Monday, March 19, 2018

An Analogy

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

While other web-analysts were trying to tell you we were somehow in a fourth wave, on Sunday our post took a different position. It was more possible we were going to make a second wave lower. Stocks, as measured by the S&P500 cash index had closed Friday at 2,752. The futures were lower over-night, and stocks gapped lower at the open, opening down -10 points to 2,742. Stocks continued trading lower all day until about 14:30 ET at which time they reached 2,695, down about -58 points. A late day rally attempt lifted prices to 2,713 or down about -39 points.

On Saturday, we had pointed out the potential of a triangle in the 15-minute chart of the S&P500 cash index. It turned out that's what it apparently was.

Below you will find an updated count on the S&P500 30-minute chart. The triangle is shown as wave X.

S&P500 Cash Half-Hour Chart - Possible Wave ii?

I had counted three-waves down from the 2,802 top, as a-b-c which overall made a wave W. The triangle is essentially wave X. And it is likely we had a second zigzag down today as a Y wave. Throughout the day, we monitored the 62% retracement level, as price played with it all day. Finally, going into the close price closed back above that level and back well inside the channel.

So, it is very possible we have made the second wave down, as shown that we wrote about on Sunday. But, this is not for certain. Price must get back up over the (a) wave of the triangle to confirm this count. If it does, fine. If not, we want to make an analogy.

Several U.S. states and various countries post "fire-warnings" at various time of the year. This means the "conditions are ripe" for a possible fire, and the danger is high. But it would still take a lightning spark or a careless camper to trigger the blaze. In the case of lightning, it is clearly a matter of probability as to whether a fire is started or not. The same is true in Elliott Wave work - always, and for every count. Every wave count is an assessment of probability.

So, the analogy is that if price in the cash market gets down below the 78% Fibonacci retracement level, one should then regard it as a significant danger for upward prices. The odds of a second wave begin to fall off badly below that 78.6% level, so watch price progress here very closely. Yes, a second wave can go down to the 99% level, but the odds get lower and lower the less the cushion is.

If prices should break the low, it's possible the daily triangles are extending lower. If prices gap higher and make a third wave upward, then it is possible the S&P500 cash index is making a diagonal like we showed Sunday.

Again, due to The Fourth Wave Conundrum, nothing is for certain at this time. Have patience, use caution and think about the various possibilities.

Hopefully, those tools will allow you to have a good start to your evening.

Sunday, March 18, 2018

How You Can Tell - 12

Thanks to all who read Saturday's post. If you read it, you know I have counted an a-b-c down, with the possibility of a flat wave following it. Many of you also know, I was probably the very first, if not only, Elliott Wave analyst to show a picture of a contracting ending diagonal in U.S. equity indexes. You can view that post here at this LINK if you have not seen it already.

This morning, I was considering the implications of the a-b-c down from yesterday's post in the overall context of the waves being made - whether triangle or diagonal - and had to ask this question. If we have just made an a-b-c lower, regardless if it is to be followed by another a-b-c lower, then why is the wave so short in point length?

To make a long story short, I concluded that such a wave could be a second wave, and the chart below is how it could fit into the overall pattern of a diagonal wave for the S&P500 Daily Cash.

S&P500 Cash Daily - Potential Contracting Diagonal

At this stage the wave labels are just placeholders - for clarity only - and the overall pattern is again still just a potential pattern: a diagonal is a pattern which must prove itself. But, I had, in near real time, successfully counted for you the wedge shaped a wave up and told you why I thought, since there were no large pull-backs - it was an impulse wave in a wedge with an extended first wave. Also, as an a wave, it did not go anywhere it important. It did not break any new all-time highs.

Then, I was able to count out the .a, .b, .c waves of the flat to the b wave down. Now, the giveaway might be that the higher high for wave i might just well be expressing it's motive wave character - the ability to move price in the direction of the main trend. And, this corrective wave lower - whatever form it takes - could just be wave ii. Most analysts are trying to count this as a fourth wave. What if it is not?! It almost certainly is not the fourth wave of an impulse in the DJIA because of overlap.

What I like about this count, is that it now gives us a very specific invalidation point. Wave ii may not go below the low of wave b. Perfect. That is the way Elliott wave counting is supposed to work. We are supposed to get clear invalidation points for the counts to help limit risk.

Then, if after a wave ii completes, a wave iii carries to a higher high than i, we might suspect the diagonal is really on!

In the process, as the indicator panel attempts to show, divergent high peaks would be expected on the Elliott Wave Oscillator (EWO, or AO on, and there should also be a higher low (on the EWO or AO) for wave 4. And wave 4 must overlap wave 1 downward, yet remain shorter than wave 2.

I do not know how long this can take to play out exactly. Perhaps we will get more clarity as the pattern progresses. What I do know, is at this point, I can see the still potential pattern clearly, and it will be of great assistance with clear invalidation points to help in counting the overall wave position of the market. I have not seen this pattern or the one I posted earlier anywhere else on the web or from any Elliott wave service for that matter.

So, I consider this as value-added for you. And - free at that!
Have a very good weekend.

Saturday, March 17, 2018

How You Can Tell - 11

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher; NDX, NQ lower
SPX Candle: Lower High, Higher Low, Higher Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

In the category of you can't extract blood from a stone, you also likely can't get much more information from the market than it offers. So, there is not much point - at times like this - in beating one's head against the wall looking for more clarity than we can get. But I do think it is essential to see what information is there, and not throw away any that is there.

With that in mind, here is the chart of the S&P500 Cash Index - 15-minutes that we have been working with all week.

S&P500 Cash - 15 Minute

This chart essentially says, "we have spent two days going downward, and, after breaking the downward channel to the upside, spent two days going sideways."

We counted out for you in near real time, the A wave down, and the B wave "running flat", all based solely on measurement and structure, and not based opinion. The C wave down - also based on measurement - best counts as the ending contracting diagonal shown. It fits all of the rules and leads to the right conclusion: the upper parallel trend line will break - which it does.

Next, beginning on 15 Mar, there is the break of the channel upward, and a divergent back-test of it downward, which actually makes a lower low in the S&P500 (but not the DJIA), and then a very sideways structure, currently, to which one might try to draw some trend lines. We have sketched in some.

Before we go on about the possibilities for this wave, we will note that, at present, as a triangle it is not very well formed yet. Even to the untrained eye, I think one can see it is not entirely symmetrical yet: the top line is flatter than the bottom line. Also, it is possible to count the up portion from 15 Mar to 16 Mar as a five-wave-sequence or as a three-wave sequence. So, that alone generates some caution. But, we don't exactly know what will happen before the FED meeting this week, and so a triangle could get better defined, or the trend lines could be a good effort, but still just an illusion, and the pattern will break unexpectedly in one direction or another.

So, here are some of the possibilities for this structure. From an A-B-C down, if sideways movement continues, and a triangle is better formed, the triangle could be an X wave, with a further A-B-C down yet to come - to allow the daily triangle on the DOW to extend it's lower trend line further lower. The same with the daily S&P 500.

Equally possible, if the potential triangle prematurely busts upward, is an X wave in the form of another flat. And that is because of the lower low following the C wave. In that case, the middle leg of the potential triangle is, in fact, and impulse, and - provided a new cash low is not made - then the down movement at the end of the day on Friday is all or part of a second wave lower. Further, there has not yet been a 62% upward retrace of this down wave.

Next, because, with the DOW's downward overlap, and a very ill-formed upward channel on the S&P500 it seems less likely that this is a fourth wave of the upward progress, as currently structured. Again, a fourth wave of an impulse is impossible in the DOW, but might be possible as a larger triangle in the SPX. But this is now pretty far down on the list. Remember, the DOW and the S&P are fully out of synch wave-wise because they topped on different days. It is even possible, because of that extra wave in the DOW for it to make a non-overlapping impulse down.

There are few technical clues. I mentioned the DOW's weakness relative to the S&P. Another one I see was the NDX was a bit weaker in the last session than other indexes. Again, due to The Fourth Wave Conundrum, it is hard to get or present more information than is available.

So again, be careful, cautious and patient until things clear up just a bit.
And have a good start to your weekend.

Thursday, March 15, 2018

How You Can Tell - 10

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJIA, DJTran, up
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Overall, on the longer term daily chart, with an inside day on the Dow Jones Industrial Average there is no resolution yet to the Dow's potential daily triangle that we showed yesterday. Nobody was willing to bite.

On the shorter term, I was expecting up movement at the open, and then a lower low from yesterday's post. That is what happened on the S&P500. It is not what happened on the Dow. Further, I was expecting we had made an A-B-C down in a channel. That is what happened, but with a minor tick too high today in the S&P500 cash index, the potential expanding diagonal C wave invalidated. So, here is the best count I can offer considering the current waves and following all of the rules.

S&P500 Cash Index - 15 Minute Chart

The problem wave was wave (ii) which invalidated yesterday's expanding diagonal C wave in the cash, but not in the futures, as it is higher than wave iv, which is not allowed by the rules. Too bad. Dead is dead. Then, with today's lower low, it is possible we had the third wave of a contracting diagonal overall for a larger (A) wave down. One more new low, shorter than wave (iii) is needed to allow such a count. Then, there should be a B wave up. The alternate - which is harder to fit into a daily count - is that today's new low is the smaller (b) wave of an expanded flat wave. But, it could happen that way. Expanded flats are more common than diagonals so we should respect that.

Further, we don't know that wave (iv) is completed. That's why the question mark. If it is to remain as wave (iv), then it must be shorter than wave (ii) and still be countable as a zigzag wave.

If we do make a larger (A) wave down, then it might simply form a better zigzag lower - which can still fit with diagonal and triangle counts.

The bottom line? No one needs a counting mess like this. We are mid-range between the recent highs and lows and there is not a good trend in force. We also need to note that within this down wave, the DJIA and the S&P500 made their previous high on different days. The S&P topped on 13 Mar, the DJIA topped on 12 Mar, which only adds to the mess.

So ...caution, patience and flexibility remain the by-words. Have a very good start to your evening.

Wednesday, March 14, 2018

How You Can Tell - 9

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJUtil, up
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Yesterday, I was expecting some kind of up wave at the open, and then further down waves. That is precisely what happened, and the size of the waves seems to be what matters.

With reference to the chart below, this morning's up wave labeled c of B exceeded the size of the wave labeled a of B. And, the down wave to b exceeded 161.8% the length of a. Yet, the c wave up, as expected, did not exceed the high of a. Therefore, this middle wave meets all the criteria for a true "running flat" wave, and has, with the waves following it, been designated an overall B wave in an A-B-C, lower. So far.

S&P 500 Cash : 5-Minute Chart - Since the March High

IF the up wave designated as c were to be designated as ii of 1-2-i-ii, then this would be a degree violation, and that is one way that the concept of wave degrees in Elliott Wave is helpful. In a true 1-2-i-ii, then wave ii can not be larger than wave 2, or it violates the very meaning of the term degree.

Next you'll note the whole down wave is in a rather specific declining channel. This is one hallmark of a corrective wave. 

Third, again because of the size of the wave marked (iv), and the fact that it overlaps the wave marked (i), it appears the overall C wave will be an Expanding Ending Diagonal. Right now we have (iii) longer than (i), (iv) longer than (ii), (iv) overlaps (i) without traveling beyond the end of wave (ii), and all of the sequences thus far can be counted as zigzags. Now, more than likely, wave (v) down should also become longer than wave (iii). Already, there is a lower low than (iii) so the fifth wave has not failed, but the question is will (v) become longer than (iii), as it should. A case can be made that we have made the a wave down of (v), with possibly a b up, and c down to go tomorrow.

Overall, if we do make an A-B-C down, then, again, depending on length, we can still be in a triangle or a diagonal. 

On the day declines exceeded advances by 1,247 : 1,703. This is nowhere near as severe as those truly impulsive days that are from 1 : 4 to 1 : 9, and so that may still provide a clue regarding correction versus impulse.

As I noted last night in the comments, it was possible with the overlap in the Dow futures to see a potential triangle - completed or in progress. Below is the daily chart of DJIA - Cash Index. Yes, regardless of whether I preferred to see a triangle or not, one can argue that the exact shape painted out below is that of a triangular shape - right up until today.

DJIA Daily Cash - Triangular Shape In the Dow

The shape is fairly symmetrical, although not perfect. And as I alluded to in last night's comments, it all depends on whether the (a) and (c) waves are five-wave sequences or three-wave sequences. A triangle like this could become more symmetrical - and take more time - if the current down wave travels to below the current (c) wave location, around the 78.6% Fibonacci retracement level, and then there is a larger (d) wave up. It is, however, currently possible for prices to 'pop' and make the thrust out of the reasonably well-formed triangle from here.

Do I know for sure? Not on your life. This is The Fourth Wave Conundrum, and so I remain flexible, calm and patient. And I will not pretend to know something that I don't, and I will not purport to sell you a service that claims to know, when it doesn't know either - like some of those other web-sites. I am however, just gratified to see the triangle shape on the chart, with each significant wave on the opposite side of the daily EMA-34. It does bring a smile to my face, and I hope it does to yours too.

Remember, the alternate for a triangle is almost always that (a) = 1, and (b) = 2, and (c) = i, and (d) = ii. In this latter case, then since (d) or ii, is smaller than (b) or 2, then, finally there would be no degree violation.

Have a very good start to your evening. I truly hope this helps.

Tuesday, March 13, 2018

How You Can Tell - 8

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower; DJTrans, DJUtil, up
SPX Candle: Higher High, Higher Low, Lower Close - Outside Reversal Candle Lower
FED Posture: Quantitative Tightening (QT)

The daily 78.6% Fibonacci retracement level from the low, shown on yesterday's daily chart proved to be stiff resistance at least for the day. And while I was expecting a lower low day, it did not come before a marginal new higher high after the CPI report. The market, as measured by the S&P500 Index, had closed yesterday at the 2,783 level. After the open, the market gapped up to 2,802 in the first half hour, and then turned lower. It filled the opening gap at mid-morning, and traded down to 2,769 by noon. There was a brief rally at that point, which was shorter in time than the down wave, as it traded up to the 38% retracement level of the down wave.

Refer to the Intraday chart of the S&P500 cash index below.

S&P500 Cash Index from the High of the Day - 5 Minute Chart

After noon, price headed lower again, tracing down to 2,758 in what appear to be three slightly diverging waves. I have tentatively labeled these three waves as i, ii, and iii since, in the cash market, a fourth wave has not overlapped upwards yet. But it could.

If there is no upward overlap, then since wave iii is 78.6% the length of wave i, at this point, then we could have another one of those wedge-shaped impulses downward being constructed.  If a wave iv upward should make an overlap on wave i, but not become longer than wave ii, then it is 'possible' a diagonal is being made. That would suggest a fifth shorter wave downward. Unfortunately, we won't know until we know.

Of course, the three-waves down could end here, as a-b-c. I'll address the larger daily count when I first know if we are dealing with five-down or three-down. It is possible to see these downward waves as part of a fourth wave, if you use the futures and not the cash for counting. That is because the futures have a 62% retrace at the March lows. And cash does not. Further the downward retrace has not overlapped any important waves.

Have a very good start to your evening.

Monday, March 12, 2018

How You Can Tell - 7

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Higher High, Higher Low, Lower Close - Spinning Top Candle
FED Posture: Quantitative Tightening (QT)

Follow-through buying from Friday's payroll employment report pushed the futures higher Sunday night and into Monday morning. As a result, the S&P500 opened higher and made a new local daily high over that of 27 Feb. Also as a result, the NQ futures made a new daily all-time high. Markets, as measured by the S&P500 Index closed Friday at 2,787, and with the gap up, they traded up to 2,797. About a half-hour after the open the follow through dissipated and a bout of selling began which dropped the index to 2,779 in what looked like five waves down. Then, the "b" wave of a likely flat wave occurred - equal lows in the S&P500, and lower lows in the Dow - followed by a bounce that carried the index up to 2,792 to complete the likely "c" wave of the flat. So, from all appearances, it looked like we had five-waves down and three-waves up, before prices tailed off to close at the 2,783 level.

The NQ and the RUT closed higher, the Dow and the S&P lower. So, let's look at the daily chart first.

S&P 500 Cash - Daily - Spinning Top Candle

In the S&P500, the slight higher high day got the index to make a closer approach on the 78.6% Fibonacci retracement level. This is about the ideal level from which to form a triangle if one is to occur. And, yet, there is nothing magic about a spinning top day. It may just be a consolidation day.

Further, when we count the internals of the up wave from the March low, something very odd has happened.

S&P500 Cash - Half-Hourly Chart - Lack of 38.2% Retrace

You will note that after the wave marked A, the B wave shown failed to make a 38.2% retrace on A. It missed by several points. And yet, the upward wave to the point marked (i) is longer than the first wave.

Now, in a true impulse, when the first wave is retraced less than 38.2%, then we suspect that the first wave would be the extended wave. But, wave (i) being longer than A tells us this may not be a true impulse at all. Price may be forming a diagonal wave, either for a (c) wave of the ((b)) wave of the triangle, OR to go over the top as the next leg in an upwardly slanting wave for the third wave, Intermediate (3) in an overall contracting ending diagonal as we showed in Saturday's post.

So far, price is in the channel shown, and it is suspicious in that a third wave has not broken the upper channel boundary. And if a zigzag forms in the downward direction it may be a second wave of such a construction. In this chart, the "five waves down, and three waves up" from the second paragraph are shown as a & b just for simplicity (please ignore all degree labels at this stage - right now the labels are place-holders only). So, IF a sharp c wave should form downward tomorrow, there would also be little alternation one could point to in this wave - another sign of a potential corrective wave.

Again, a triangle for Minor 4, or a diagonal for Primary [5] remain the best options. The count has gotten very, very messy. It is typical of fourth waves and / or diagonals. But, I hope you can see the rationale in the above wave since the March low. A true impulse up would have retraced more than 38% or the next wave up would have been shorter. It would be highly unlikely to have both conditions together in anything other than a corrective wave that was forming.

Have a good start to your evening!

Saturday, March 10, 2018

Because Now You Can See It

This is now the right time to post about a potential count I mentioned earlier - the diagonal for the end of a Primary 5th Wave.

While others are extolling how this bull market will go on for years to come, the chart below may tell a different story.

NQ Futures - Weekly - Potential Ending Contracting Diagonal

It seems like years ago I proposed that a Primary 5th Wave could end as a diagonal, or as impulse, and I really didn't care which. But, it does seem like the importance of a Primary 5th wave in ending a Cycle size and / or a SuperCycle size wave might merit a diagonal in a "too far, too fast" move.

With the NQ futures higher high this week, I think you might be able to finally visualize how such a wave might form. The tortuous flat bottom from late February 2016 to November 2016 can simply be Minor A and Minor B of a long stretched-out zigzag for wave Intermediate (1).

And the grinding wave higher from November 2016 to late January 2018 is the C wave - which ends on a high of the Elliott Wave Oscillator. If so, then the 38% retrace wave to Intermediate wave (2) is a sharp zigzag as required in a diagonal wave. If an upward zigzag completes properly for Intermediate (3), then another sharp wave down could potentially occur for Intermediate wave (4), after which should be another zigzag wave higher for Intermediate wave (5) to end the primary wave.

Although in Friday's post I indicated again the diagonal possibility, the wave labeling above takes precedence over that on the daily chart. I had some time to think about this after the heat of battle on Friday, and really like the fact that the Elliott Wave Oscillator is now diverging on a higher wave. So, that is likely Intermediate Wave (3) - which does not seem quite finished yet.

If a count like this occurs, it may be coincident with a "sell May, go away" type of market. Again, this is not for certain. Diagonals are waves that must prove themselves in every aspect. I also really like the fact that in the S&P500, the C wave of (1) would be literally a point shy of C = 2.618 x A, as I have noted before and written about in this blog. And I like the fact that few other Elliott Wave sites are looking for a count like this one.

Perhaps the S&P will follow-through with higher highs like the NQ. Or, perhaps, the S&P500 only forms a triangle while the NQ forms a diagonal.

I do hope you have a truly good weekend - and now have something else let roll around in the back of your mind!


Friday, March 9, 2018

Nasdaq 100 Futures Higher High

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Buoyed by the payroll employment report, stocks as measured by the S&P500 cash index had a strong day today. We had suspected as much, yesterday, and said a target could be the upper daily Bollinger Band. It was. The ES E-Mini S&P500 cash index settled right on it. Stocks were a bit stronger than the first target we proposed, the wave 3 parallel, and when they passed that target the Bollinger Band was called into play.

A major concern for today was the exceptionally low volume in both equities and their futures. You are encouraged to look these up to see just how low they were. (Hint: the WSJ again reports only about 3.3 billion on the NYSE).

Here is a daily chart showing the NQ futures surpassing the previous high, and has a comparison with the cash S&P500 Index.. This versus one major Elliott Wave service stating the top was in - at least in the Dow Jones Industrial Average.

NQ Futures versus S&P500 Cash Index

There are still many ways to count this market. Two of them are shown. The NQ chart shows the potential impulse count, with a flat second wave The S&P500 shows the potential diagonal count, with a flat b wave. Again, I have no preference to which occurs - although without a clear and well-formed triangle, one might suspect a diagonal for a top.

The thing to do now is to draw a further parallel, upward on i, ii and a,b as at the end of the day on Friday we got no sufficiently clear indication the up move was over. Then, monitor that parallel to see if it breaks down.

It might be a good thing for you to try over the weekend - which I do hope is a good one for you.

Thursday, March 8, 2018

How You Can Tell - 6

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher; RUT lower
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

The S&P500 closed fairly positively after another roller-coaster open. The market as measured by this index had closed yesterday at 2,726. With the futures higher overnight, the market gapped up to open +7 points higher, at 2,733, and traded up to 2,737 in the first thirty-minutes. Then, a slow, steady grinding decline began that closed the opening gap, and traded down to 2,723 which was the 38% Fibonacci retracement level. Then, beginning at about 13:30 ET, a somewhat spirited rally brought this index to up to new highs at 2,740 by 15:30. The last half-hour brought both an overlapping decline downward, and a closing rebound, to the 2,739 level.

Between yesterday and today, on the S&P500 5-minute chart, we were able to count most of five waves upward although there can be another new high. The rationale has to due with that " overlapping decline downward" we noted above, that you can see in the chart below - which was published in the live chat room.

S&P500 Cash Index - Two Day Five Wave Rally

Readers of this blog may recognize the overlapping structure of a potential 5th wave as an ending expanding diagonal. The overlapping retrace of this wave would be wave (iv), and it would have overlapped the small internal wave (i). As such, it is already longer than it's wave (ii). In order to complete an ending expanding diagonal, then, it's wave (v) should become longer than it's wave (iii) - which is the rally to 15:30 - and it should thus make a new high.

There is quite the 'base' or bull-flag provided by wave 4. And wave (iv) of 5 may have only back-tested that base. If that is correct, then the (v)th wave of 5 could be quite aggressive, and maybe have a parallel drawn off 3 as a target (i.e. the upper daily Bollinger Band?)

With the payroll employment report tomorrow, if this should not occur, then the rally ended at the location shown with a sub-par interior fourth wave and a down movement has started. With daily prices currently above the 18-day SMA, then there is a positive bias which favors the former scenario a bit over the latter.

S&P daily prices are still within the trend lines shown in yesterday's post. It "feels" like a triangle, but it might not be yet.

Have a very good start to your evening & stay patient, calm and flexible in the chop.

Wednesday, March 7, 2018

How To Tell - Part 5

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Lower High, Lower Low, Lower Close - Neutral Candle
FED Posture: Quantitative Tightening (QT)

Last night on the Gary Cohn announcement, the ETF's turned lower before the futures ever opened. Then, the futures gapped lower at the open and traded down to 2,680. As a result the market as measured by the S&P500 cash index, opened lower and traded down to 2,702. A mid-morning rally occurred, and drove the cash index back up to the 2,724 level, but did not fill the gap. Then around 10:45 ET, prices began declining again, hitting the round-number resistance at 2700 twice, and making a marginally lower low. When they couldn't break through 2,700 an afternoon rally began the turned prices all the way positive, filling the opening gap in the process.

One might have thought this would have been accompanied by very heavy volume. But, according to my figures this was one of the lightest volume volume days for the futures at less than 600k contracts, and only 3.3 billion on the NYSE (according to the WSJ).

As the chart below shows, while the S&P500 has not defeated it's declining tops line yet, the Russell futures certainly have. The Russell futures today conjured up the 78.6% retracement level.

S&P500 Cash Daily - Versus - Russell 2000 Futures

The count remains up for grabs per The Fourth Wave Conundrum, the EMA-34 remains essentially flat, and it is beginning to depend on "which" market you'd want to try to count now.

Is revisiting the February highs possible? Sure is. Is revisiting the March lows possible? Sure is. Could triangles form in all markets to equalize the counts? Sure could. Could markets form a structure like an ending diagonal? Sure could.

There are lots of possibilities. Have a good evening.

Tuesday, March 6, 2018

How You Can Tell - 4

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

There was not much new today. Prices, as measured by the S&P500 cash index, opened at a slightly higher high, and then traveled sideways to lower all morning and afternoon. All-in-all the S&P500 Index closed up about +7 points, and the DOW up about +9.

In terms of the daily chart, price is still living between these two daily trend lines.

S&P500 Cash - Daily - Between Trend Lines

We just note a couple of things: The Russell 2000 Futures had a relatively stronger day and actually breached the down-trend line shown. Secondly, the EMA-34 has gone as flat as a pancake. Third, the S&P500 cash stopped just short of retracing 61.8% of the recent down move from the end of February to the beginning of March.

The trend lines are still tentative. There's no magic here. We are still in The Fourth Wave Conundrum. Every one will ask, over & over again, "What's the count?", "Here's my count, is it right?" There is no telling without more waves.

Have a good evening. I wish you one with as little stress as possible. Remain patient, flexible and calm.

Monday, March 5, 2018

How You Can Tell - 3

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Today added some evidence to the still potential triangle count in the S&P500 Cash Index, with the higher high candle. By no means, is it a done deal.

Prices, as measured by the S&P500 Cash Index, had closed Friday at 2,691.25. The futures initially gapped down about -13 points on Sunday night, then traded high enough to close the gap down open, and then turned lower for Monday's opening. As a result, the cash market opened down around -10 points to open at 2,681 and traded lower yet to 2,675 and stopped there - all the while respecting an up trend line from Friday's low.

Then, around 10:30 am ET, the market turned around and traded higher once again, breaking Friday's high. Although close, they did not break Thursday's high, and closed at 2,721, up about +30 points.

Additional follow-through to the upside is needed for the deep triangle count. A break of the daily downtrend line from the highs would further support the "DEEP TRIANGLE" count presented Sunday, or something more bullish higher. A break of the daily uptrend line from the 09 Feb low, would be more evidence for the "SHALLOW TRIANGLE" count, or something worse to the down side.

Have a good evening.

Sunday, March 4, 2018

How You Can Tell - 2

There are any number of people who want to count the up movement from February 9th as a "five wave movement". And, "on the surface" it's looks like there are five non-overlapping waves - even though my published count differed greatly. In fact, I had showed how the a wave up, shown below, counted best as a wedge-shaped non-overlapping impulse. That chart may be found at this LINK.

So I decided this morning to look at the whole up wave using The Eight Fold Path Methodology and to let it be the arbiter. Here is the chart that results.

SP500 Cash - Half Hourly - The Eight Fold Path

If you have studied The Eight Fold Path Methodology, you can see instantly that many of the elements of that method are missing. With 140 candles on the half-hourly chart (well within the required 120 - 160 candles), then the SP500 30-minute chart is the applicable time frame for this "wave under study."

  1. First and foremost, there is no higher momentum in the middle of a "third wave". This is critical as a third wave does not have the right momentum measurements on the Elliott Wave Oscillator (EWO or AO in this chart).
  2. The move does not channel well at all.
  3. The b wave, or what would be the fourth in an impulse is much larger in point size than the potential second wave ending at the end of the day on 13 Feb. Usually, they are similar.
  4. If you draw an initial channel surrounding 9 Feb and 13 Feb as a lower channel boundary, no wave exceeds the upper channel boundary - which would be characteristic of a third wave.
  5. The call of an "a" wave up from 9 Feb, resulted in calling an 'exact' turn for the "b" wave. This refers to the same chart in the link above.
No, from everything I can tell. This is not an impulse wave up, based on a specific, objective, and predefined methodology. It has neither the right look, nor the right momentum measurements for an impulse. Further, such a count has already caused another web-site to improperly diagnose the nature of the wave, and be surprised with the recent price weakness.

So, that should help eliminate some of the options. The best alternate to this count is that b is .a of a flat, and c is .b of a flat. Then, Friday's down move is .c of the flat.

P.S. Another dead give-away: where is the 1.618 x 1 wave?

Hope this helps.

Saturday, March 3, 2018

How You Can Tell

In Thursday's post, we said the market could make one more wave down to burn off the overnight excess. That did occur on Friday, with the S&P500 opening gap down and trading down to 2,647 before reversing 44 points to end the day at 2,691. Quite the intra-day move, demonstrating our overall theme of the volatility at this point in time.

Still, I said in Thursday's post, "As I spoke about in my YouTube video, A Critique of Elliott Wave for Trading, it's at times like this while the market is mid-range between a major all-time high and a recent significant low that people want to know what the wave count is." 

So, we're going to show you some of the most likely scenarios and try to help show you how to tell the difference between them! Let's get started.

S&P500 Cash - Daily - Two of Four Scenarios


In the first scenario, favored by Elliott Wave International, by the way, wave Primary [5] ended at the January high, and there have been five waves down to wave (i), in an impulse down to the Feb 09 low, and three-waves up to (ii) which is just beyond a 62 - 70% retracement of the down wave. Simple enough. But, how can you tell if this scenario will actually be the case? Remember Neely's guideline that no part of a third wave should exceed a line from 0 to (ii) ? Well, that would apply here. If the downward sloping trend line is broken, and especially if full daily candles are printed above it, that would severely limit the likelihood of the downward impulse case. One might also note in the cash market that we should now be in a third wave down (iii), and it did not start with a gap. This is some of the evidence that says to 'respect' this count, but not to close one's mind to all others.

Deep Triangle

The second case suggests that only Minor 3 ended at the high, and there are three waves down to a Minute (a) wave of a triangle. Further, while the Minute (b) wave of the triangle retraced 62 - 70%, a deep triangle often retraces 78%. So, this count suggests we have had the a, wave up of the minute (b) wave, and the b wave down has taken the form of a FLAT. Then, a c wave up, in five waves, would finish the Minute (b) wave at the 78% upward retrace level. After that, a long and complicated Minute (c) wave down of a triangle would continue. 

The objective of this count is simply to take more time as it deepens the triangle. For this count to be the case, an uptrend line from the Feb 9th low, to Friday's low must hold. As we have commented in the past without a triangle a Minor 4th wave is too long - longer in points than Primary [4] at the February 2016, low.

S&P500 Cash - Daily - Scenarios Three and Four

Impulse Up 

The third scenario would say the three waves down to the Feb 09 low are a-b-c of a completed wave Minor 4. This scenario however, is slightly less favored because Minor 4 in absolute points traveled would be greater than Primary [4] to the 2016 low, in length. Once again, that would seem to violate degree labeling. None-the-less, there is a possibility the upward waves since Feb 9th are five waves of a minute (i) wave up. and it is possible we have made only the a wave down of minute (ii) as shown above. The objective of this count is to get the c wave down to extend minute (ii) to a 62% retracement on minute (i). It is short of that retracement at this time. And, yes, such an impulse, if it does form, can truncate.

Shallow Triangle 

This fourth scenario says that after the Feb 9th minute (a) wave of a triangle had formed, the upward retracement that was 62 - 70% of the (a) wave down was sufficient to form a triangle's minute (b) leg upward. Then, there should be a symmetrical minute (c) wave down to a similar 62 - 70%, which is not complete yet. Only the minuet a wave is complete, with minuet b & c to go. Similar to the very first scenario, the upper trend line again must hold, at least until the minute (c) wave down is fully formed - precisely because it will be a triangle trend line. Once the minute (d) wave of a triangle forms, then the (d) wave may form it's own anchor point for the (b)-to-(d) trend line.  

The Fourth Wave Conundrum

These then, seem to be the most common alternatives in true Elliott Wave Theory, and how you can tell them apart as they are forming. Even though we appreciate the real nature of The Fourth Wave Conundrum, we would rather leave you with some guidance on the various wave pattern possibilities as opposed to leaving you with nothing. Remember, we don't provide trading or investment advice.

The clear difficulty here is that the downward, and upward waves 'can' be counted in two fashions. This is clearly not always the case. But it is now. More waves are simply needed to clarify their momentum, catalog their distances traveled, and clarify their third wave nature from the size and positions of any gaps created.

Hope this helps, and have a great weekend!