Saturday, November 17, 2018

To The FlatLanders and Double Ziggers

This is going to be a relatively short post. In the world of Elliott Wave analysis, one sees a lot of counts that just don't make sense. People argue without thinking or measuring or much 'in-depth' investigation. They post some letters and numbers and call it a count. So let's address two recent counts I have seen.

The first one is for the FlatLanders. You know these people. They think the Earth is flat. No, I'm just kidding. But, they think the "three waves up" since 29 Oct, were the three waves of a FLAT wave, presumably as A:3,  and the recent action down counts as a "double zigzag", presumably B:3 wave, and then there will be a C:5 wave up - just in time for the holidays.

But, as the first chart below shows, there is a huge problem with that scenario. The chart is so wrong at this time I won't even put my name on it.

S&P500 Cash Index - Hourly - FLAT? No, Not Yet

According to the published RULE for flat waves, if a-b-c up is to A:3 of a FLAT, then the B:3 wave down must obtain the 90% level. This is a hard and fast rule. I can't change it. It is published. If you don't agree with this rule, you are not doing Elliott Wave Analysis - plain and simple. You are doing something else.

IF the market obtains the 90% level, only THEN will I go along and say, "ah, yes, that FLAT is now a good possibility." But, we are not there yet, and that is one reason I have turned more negative on this market. But, those who claim a flat has already been made, by the supposed downward double zigzag wave as it is below, are just plain incorrect by the rules. As happy readers of this blog, I don't want them to be incorrect. It's just the rules.

Now, let's address that supposed double-zigzag. Again, another chart I won't even put my name on. This one is the S&P500 15-minute cash chart.

S&P500 Cash Index - 15 Minutes - Likely Incorrect DZZ

There are some people who have looked at this wave in a channel and said, "It's a perfect Y = W", double-zigzag. But there are three huge problems with that count.

  1. At the W location, there is no fifth wave of a 'c' wave down for W.  Yes, you can try to finagle one, or wrestle one into the count, but otherwise it is simply not there.
  2. "Ah", the critics say, "just move that W down to the lower waves after the 13th Nov." If you do that, you lose the Y = W relationship you just had claimed. As Sheldon says, "Bazinga!".
  3. Short & simple: X does NOT overlap the 'a' wave of W.
On page 77 of the Elliott Wave Principle, the instructions say that any impulse wave can be construed as a series of A-B-a-b-c, but to do so is specifically incorrect counting. It goes on to say that if the fourth wave (in my impulse count downward) does not overlap, it should be counted as an impulse. Elliott himself said, "count like an impulse when possible".

For these three reasons, the double zigzag downward count is among the least likely possibilities, and that is whether it is attempted to be counted as a B:3 or an X wave. Much, much, much less likely. Not impossible, just way, way down on the list.

And if you are counting the upward wave from the low, as a double zigzag because of the poor momentum, then, the same mistake is being made again. Currently it is a non-overlapping impulse wave in cash, likely a 'c' wave of (ii). And, we showed how it can be a diagonal wave in futures. Will such a diagonal end the move? Only time will tell. If it's an ending diagonal, it must break the low in less time than it took the diagonal to build.

Staying with the rules and guidelines, this weekend, and always.
TraderJoe



50 comments:

  1. Hi TJ, since we are approaching the correct number of candles for the monthly chart of $SPX from March 2009, have you looked at the EWO to see what it reveals? From what I can see, the lowest it ever has pulled back to is +42 in 2016. Is it safe to assume it must not be following the 8 path method? Maybe that's why another EW service has it labeled as a wave 2.

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    1. Yes, I have looked at it, and know what it means to me, but I am not quite ready to go public with it yet. Soon.

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    2. Steve,
      Your comment intriqued me so I took a look and noticed something interesting. As you know the EWO is a moving average system and therefore it lags as do all moving averages. I'm sure you noticed that the EWO hit that 42 reading 3 or 4 bars after the actual wave 4 bottom. What I noticed as one can see is that the bar of the actual bottom was a Doji with a very long lower tail.The SPX did not close anywhere near the bottom but rather near the top of that bar.. We are talking month long bars here and the EWO is reporting the number at the close of the month not at the low. So I am speculating here that it might be possible that the EWO reading at the actual low was lower than 42 and possibly within the normal EWO range.

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  2. Perhaps Im missing something, but Im looking at Figure 1-26 from Elliott Wave Principle, by A.J. Frost and Robert Prechter (pdf) in which the X wave of WXY is virtually the same measure (in a down trend) as the "b" of W, well above the "a" of W. This would seem to be an overlap if I understand what you mean by overlap. Perhaps Im just not following what you are showing?
    Thanks

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    1. That's exactly what I'm referring to: Figure 1-26. The (X) wave in that diagram overlaps the A wave, which is what prevents it from being counted impulsively. (If you are counting down 1,2,3,4,..then 4 would be the (X) which overlaps 1, or A in the diagram and prevents it from being counted down impulsively).

      In the 15-minute chart above X does NOT overlap 'a'.

      I will not address this topic again.

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  3. Really respect your work and find many of our counts are compatible. However, the downward move has to be a double zigzag---you misplaced the X wave mark, it should be on the b wave mark. The X-wave is a flat, and w(a) of this flat X is a flat too. You will know that your count is wrong no later than Tuesday. MARK THIS COMMENT. Trade safe.

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    1. Thanks for saying the first part...but ..

      Probably not, first because then you don't have Y = W, the most common relationship in a double zigzag. Any other claimed relationship 'bucks the odds', and is less likely. Second, because you have not provided a detailed roadmap of the Y wave count as you propose it. There are several trips and traps in that wave, which make it the 'b' wave down and you have not shown beyond a shadow of a doubt, with labels and measurements how your case would be be correct.

      Ball in your court...

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  4. Excellent post as usual. I'm pouring through my copy of EWP but can't seem to locate the terms, Bazinga and Finagle. LOL

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  5. Just re-read "Confidence Level of a Down Market," while re-measuring all points described in the post on a clean chart. This was for practice and to try to refine my beginner level EWT skills. And just like the first and second time I did this, I was happy I did it. Each time I find something I missed. Today's post expanded my horizons even more. I'm really glad I found your website. Thank you so much for all of the work you put into teaching us, Joe.

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  6. Thanks Joe, for your explanations.Would you say it should peak out near 2755-2765 as a w,x,y,x and z to complete a (ii) and turn down for a leg of (iii) of ((iii)) after?

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    1. Not as w-x-y-x-z; there is no overlap.

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    2. Slightly different than your count. Here on a 5 Min. chart, at 2670.75 low as (i),2735.30 as w,2712.16 as x, 2746.75 as y, 2723.95 as x and Wave z of (ii) to follow higher at 2755-2765? Is it valid in your opinion? Thanks

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    3. No. Please stop. A 'c' of W is usually labeled that because it is LOWER than 'a' of W. Yours is not. What you are doing is just putting letters wherever you 'want' them; not what is implied by price.

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    4. Do you see any difficulty with this count? Appreciate your feedback Thx.

      https://invst.ly/992qv

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    5. I will not be viewing anymore of your counts. I have told you what my count is and why.

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  7. Could you please post at your convenience, all Wave degrees and Labels being used separately some place,It will be easy to understand and follow.
    Thank you.

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    1. Refer to the last hourly chart for the correct wave labels. They are the same as in the EWP.

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    2. Joe, got it thanks.We keep it this way as its easy to follow in future by everyone.

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  8. Thanks Joe, Im almost ready to leave flatland for now, LOL.

    Why did you abandoned the expanded flat for (B) of (ii)? Because of degree labeling? And because this latest down move from 2815 can´t be counted in 5 waves in it´s wholeness as is required in a C wave of a flat?

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    1. Erik. I haven't abandoned that count. Go back to the last hourly chart. You are not reading this post correctly. This post is explaining why the hourly count I provided is still the best. I am showing others why different counts are likely 'not' correct. Please try to keep up

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    2. I will label just to make sure we mean the same position/degree of the flat:

      0 = 2756, (a) = 2700, (b) = 2815, (c) = 2670 -> (B) of (ii)

      In earlier posts you mention that this flat is not an alternate anymore as spx broke 2700? If not sry if I have missunderstod you.

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    3. Yes, in that second type of flat, it is very, very difficult to count only 'five-down' without additional waves after it.

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    4. I agree with you in cash index. Futures however, is alot easier to count five-down beacuse the expanded diagonal for (i) is bigger, and (ii) can be counted as a sharp which alternates well with the running flat for (iv). This isn’t possible in cash as you’ve said beause both (ii) and (iv) can’t be running flats, but what if there was a truncation at the top so we can count (ii) as a sharp in cash also?

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  9. yeah, real bad count by me. my (B) was not even close to 90 as it related to my 0. it didn't even make the 38.2.

    i'm going to print that out and put it in book of "ideas not to go with".

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  10. Joe -

    It seems like that the market is at a major crossroad. Your count suggests that the 'most probable' outcome is for a wave 3/C to occur next. At 1.61 extension of wave 1, this is a move down to 22xx in SPX. Given the enormity of the move, I would expect other indices to have a similarly large move. Given that, do you, at points like this 'validate' your count by doing a deep dive into other indices to confirm it? Also, all counts have less probable alternative count. From your readings, the alternative to a finished 123 is that it was just an ABC, what's the alternative to a 1 2 i ii setup as we have today? How do we go about determine at what point does this alternative count become the primary? (i.e the 1 2 i ii setup is killed).

    Thx and enjoy Thanksgiving week.

    -TJ

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    Replies
    1. Yes. Other indexes are examined. I have showed the alternate 'potential' flat above. But not until it is at 90%. Price and time are involved in determining when a 1-2-i-ii is not working. Too long to explain here.

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  11. Hi Joe, you mentioned that wave B of flat has to travel at least 90% of wave A.
    I see that on page 89 of the EWP. However, there is no mention of the minimum requirement for Wave c of a flat. If I may ask, what do you use?

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    1. Your response would be greatly appreciated. Thanks Joe

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    2. It's not a question of 'what I use' but a question of measurement of b of the flat, that helps determine c. Read the EWP on the various types of flats.

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  12. Thanks Joe, personally I find higly educational to show mistakes from others and which Elliott rule/principle they break

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  13. ES turned after double top. For the moment, in the plan that you had foreseen. Thanks Joe.

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  14. Hi, found your blog by chance a few weeks ago, I have a rudimentary understanding of EW (if that), but thanks for the posts, and I look forward to hearing news of a book in due course.

    Do you need a good memory to use EW, it seems really complicated.

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    1. Like in many fields of endeavor, a memory helps.

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    2. I have a poor memory, being old.
      I'll have to rely on copious notes!
      Cheers.

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  15. Joe, You call per chart, marked Wave (ii)high at 2646.75 on Friday was the correct call. A good one, thanks.
    If the (iii) has started it should take us below 2603.54 and lower for (iv) and (v)? Any targets?

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  16. does anybody know the meaning of that long shadow in SPY ,it did not happen in spx or in es .. Thanks

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    1. Spy is an ETF with it's own bid and ask. While correlated to the spx it is not an exact mirror. While the index is the actual basket of stocks, the spy is subject to the bid and ask sentiment at any given moment. The bars will never be identical.

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    2. Exactly tom , I meant the long shadow is not normal ,I assume abnormality like this does not occur often.. but I hardly look at spy , I maybe totally wrong .. it may mean nothing.. ty

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    3. It only takes a few seconds of no bids to drop the price for 1 trade and create a tail like that. I wouldn't give it a second thought. Focus on the index for trend not the ETF. It could also just be a bad tick.

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  17. Great call, Joe! I learn so much from you from every post you do. Over the weekend I was still reading some Elliot Wave technicians calling for a third wave up. Your work on degree is very interesting and I think the real key for me unlocking the EW analyst inside of me - if that ever happens lol

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    1. Thanks Walter! It will gel, believe me. Give it time.

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  18. Joe,
    Am I correct in counting that the impulse down that started late friday finished wave 3 with a very small ED 5th and we are now in what looks like a larger flat 4th?

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  19. Kind of looks like this wave down today is a fractal of (1) down? Seems to have the same shape

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  20. People have asked about books here is a link. I've read all 3 Bill Williams, still picking up details I missed. Link is for his first book which I picked up used, prices really change quite often. I bought it used August of 2017 and paid $7, old used library book in perfect condition.

    https://www.amazon.com/gp/offer-listing/0471119296/ref=olp_page_1?ie=UTF8&f_all=true

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  21. Thanks for great work. When can we expect S&P500 index to reach 22xx?

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