Friday, February 9, 2018

DOW Joins S&P

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

If you followed the market today (and didn't get whiplash), you know that the DOW opened higher on a gap, then in the second hour made a lower daily low to join the S&P500 Index with a countable five-waves down.  The Dow and the S&P continued lower into the mid-day, and, then at about 13:00 ET began a turn-around to close the day higher by about +330 points. At the low the Dow had been down around -490 points.

Yesterday, we wrote, "You can easily count five waves within wave ((5)), and wave ((5)) may not be over yet." 

And in an impulse count we were not done. In the live chat room we posted a chart of the S&P500 cash index and said that the target of ((5)) = 0.618 x net [ ((1)) through ((3)) ] would be met at 2,555. The market hit that level on the downside, and then exceeded it slightly to 2,533. Because of that breach, it caused us look for a count that might travel slightly lower.

Therefore, this count was posted as a very, very good possibility. I rate the odds as about 60:40 with the impulse count. It is the count of a potential contracting diagonal downward. This same possibility also applies to the S&P500 - but I thought I would look at it the way that R. N. Elliott might have.

DJIA - Half Hourly - Potential Contracting Diagonal

So, this count is potentially supported by the divergence on the Elliott Wave Oscillator at the lower low, and the strong up-wave at the end of the day. But further, this count is more respectful of the concept of degree, because the impulse count has a very large fourth wave compared to the second wave. Strictly by the rules, either count works. Again, this one is also considerate of the guideline of wave degree.

As with all potential diagonals, a wave ((4)) must remain shorter than wave ((2)). Using the S&P500 we are able to give you a precise level for that invalidation: above 2,667.30 and the diagonal would invalidate, and the impulse wave applies. If the invalidation level holds, and there is a fifth wave down, then, it would have to remain shorter than wave ((3)). I like it when there are precise measurements; it really helps one to know the position of the market. Again, I don't care which pattern forms.  Keep your balance, remain patient and flexible.

Let's see how it goes. Have a very good start to your Friday night.
TraderJoe





19 comments:

  1. Or a completed wave 4 DZZ at 2535 to alternate with the sideways correction wave 2. x wave retraced less than 50% which is common for a DZZ. It all works in my eyes.

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    1. 'Usually' DZZ has the second Zz at 100%. This one is more than 68%. While plausible, it comes in third place.

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  2. I see 2872-2533 as a clear 5:3:5:3:5 with alternation. It bounced off the 200dma which is to be expected for the first touch. Also, on the monthly chart, today's low touched the linear TL connecting 1810 to 2084. Not that it matters, but 2533 was .382 of 1991-2872, and it was .618 of 2322-2872.

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    1. As I said, that is possible and looks clean on a daily chart. Only problem is wave degree as the internal fourth wave is so large. Liveable, but large.

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    2. I'll toss out another possibility. Since today's low in the Dow futures did not even come close to making a lower low, then it's possible that today's low in all the indexes was a b wave of a corrective wave that began at the prior low. So it could be the b wave of a flat or a triangle.

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    3. Neither did the Russell 2000 futures. That's another reason I suggested a diagonal lower.

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    4. Yes I had the same thought..very rarely you see a 4th wave above 61.8 (futures) especially after such a strong wave down. So except diagonal..it might be in c wave of a regular flat in futures and a running flat in cash with the lower b wave. As you say ma200 and fib 38.2 is just below.. so if wave 2 finishes as a flat, wave 3 will go straight through these levels.

      Once again thanks for outstanding work with this blog.

      Erik

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    5. Joe, upon further review, I see that the ES futures did not make a lower low either. I also see that the decline from Wednesday's high to Friday's low had no alternation in any of the indexes, so I can't call it an impulse wave. So now I'm going back to calling the initial wave down from 2873-2593 a completed wave. (I can count it as 3 down or 5 down) Then, Wednesday's high retraced 50% of that wave. The move from Wednesday's high to Friday's low is either incomplete, or it's a completed corrective wave. I know that everyone and their brother is calling the entire decline completed at Fridy's low as a DZZ, but most DZZs don't truncate like every futures chart did (other than NQ.) Plus, the Wednesday-Friday decline didn't subdivide as 5:3:5, so it's not a zig-zag of any kind. My conclusion is that while the market can certainly rally from here, I think we see new lows before we see new ATHs. It would be very unusual for a 15 month rally to fully correct in just 2 weeks.

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  3. How does a diagonal fit in the larger 4th wave

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    1. It wouldn't and would be the start of a bear market. If the diagonal invalidates, then it's a double-zigzag wave 4. Like I said, this The Fourth Wave Conundrum.

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    2. Or again, if the diagonal invalidates it can still be an impulse first wave.

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  4. Hi, I am new here and I think what you summarized 8-fold path method is very helpful for people not randomly counting waves. At least I think I have felt a similar way that how wave count should somehow aligned to something tangible and observable but I never had anything formal. Thanks a lot. For this DOW chart, if I understand correctly, you are counting the DOW is yet finishing a ABC (still have 4 & 5 for C wave). But don't you think C is too large comparing to A wave?

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    1. Only comments with a user name receive a reply. Please enter a user name for a response.

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    2. Weird. I think I used my profile when leaving a message.

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    3. Here you go. I don’t know how to change a existing messages name. But yea, this is me.

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    4. Large disproportionate zigzags are often found in diagonals and triangles.

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    5. I think given the DJI has tested weekly BB middle line two times in a week and rebounded with large volume, it is more likely a local bottom has formed and should support a couple weeks bounce to test 0.5 or 0.618 level. Otherwise, a much larger movement should be expected from wave count perspective. So I prefer a 5 wave is done or in c wave of (x) of a (w)-(x)-(y).

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  5. Does anyone know where I can find how much money is still short volatility? I believed it was at least two trillion before the correction. It's not hard to imagine a 50% correction for funds covering their short vol exposure. When vol shot up this past week, I wouldn't be surprised if hedge funds decided to short even more vol, because it's rare to move higher than 50, right?

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  6. La question est: combien de temps va durer la vague 4 ?

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