Monday, March 26, 2018

Higher High Day

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)

While over the weekend a number of market pundits started calling for a crash (some with a vested interest in selling gold), we looked back to 1987 and wondered if we were just making the scary down legs of a triangle that might actually precede the run-up to a true top. We said it would be best for the triangle hypothesis if a higher high day were made.

The higher high day did occur today in the DJIA, the S&P500, the ES, YM, and the NQ futures. It did not occur in the Russell 2000 futures when last we looked.

The market as measured by the S&P500 cash index opened with a sizeable gap up this morning. This was followed by a 70 - 72% retracement wave downward, and then price headed higher for the rest of the day, resulting in a higher close, up about +70 points, overall. The daily chart is below.

S&P500 Cash Index - Triangle Hypothesis

If Friday was the end of leg (c) of the triangle, then it would be expected that the (d) leg cross above the EMA-34 on a four-hour chart (this chart does not have 120 candles on it for the wave of interest.). If the (c) leg down was complex, then the (d) wave up should be a simple zigzag. 

The (d) leg up, might then be followed by another scary (e) wave down - which must remain above the (c) leg - but which also should cross down below the EMA-34 on a four-hour chart.

If the (c) leg down is not done, then it may not travel below the low of wave (a) in this case.

Remember, the triangle is a structure which must prove itself in every detail. So far, the structure seems to be working, and the Elliott Wave Oscillator is likely to again go relatively flat in the next few days, which is one pretty clear indication of a potential triangle. 

If a triangle completes properly, it would likely constitute wave Minor 4, and it's purpose will have been to provide the alternation needed for the flat wave Minor 2, by not having a higher (b) wave, and to even-out the point totals with Minor 2 and Intermediate wave (4) - to help insure correct degree labeling.

When and if price exits the triangle to the upside, look for a price target of the widest width of the triangle added to the breakout point.

Have a very good start to your evening.


  1. Replies
    1. Yes. You may find the EMA-34 at a slightly different location on a chart with 120 - 160 candles. The daily chart only has 39 candles thus far. The potential triangle is now the 'wave of interest'. The daily 'may' turn out accurate enough.

  2. Hi Joe, just a question outside the scope: considering a simple zigzag a,b and c to form wave 2, is it necessary to have Fibo relationship between a and c. Thanks and regards Brian

    1. The word 'necessary' seems to imply a rule. There are no Fibo-based rules for a zigzag, except that b may not travel beyond the start of a. Whereas there is 'often', not always, a Fibo relationship between c and a.