high as of today confirmed it.

With that as the case, it also helps clarify the S&P500 count, as well, to be that of a running triangle, as below.

SP500 Daily - Running Triangle Synchronizes it with DJIA Count

Remember in a "running triangle", wave b must make a higher high than wave 3, and all of the rest of the waves must contract which they do. But further, wave e, must close back under the high of wave 3 to be corrective to it, and it did. So, while ugly, and it's proportions were questioned, it doesn't violate any rules, and this seems the best way to "keep the peace" between the markets.

For those who have been tracking the upward wave since, below is the five-minute chart of the SP500 I was tracking in real time today.

SP500 5-Minutes Three-Wave Sequences after 4?

So, the start of the count proceeded in the channel shown with wave 2 as a sharp, and wave 4 as a Flat for alternation. Measurements showed the up wave to 3 made a 2.618 Fibonacci extension (to be accurate it was the higher b wave of 4 that did), and last night we said the wave didn't look complete. It wasn't.

And then, after the gap up (which seems like it is an "exhaustion gap" for a fifth wave), overlapping three-wave sequences began to appear in the count. We didn't ask them to. They just did. And the wave starting "riding the upper channel line" - a sign of "grinding", until it broke into the channel interior.

Within wave 5, we currently have (3) is less than (1), (4) is less than (2), wave (4) overlaps wave (1), and (5) is "currently" less than (3). In order to remain less than (3), wave (5) should not cross 2301.26 or there is some other count at work that is not a short term diagonal. (A larger B wave would be an option.) If the count holds, then a retrace to below wave 4 would be expected in less time than it took to make the 5th wave if the diagonal is an "ending" one.

We'll see. The daily chart does look like the typical "thrust" out of a triangle, and triangles often precede the last wave in the sequence.

There is also the concern on the daily chart that minor wave 5 should not become longer than minor 3, because minor 3 is shorter than minor 1, but we will deal with that in future posts.

For now, we want to note that the New York Advance / Decline line is still at all time highs, as below. There is no divergence in sight.

NYAD Line Still at All Time Highs - No Divergence

Keep that in mind, but also that it seems to grinding on the trend line, as well, and not impulsing away from it - at least not yet.

Lastly, it is worth noting that the two-daily S&P500 can now have Intermediate (4) downwardly overlap an Intermediate (1) wave by only 5 points as of today, and remain shorter than wave (2). That's a pretty slim margin. I have called it "Precision Flying" if that should happen. Let's see how it goes, but, as always, I am still flexible to say that we can still be in the impulse count up in the S&P, since we are likely so in the Dow count.

Well, that's about the extent of it, so far. Stay patient and flexible!
TraderJoe

Tuesday, January 24, 2017

Mea Culpa

You probably get tired of hearing everyone say how good their market predictions were; that they predicted this wave or they predicted that wave. Instead of that, today I want to show you how easy it is to make a simple error with Elliott Wave - even if you know the topic well. I did that in yesterday's post, and I will walk you through what the error was. No excuses.

Today's updated 2 hr SP500 chart is below, annotated to show where that error was. Even though we were counting "upward" in live chat today for a minuet second wave, the wave quickly got ahead of that count, and even made new highs in the S&P while the Dow did not.

SP500 2-Hour Chart

As you might know, yesterday I published a blog article that said the probability of new lows versus new highs was about 70 : 30 in my view because the market had started to make new lows. While, I did see that it was possible we were still in a triangle (...the other 30%), and while I did see that the Jan 6th diagonal to new highs was possibly an "a" wave of a larger diagonal (see previous days blogs and comments), I failed to factor in a key fact and kept driving on.

The key fact I ignored was: that the upward "a" wave diagonal in the S&P was not fully retraced in less than the time it takes to build it. In fact, it was not, and has not, been fully retraced yet. And that likely makes it a Leading Diagonal, and not an ending one. That's the error. It's that simple. I did not focus properly on the timing and extent of the retrace of the diagonal, and I have once again learned from that. By the time that .a wave occurred, an ending diagonal, by contrast, should have been fully retraced. It was not.

So, we went up and made marginal new highs again today. Volume in the futures was awfully light, worse than "summer light", although cash equity volume was good at about 3.7 bil on the NYSE.

And, bottom line, we do not know that the upward wave is part of a larger ending contracting diagonal for Minor 5 of Intermediate (3) still. It has the potential to be, but there are many, many waves to count before concluding that. We don't even know that Minute (i) of such a diagonal would be fully completed .. looking at the upward wave on shorter term charts - it doesn't look quite finished yet.

So, don't fixate on the tentative trend lines we have drawn in. They are just that ... tentative. The invalidation point for an upward diagonal at this point is if wave (ii) should travel below wave Minor 4.

Be careful in the whip-saws. As I have said before, I am not fond of this market. Today is an example of why.

P.S. We now need to see if the SP500 Intermediate Wave (3) is now "too long" for the larger two-daily contracting diagonal. I'll try to report on that tomorrow.

Best to you always,
TraderJoe

Monday, January 23, 2017

Some New Lower Lows

If you've been following the stock market over the last few days, you know that we have had a series of lower high days, and today was another one of them. I said in Friday's blog post, though, that we needed to start seeing lower low days to begin to have some confidence in a down count.

Today we got a low that was below both Friday's low, and Thursday's low last week. Even though the point loss at the end of the day was modest, below is the intra-day count I mentioned on Friday's post. With the lower lows, I give the count a 70:30 probability of  making a new lower low under wave 4  sooner than a higher high over wave 5.

SP500 - 4 HR - Potential Down Count to Minor A of Intermediate Wave (4)

From wave 5, the downward count reads as follows: An expanding leading diagonal for minute wave (i) of A, followed by double zigzag minute wave (ii). The y wave of minute (ii) has a truncation that was called in real time, and minute wave (ii) is longer in time than minute wave (i) for good proportions. Minute wave (iii) is in development with the first sub-wave of it downward today - hence the new lows.

If so, a gap opening downward would be expected in the next couple of days to indicate the third sub-wave of minute (iii), lower.

This view is published for several reasons. First is that a truncation in a second wave ending structure would be a somewhat bearish development for the near term if it holds. Next, both the 4-HR slow stochastics and Elliott Wave Oscillator are still heading lower after a divergence; so, too, is the MACD Histogram, which today renewed it's decline. Third, the EMA-13 on this chart has curled lower. And, lastly, the Russell 2000 has overlapped the prices from Dec 28th at the end of 2016 already.

The other 30% of the probability goes to a longer triangle wave 4, but such a triangle does not have good proportions at this time, and that is the simple reason why it is not the top count.

Cheers!
TraderJoe

Friday, January 20, 2017

What Now, Dow ?

Let's address the very short term first. In the Dow and S&P, all the charts currently have from the all-time-high is a series of lower highs! While that may indeed indicate a down trend is coming, the lower lows to confirm that are still needed, and they are not in evidence, yet. That 'might' happen early next week, and in live chat, we have published a currently very tenable wave count lower. We'll see.

Today, all we had was a situation where the bulls couldn't make a new all-time-high (ATH), and the bears couldn't fill the opening gap. With the S&P and NQ so close to the all time highs, we must allow that until new lower low candles are printed on the daily chart, we must respect the trend and allow that new higher highs are possible. (The Dow, as you know, is now not as close to it's all time high as the S&P.)

But what I wanted to address today is in reference to the the longer term count : that of the S&P500's potential diagonal that we showed you yesterday versus the Dow Jones Industrial Average. As you may recall from my previous post entitled Elephant Head, I have a long memory, and two things have been bothering me. First is the fact that the Dow and the S&P did not bottom on the same day in Primary IV (in February, 2016), and the second was - ignoring that - the DOW would have it's Intermediate Wave (1) at a different location than the S&P500 in an impulse count. This was potentially causing me to count the DOW with an 'X' wave where I said it was a five-wave sequence in the S&P500 - which just - I'm sorry - seemed too odd.

So, I went to work last night to try to answer that riddle, and here is the Dow count that would agree with the placement of the Intermediate Waves in the S&P500 Index.

DJIA Now In-Synch with S&P500 Index

You should take some time to compare this to the potential count of the S&P500 Diagonal shown yesterday to now see that, a) all of the five-wave sequences are now in the same place, b) that all of the corrective sequences are now in the same place, and c) that Intermediate (1) and Intermediate (3) now synch-up on the same waves on both charts!

And the answer lie in putting that orphan wave in the Dow to good use! Problem solved!

So, the Dow may still finish as an impulse - while the S&P finishes as a diagonal - because, in the Dow, Intermediate (3) is still too long to allow Intermediate (4) to overlap Intermediate (1) with a wave that is shorter than Intermediate (2), as is required in an ending contracting diagonal for the Dow. But, perhaps it just means that Intermediate (4) in the S&P will overlap, and Intermediate (4) in the Dow will not overlap!

That would really confuse the daylights out of most wave counters - but, hey - that's what the market is here for!

Cheers!
TraderJoe

Thursday, January 19, 2017

Further Notice!

I stated in my blog post of December 7th (which I encourage you to again review), "we are in Intermediate Wave (3) until further notice". I also rejoined, "Do I personally like the market here? No, I have said too many times, the risk of a wrong count is going up - specifically because it takes many more points now to validate a count."

Well, I am happy to say, that today very likely constitutes "further notice!".  Let me be as unequivocal as I can be. "Today's outside reversal candle lower in the ES has just upped the odds that Intermediate (4) is now in progress." And I have some very, very good news. In the S&P 500 and in the NQ futures, it means we may be able to count this halting, whipsawing upward progress as a contracting diagonal overall - just not the Dow Jones Industrial Average. But the DOW is most likely in it's Intermediate Wave (4), too.

So, let's look at the daily chart of the S&P 500. If the market has, in fact, reversed course here, then it is possible to count Intermediate (3) at the prior high in a Ending Contracting Diagonal in the S&P500. The half-hourly ending diagonal we showed you on January 9th in the article entitled, Intermediate (3) May Now Be Done.

Daily Diagonal in the S&P500 Index

It is now just barely possible in the S&P500 Index for an Intermediate Wave (4) to form from this location that is shorter than Intermediate Wave (2), and still overlaps wave (1). What makes it possible is counting the Election Night rally as an "A" wave, not as a "1" wave in itself.

As we showed earlier, this is not possible in the Dow Jones Industrial Average (although we continue to look and monitor for it).

Yet, the reason we think that Intermediate (3) is done is specifically because the Dow has broken it's prior wave Minor 4 low. See first chart below.

DJIA Daily - Break of Prior Wave 4 Low

In wave theory, the only way the count above can still be counted as a fourth wave, is as an expanding triangle, as below. (But we caution such structures are extremely rare, and the S&P 500 can no be so counted as an expanding triangle at this point in time.)

A Possible But Less Likely Wave 4 in the DJIA Daily

Besides the S&P not being able to be counted as an Expanding Triangle at this time, there is something that would be "odd" about the above potential triangle which makes it less likely, also.

Usually in expanding triangles, each new wave takes more "time" than it's predecessor wave. They not only expand in price with required higher highs and higher lows, they also expand in time. And, while that works for waves b, c and e, it does not work for wave d. Wave d takes less time than wave c. So, this is a real watch-out to the bullish case. It's almost as if the Dow and the S&P topped on the same daily bar for a reason.

Only time will tell, of course. But, if the S&P500 begins to make higher highs by even 20 points, or so, it will ultimately become impossible for that Wave Intermediate (4) to overlap wave Intermediate (1) and still have (4) remain shorter than (2).

I will continue to research the DOW to see if any diagonal makes sense for it. But keep in mind - it is not required!

Cheers and enjoy the day!

Wednesday, January 18, 2017

All Together Now ??

From my perspective, the chart that most likely tells the story of where we are is this daily chart of the ES E-mini S&P500 futures. Our basic count is not changed, higher highs are needed to confirm the continuation of Minor 5 of Intermediate (3); lower lows are needed to confirm the initiation of Intermediate (4). Neither has happened so far, though it was close in the Dow today.

ES E-Mini S&P Future - Current Count

From the election night low, we have Minor 1, up, Minor 2, down, Minor 3, up which is shorter than Minor 1. Over the Christmas holiday we got Minor 4, which was described in detail, and we are now, most likely, in the Minor 5th wave. The ES has not made a higher high over wave Minor 3, yet. The cash Dow and S&P have.

Price is still over the 18-day SMA and so still has a "positive bias" as Ira Epstein might phrase it. But the Bollinger Bands are now narrow and moving sideways, prices have been choppy, and wave counting is "testy" at best. As far as I can tell - in both the Dow and S&P, the count that explains it best, it "(a)", up, and "(b)" sideways as part of a very ugly diagonal in formation. That is because we have found one way to consider the Dow and the S&P hourly charts at equivalent locations at this point in time.

First, the Dow ..


Dow Hourly - minuet (a) up, (b) down

Please note this wave count would invalidate with any lower low below 19,718 as shown by the red line.

Now for the S&P - which is a little messier.

S&P Hourly - minuet (a) up, (b) down

In the case of the S&P500, the minuet (b) wave may be taking the form of a terminal triangle. We have sketched in the case where the triangle is completed - just as we did in live chat today. But, I also noted that "triangles can expand one time", and it is possible the up wave at the end of the day today is only the end of the D wave (within the triangle), and it's possible to move the upper trend line of the triangle higher, and that an E wave down will occur tomorrow at the opening.

In either case, any higher high this week would likely be the (c) wave up of minute i (circle i) of a larger diagonal that is playing out and is sketched in, above, on the ES E-mini S&P Daily chart that opens this article.

Cheers!


Friday, January 13, 2017

Five Waves Up

Here is that Dow 30-minute chart on which we counted A & B, in which B was likely a very messy flat. We were expecting five waves up in a C wave, and sketched it in on the chart. Here is an updated version.

DJIA - 30 Minutes - One set of "five-up"

First, starting over on the left-hand-side, depending on whether you think the downward wave following the A wave up is a smaller 'a', or 'w' wave (...it is clearly a three-wave sequence...), then the 'b' or 'x' wave, upward to Jan 6 measures precisely 138.2% of the length of that 'a', or 'w', wave. How is that for wave theory accuracy?

And then, the Jan 12th wave downward to B just marginally breaks that 'a' or 'w' wave lower to confirm the flat yesterday morning.

Then, on the opening this morning, that "tsk-tsk" gap I mentioned yesterday (now shown with the black circle) filled straight-away. And, once again, no gaps to the upside (on this chart).

Next, it's hard to argue that we've had five clear waves up (.i through .v), and this is followed by what looks like a bull flag downward, which broke upward at the end of the day, following by a back-test of the bull-flag channel which has held so far.

The downward wave on the Dow measures between 50 - 62%, and is deep enough for a second wave. While we don't know that the second wave downward is finished completely (... it could well be...), wave theory tells us that after 'five waves up' there should at least be five more waves up, and possibly more if the C wave develops as it should into an impulse or diagonal.

Cheers and enjoy the long weekend!
TraderJoe

Thursday, January 12, 2017

Another Lower Low

As if to ask, "How Low Can You Go??", the Dow and S&P500 both made lower lows today. The downward movement filled the next gap down (shown in black), but it had to open a downward gap to do it (shown in red at this morning's open). Tsk..tsk. So far every single downward gap has been filled upward. And, in a twist, before the S&P could hit the 62% retracement level, the rain stopped, the clouds parted and the sun came out yet again. Here's that 30-minute S&P chart.

SP500 30-Minute - Lower Low

So, the best count right now is that of a triple zigzag downward, and because of the wave 'lengths' it could (but shouldn't) be considered an expanding diagonal downward. There is something wrong with the Expanding Diagonal. Usually the waves in an Expanding Diagonal get longer in time as they drive deeper in price. This one has each progressive wave getting shorter. So, again, we don't think it is a diagonal for that reason. We think it is a triple-zigzag B wave, lower. With a slight new high to follow.

The potential triangle on the Dow busted this morning (which we called in the real time chat room), and the Dow filled it's gap near the origin of the wave. Here's where we think the Dow is at this point in time.

DJIA - 15 Minute B Wave

Notice that an Expanding Leading Diagonal downward definitely can not be counted on the Dow because the middle leg is too short. We think that adds to the reasoning on the S&P 500. But, it is possible the Dow just made an awful ugly flat for a B wave. The two B waves 'would' go together. And possibly we are starting the C wave higher of minute-i of a diagonal for minor 5.

Once again, here is the overall two-daily chart of the S&P500 - showing where I think we are in the count.

SP500 Two-Daily Preferred Impulse

Remember, wave Minor 5 of Intermediate (3) can become longer. It just can not become longer than Minor 3 in this count. And there is no proof, yet, that Minor 5 is definitely over.  Only traveling below Minor 4 would signify that.

But, it goes without saying we are likely "in the topping process". Look at those Dow waves on the fifteen minute chart and how choppy they are. Rest assured the market specialists and algorithms do not want us on board when they do - eventually - take the market down. That's what the "topping process" in the market is all about!

In terms of invalidation, the upward scenario for the Dow would be over if the low of the A wave is exceeded lower. Same with the S&P (but it is much further away).

Cheers and enjoy the charts!
TraderJoe

Wednesday, January 11, 2017

Lower Low

Although we got a lower low today, and are glad we indicated a top of sorts where we did, some additional studies have indicated we may have more topping to do yet. First, let's look at that SP500 30-minute chart again.

SP500 30-Minutes Lower Low Today

Although we did get a lower low today, the downward wave does not count well according to The Eight Fold Path Methodology. So, during live chat today, we indicated that there were two ways to count the down wave in progress: as A-B-C or as a-b-c-x-a-b-c; which the latter you will recognize as W-X-Y, and is shown on the above chart. We also pointed out that the down wave stopped at the prior wave iv in the diagonal. This suggests - as best we can tell right now - that only an overall "B" wave was formed lower, and the diagonal was just the "A" wave of minute i in a larger upward diagonal count that will make up Minor wave 5. So, there 'should' at some point be a C wave higher to end minute i.

Supporting this view; today I examined the Dow Jones Industrial Average, as below. And, two interesting things show up in the Dow. First, when trying to count a diagonal upward, one finds that the middle wave (marked at the end of the day on January 5th) is "too short". This means the Dow must not have been in a diagonal, but in a triangle.

DJIA - 15 Minute - Not a Diagonal But a Triangle

Also, you will note that, unlike the S&P 500 which did not, the Dow did make a new secondary low today. This prevents a count of  i, ii up from the first low. Therefore, it appears as if wave c in the Dow count is the complex leg of a triangle, and higher highs might, in fact, be expected within this Minor 5th wave. First, the d & e legs of a triangle must finish properly, with the e leg crossing back down over the A wave. Then, there should be up movement out of the triangle.

This would allow the minor 5th wave to take on some length in relationship to it's minor wave 3, and that would be acceptable - provided that minor 5 does not become longer than minor 3.

Tuesday, January 10, 2017

One Gap Gone

From the current market high on the chart we showed you yesterday, the gap left open by yesterday's likely third wave lower was closed today - shown as the gap in black. Interesting situation, as below, because for the first time in a long time, there are no gaps above the market and only gaps below the market (shown in red).

SP500 30-Minute : Only Gaps are Below Market

We will not know for a while whether the above diagonal is ending or leading with more certainty (although I suspect the former). In either case, there should be "at least" three-waves down in a correction, and maybe more. Any price movement below SP500 2,265 will likely provide that down trend confirmation.

So far, the weekly candle is starting out red.

Cheers and enjoy the chart!
TraderJoe

Monday, January 9, 2017

Intermediate (3) May Now Be Done

As I alluded to in the comments section of the prior post (see January 8, 2017 at 4:29 AM), a new set of measurements had been done in the off hours that allowed the up wave to be considered complete with Minor 5 as a completed Ending Diagonal. Here is what the overall count would look like, using the The Eight Fold Path Methodology and 120 - 160 candles on the chart. This chart would end at 166 candles in the two-hour time-frame: well within the parameters of the method.

SP500 2 hr Chart : Minor waves 1 - 5 of Intermediate (3) can be considered complete

In the very last five minutes of the day today, a lower low was established, allowing a small degree "five" count on the downward wave. This wave - and it's associated gap - also broke the rising lower trend line yet again. Therefore, it is 'possible' to conclude that the Minor 5th wave of Intermediate (3) has ended, and we are now, very possibly, in Intermediate (4). If so, it would end on a divergence with the peak of wave 3 on the Elliott Wave Oscillator, after a dip below the zero line but not by more than +10% to -40% of the peak value.

Although I will not do this often, in the chart below I will show you the exact measurements of the diagonal so you will see that there are no hi-jinks being played. This will be on the SP500 30-min chart below. This chart is the one I referred to in my weekend comments and during live chat today.

 
SP500 - 30 Minutes - Measurements of Diagonal


Here you can see for yourself that wave minute v (circle v) is shorter than minute iii, that minute iii is shorter than minute i, than minute iv is shorter than minute ii, and that minute iv overlaps minute i. In  this chart I have included the most extreme ends of the waves - without the truncations - and the measurements all work. But, beyond that I have tested that it works with the truncation, as well. That's why the first wave shows a second measurement. That is the length of the wave if the truncation is subtracted from wave i, to be sure wave minute iii is still shorter than minute i - which it is.

And, I also tested it using each of the potential bottoms in minute ii, and the result is still the same. Minute iii is always shorter than minute i, and minute v is always shorter than minute iii. The only qualm I had was how well the downward legs formed zigzags. But, they do "look" sharp and steep in the chart, so that will be acceptable.

With the diagonal trend line broken, the market is again losing more momentum, not gaining it. Since, there is likely a five-wave down sequence, one should expect at least one more such downward sequence (maybe more, depending on whether a larger impulse forms or not). As such, it is worth noting that today's advance-decline line was 1,082 to 1,942; making harder yet for the Dow to hit that 20k level right away.

Keep in mind the overall Intermediate (3) count would be that in which Minor 1 is the extended wave in the sequence. Minor 2 is a small retrace, that tends to indicate that the first wave is the extended one. But it is the first wave that breaks the EMA-34, lower. Minor 3 is then shorter than Minor 1, and ends very, very close to the predicted 0.618 extension on Minor 1. And none of Minor 3 breaks below the EMA-34. Minor 4, as we know, was a compound flat on the very light holiday volume, as was only a bit deeper than typical. But it did weave around the EMA-34, as a fourth wave should, breaking it lower, twice. Then, Minor 5 would be the diagonal that just eeks out the new high, but not before breaking the EMA-34 to the upside.

Well, I may have missed the wave-counting top by 12 points as regards the blog (...maybe not depending on what you think of the weekend comment). But, I did say the count was proceeding in a wedge. And, the 30-minute chart shows that is true. Any downward overlap of 2263 will solidify that the upward count is likely over - at least for a while. 

With five waves down, there is now higher confidence that the diagonal formed. The only way for the bulls to rescue the situation is if the diagonal is somehow 'leading', but that would be a true rarity at the all-time high in the market and seems unrealistic at this point. In fact, the invalidation point for a contracting ending diagonal Minor 5th wave, now moves up to the all-time high, at 2282.10, or it is more likely that Intermediate (4) has now begun.

Since Intermediate (2) was a flat wave, Intermediate (4) may be a sharp (zigzag or double zz) or a triangle. Let's take it step-by-step.

Cheers and enjoy the charts!
Trader Joe

Friday, January 6, 2017

No Cee-Gar

While we got the new all time highs today, with the S&P over it's previous 2277 high, the Dow Jones Industrial Average missed it's 20,000 mark by the slimmest of margins. Still the count continues to wedge, and frustrate the vast majority with lack of follow-through and some waves seemingly deeper than they should be. Trend lines break and then they re-establish themselves. This is the market trying to tell you something, (hint: I'm wheezing momentum).

The NYSE advance-decline line was actually negative on today's close. After being positive territory all day long the ratio at the bell was 1,426 (adv) to 1,584 (dec). While not a disaster, it really doesn't speak of party hats!

Here is a look at the chart as it was being published in the live chat room all day today.

SP500 15-Minute Wave Minute i (Circle i) of Minor 5


The chart would indicate that if wave micro-2 (circle-2) is a flat, then wave micro 4 (circle-4) is a zigzag which hasn't by any means overlapped wave micro-1 (circle-1), yet, and this provides excellent alternation within this vth wave of the (c) wave up of minute i (circle-i). So, one more up wave - and potentially one higher high - should do it before starting on minute-ii (circle-ii) in the downward direction. Assuming that occurs, we think the five minute waves up, counted as (circle i, ii, iii, iv, v), when & IF they form properly, is overall a contracting ending diagonal for the end of minor 5 of Intermediate (3) per the count in the weekend video.

How far can minute-ii (circle-ii) go lower? As far as it wants provided it does not trade below the minor 4th wave at 2234. What shape should minute-ii (circle-ii) have? Well, it should be a zigzag. (Remember in a zigzag, the 'b' wave can still be a flat or a running triangle.)  It would not be uncommon to see a 62 - 87% retrace, but just filling either of the two clear gaps on the chart could do it too. The supposed "deep retrace" for the internal legs is a guideline only!

Again .. assuming the higher high occurs.

If the higher high does not occur, the best alternate is that today completed a Leading Diagonal first wave - because we were able to count one of those earlier today on the NQ chart. Either way, a second wave down (or more) is likely looking at us right in the face.

But .. let's at least give the party hat guys a chance!

Until then, remember wave micro-4 (circle 4) would invalidate if it overlaps wave micro-1 (circle-1) before a new all time high is made in the market.

Why do we think the up wave has a little farther to go in terms of completing an ending diagonal? Because it should 'try' to establish a Fibonacci ratio with it's Minor 3 wave counterpart. But all of that is in the future.

Have a nice weekend.
Trader Joe


Thursday, January 5, 2017

Still Wedging

While everything remains on track for the daily count - meaning we are still expecting the minor 5th wave higher to make a new all time high in the DOW and S&P - yesterday I noted in this blog that the intra-day wave shape was wedging and applied alternate labels of a, b, c to the rising wave. In fact, today, I have altogether abandoned impulse labels up for minor 5.

Below is the count that was presented, and actually counted wave-for-wave in the real time chat room this morning, including the truncation of the vth wave of (c) of z of 4 - which was called a very real potential on Friday - and made me conclude the down turn was likely over.

SP500 15-Minute Chart - Likely Ending Diagonal in Minor 5

I have abandoned the impulse labels because of the overlap of Y of iv with the B wave up (circle B) of the compound flat correction for the blue (b) wave down that was initially called the end of wave ii in a now defunct impulse count.

I do not think a "longer" fourth wave (i.e. longer Minor 4) is occurring as some have suggested because the count to Minor 4 was w-x-y-x-z; and that count is always terminal. It ended at the proper moment, and the z wave, which is prone to show truncation, did, in fact, truncate. You can't ask for more perfection from the wave principle than that.

So, if a diagonal occurs properly, it will "likely" terminate Minor 5 upward, but it could take days of "grinding", yet. That's fine with me. Still a diagonal must occur with very specific rules and so we will keep you posted should something not work out correctly.

Cheers and enjoy the chart.
TraderJoe

Wednesday, January 4, 2017

Pleased as Punch

While it is quite gratifying to see three waves up, right on schedule from the Minor 4th wave low in the S&P500 Index shown in our weekend video, we do need to add one note of caution: while there are three waves up from the low, so far .. and up movement can easily continue to make new highs .. we must caution that whether you look at futures (as below) or intraday cash S&P, the waves currently form a wedge.

Intraday ES E-mini S&P Futures

The green lines show a potential channel count, while the blue-dotted line shows a wedge shape in the current moment.

Further, we have the situation where the third segment is not even as long as the first segment, yet. Now, all of this could right itself with a news report or two. But, until we see that happen, we are going to carry the alternate labels a,b,c which would be part of a diagonal count for the Minor 5th, wave, as well. At this time, we have no preference for which forms - an impulse or a diagonal, although that may change in the upcoming days.

Remember, in an ending diagonal, if that's what occurs, usually wave (i) of the diagonal makes it's high over the prior wave 3 (Minor 3 in this case) to show it's character as a true motive wave. So, even that count would suggest upward movement is not over yet. But ..

Be careful and take care!
TraderJoe

Tuesday, January 3, 2017

Wiley Flats

No, it's not a new Country Banjo picker. It's a follow up to our December 22 post on the US Dollar Index. If you have not seen that post, I encourage you to review it now, and then refer to the chart below.


Proven Flat-X-Zigzag in the US Dollar Index

So, we had showed you this chart back when we had labeled the c:5 wave, and called it a Flat wave, ruling out a triangle, and said that it is more typical for the c:5 wave in a Flat to break the a:3 wave. But that did not happen, with a fifth-wave-up still expected soon.

Well, because of the light volume across the holiday, the wave formed another three waves up to (x), and then another three waves down to (y) to deepen the correction. So, that pesky a:3 wave, was, in fact, exceeded lower.

Such a wave structure is known as a Flat-X-Zigzag, or a Double Flat since the (x) wave upward did make another 90% retracement of the of the (w) wave.

I wanted to show you this example when the 5th wave, upward, was confirmed today to show what some fourth waves can look like. First, notice that wave 4 did not overlap wave 1. That is critical! Second, notice how much time the fourth wave took versus the second wave. The fourth wave not only attacked the lower trend channel boundary, it took over a lot of enemy territory, too! In practice, we would again lower the parallel channel to try to help find the end of wave 5, but I didn't want to confuse things for this example. But wave 5 is clearly shown to have made a new high, and formed a valid impulse upward under The Eight Fold Path methodology.

Third, I printed out the values of the Elliott Wave Oscillator for this example. Notice the peak of Wave 3 was 1.61, and the new trough of wave 4 is -0.69; so doing the math, that means that EWO was -42% on the other side of zero line compared to a guideline of +10% to -40%. How's that for the accuracy of a guideline?!

Fourth, notice that little ending diagonal to end the c wave of  wave (y)? Perfect in every detail. Wave (v) is shorter than wave (iii), wave (iii) shorter than wave (i), wave (iv) shorter than wave (ii), wave (iv) overlapping wave (i), and all three-wave zigzag sequences. We pointed out that little guy in the live chat room on Friday.

And Fibonacci fifth, I think it is important to note that to do this work, with you must be comfortable with some sloppiness. Not a lot, but some. This is particularly true in fourth waves. It is, in fact, why I have titled this phenomenon of uncertainty in fourth waves, The Fourth Wave Conundrum.

Anybody who can tell you if you will get a regular flat, versus a triangle, versus a double flat, versus a flat-x-zigzag, versus an expanded flat, versus a running triangle, versus a triple-flat, versus a barrier triangle, versus a truncated flat, versus an expanding triangle .. either has much better tools than I can find, or, they quite simply don't know the nature of this task. (But, if you know what to expect, at least, it can help you dial up your patience for the wave.)

This issue of fourth waves is what causes a lot of novices to give up on Elliott Wave, or to go short when the wave is just about to go long causing them big losses. Is that going to be you? Are you going to give up on Elliott Wave? Or are you going to understand it's true nature and see how it can help you?

Oh, and how about that S&P, today?!

Cheers!
Trader Joe