Monday, February 5, 2018

No Assumptions

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

If you watched the market on television near the close, you know the Dow Jones Industrial Average closed down more than -1175 points. In Friday's post, we indicated we were likely in a third wave lower. That view was borne out in today's trade. Prices gapped down and largely traded lower all day.

Today, we offer this weekly chart of the S&P500 Cash Index, and we make no assumptions. None. That's why there is a big 'ole question mark by the potential wave 4, shown.

S&P500 Cash Index - Weekly - Making No Assumptions

Although today's move is more than a 23.6% retrace of wave 3, it is not yet a 38.2% retrace of Wave 3. Could price drop further? Sure. Is there anything magic about a 38.2% retrace? No. Could the 4th wave be over here? Possible, but it seems the momentum is still strong to the down side. Could there be a 50% retrace on Wave 3. Yes. Could wave 4 not be over by long shot, and could it form a whippy triangle? Yes.

Could waves 1, 2 and 3, be only waves A, B, C of Intermediate (1) of a large contracting ending diagonal? Yes, they certainly could be - in which case the retrace could be 50% or 62% or more.

Could the bull market be over in it's entirety? Yes, that is possible with the correction to the Elliott Wave International count that I provided to that organization - to try to help correct the situation with wave degree. As a reminder, here is that chart, updated with the chart correction.

Dow Jones Industrial Average - Extended Fifth Wave - As Corrected for Wave Degree

Clearly there is a quite a large down wave underway, and  the difficulty from a wave degree perspective is now this: How in the world would this wave pair with wave 2, unless it forms a very large triangle? Is a triangle possible? Sure. But there is virtually no evidence of one yet. Yes, Neely says the first wave of a triangle can be the most dramatic one. But, even then, we don't know that downward wave progress is over, yet, to assess if there are only three waves down or not.

So, we make no assumptions. We observe. We count. We are well aware of the phenomenon I have coined as The Fourth Wave Conundrum, and we respect it.

For those wondering how the up wave in the DOW might have ended, I pushed this chart in the live chat room days ago on January 30th. And you may view it below. I titled it The Completion Count.

DJIA - Hourly - Completion Count

You will note that is does contain both a final triangle, and an ending contracting diagonal at the hourly level. That diagonal has well been superseded lower in less time than it took to form validating it as a diagonal. We have shown you portions of this count on this blog. Notice, again, that the very purpose of  the triangle for wave ((4)) was to equalize the net distance traveled with wave ((2)), and to insure that wave ((5)) did not wind up being longer than wave ((3)) since wave ((3)) was shorter than wave ((1)).

Can this happen again at the daily and/or weekly chart level? Sure, it could. But I'm not holding my breadth. Due to The Fourth Wave Conundrum, it's at times like this I turn my wave-counting attention to other markets rather than be inaccurate in what might turn into very whippy highly volatile waves.

Have a very good start to your evening.


  1. Very interesting indeed Joe...the one thing that catches my eye is the swiftness of this downturn which combines well with the ending diagonal..will be watching and waiting for your wonderful analysis with beaded breath friend..cheers

  2. If it’s a triangle, there would be no alternation between waves 2 & 4. They would be sideways corrections. If it’s an ABC of ED and int 1 took roughly 2 years, int 2 should not be falling this fast as part of ED...rather it should take 12-18 months. So, the only logical count per your own guidelines is a sharp ZZ for int 4.

    1. If it's a triangle, and there is not a higher (b) wave of the triangle, then there would indeed be alternation; and it could be a shorter triangle not a longer one. But, it is way, way too early to say. And I have nothing against the sharp ZZ.

      It is also your 'opinion' that wave 2 would be falling too fast as part of an ED. There is no science around that I'm aware of - even though I tend to agree with you on this point. That is my 'opinion' too. But that's all it is. What if the swiftness is just the A wave of 2, and the C wave takes f-a-eva? Again, it is just opinion.

      I am just saying that nothing is definitively ruled out at this very preliminary stage.

  3. Markets sold off 15% from the all-time highs made in Sep 1929 to the first week of Oct 1929. Then the markets rallied 12% of the following week and a half. Then the crash came. We are following the 1929 analog pretty well, just a few months off. Like I said before , the markets like to make big turns from Jan to March over the last 18 years. Last March I called for a massive rally of 20 to 30 percent in the Dow based on the 1930s. We hit 25% in December. Added another 6% in Jan before selling off. The 1920s offer the clues to where we are going and it won't be pretty .