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.


  1. Thanks Joe. For now, I'm still sticking with the count I posted on 3/13, which is an abcxabc from the 2/9 low to the 3/13 high. Since the decline from 2802 started with a corrective wave, then that makes the 2/9 low wave w, 3/13 high wave x, and now in wave y. y=w at 2462.

    There are obviously several other possible counts, but my money is on this one until it's invalidated.

    1. Once again. It is 'highly' unlikey to have 'two' double combinations or double zigzags - one up and one down. It is too much wave complexity for a realistic count.

  2. I could be a little more bullish with RUT but not the DOW or SPX. Rut is still above the 34 day ema and closed just under the 13 day ema. RUT alligator mouth is open and pointed up. AC indicator has 5 lower bars which was invalidated on Friday as price did take out Thursday’s price high. AO is still above zero line.

  3. Joe, thanks for your insight. The Naz looks like it a new high in 3waves up and this wave down is overlapping the 1st wave up and doesn’t look like a diagonal. Could this wave down be C resulting in a flat? Thanks Sam

    1. Hi Sam .. by measurement, the up wave is 150% of the down wave. So, a flat in the NQ is not unreasonable.