Friday, March 22, 2019

Wedging, Overlaping and Diverging - Either Way

Here is the daily chart of the cash S&P500 index. As we noted yesterday, a top 'could' have been in place with yesterday's waves. We'd like to better define that.

S&P500 Cash Index - Daily - Overlapping, Diverging and Wedging

We have been noting for weeks the difficulty in counting the up wave as an impulse (because any number of 0 - 2 trend lines have been broken).  We have also been noting the divergence with the new price highs and the daily Fisher Transform Oscillator shown on this chart.

Right now, the cash index, while closing on the low of the day, also closed exactly on the lower wedge trend line you see drawn in here. Today was a rather large red down candle, one of the largest if not the largest of any down candle since the December 24th rise began. But, what we'd like to point out is that IF the 2,765 level is exceeded lower, the Fibonacci ruler shown indicates that the degree of the waves would likely have to change from up to down. Barring that, there is one last chance for a new high - but I'm not holding my breath. And, such a new high could be a failure high or a truncation high, as well.

Caution is the by-word. There was one way to count five-waves down to a new low today, so that must be respected.


Let's see how it goes and take it step-by-step.

Have a good start to the weekend.
TraderJoe

Thursday, March 21, 2019

S&P new top; Dow not

Today, as the banks and 'smart money' decided what they wanted to do in relationship to the FED's newest and greatest "easy money" policy, the S&P500 cash index "went over the top" of the prior hourly high. The Dow Jones Industrial Average has not yet, but it could. Towards the end of the session the cash markets backed off ever-so-slightly, allowing the continued drawing of a potential wedge-shaped pattern, as below, which might still be incomplete.

S&P500 Cash Index - Hourly - Potential Diagonal

There is one way to consider the pattern as completed, by including the March 4th high as wave (i). But, the trend lines on that pattern would be skewed, so, with the new higher highs today, I am making a conscious decision to publish the longest pattern in time (knowing full-well it 'might' break down early).

Something else has been added to this diagram. For wave (iii), I think you can see that it is true that it is currently entirely above a line from ((B)) to (ii). But, notice within each of the sub-waves of (i) that you can see that each of the third waves ((3)) are above a line from their respective origins to the respective second waves ((2)). And, the same is even true within wave ((1)) as well, in regards to wave (3).

Hopefully, this helps you in the wave identification process. 

Also, we must note that yesterday's tentative confirmation of the spinning top - as a high - was invalidated in this index, today. I had called it tentative, because even though technically correct, the point drop that resulted was quite mild.

Have a very good start to your evening,
TraderJoe



Wednesday, March 20, 2019

Pow-ell throws in the Tow-ell

The FOMC meeting results were announced today, and the FED announced several action steps.

There will be no more interest rate hikes this year, and they will complete the balance sheet roll-off at the end of September. Interest rates were kept the same, and the outlook for employment growth was reduced.

If you ask me, the FED is running full-on scared of a recession dead-ahead. Why else would they take such a clear reversal of policy?

The markets started out the day making a lower daily low, and popped on the FED news but did not make a new daily high. Then an intraday retracement began which darn near made 78.6%. The overnight needs to be watched closely to see whether the upward wave invalidates lower.

S&P500 Cash Index - Daily - Spinning Top Confirmed

For what it's worth, today's lower close did provide tentative confirmation of the "spinning top" candle after the Fibonacci 55 days of uptrend we pointed out yesterday. Is the entire move, upward, over? It is too early to say for sure, but the evidence is gathering. The Dow and the Russell still have not made a new high, and today the ES futures did not make a new higher high day, while the NQ futures did. The market seems to be splitting in a way that requires a great deal of attention at the moment.

All-in-all, we'd have to grade the market's reaction to the FED actions as "lack-luster" today. We will also note, this high currently has no unfilled gaps.

Have a good start to your evening.
TraderJoe



Tuesday, March 19, 2019

FED plays with Spinning Top

What will the FED do or decide tomorrow, at its meeting, and what will it announce in the press conference that follows it?

SP500 Cash Index - Daily - Fibonacci 55

As we had noted in comments section in prior days posts, yesterday was the Fibonacci 55th day since the up trend began. You can see this on the horizontal ruler for yourself, above. It seems fitting, then, that at least some sort of down movement occurred today. 

But, a spinning top is just that - one of several sorts of candles that could indicate a topping area. As a standalone candle it would not mean much, although downside follow through including a lower closing candle tomorrow might provide a better indication of a high in place.

As usual, the powers that be (the banks, the 'smart money') are leaving it to the day of FED meeting to make the determination on what happens from here. Do they do that because they know they can likely maneuver through the volatility better than the retail trader can?

In the Dow, today's candle created overlapping waves, and in the S&P500, it did not. Remember, the Dow has not made a new high since February as the S&P500 cash index has played power forward. Today, the Dow went back down to touch it's 18-day simple moving average (SMA), or it's line in the sand before price rebounded off of it.

This is a good time to start watching the slow stochastics on the daily ES, as well as overlaps on first waves. A price overlap on 2,825 would likely be of some significance.

Have a good start to the evening,
TraderJoe

One Pattern Reasonably Clear

This thirty-minute pattern on the Dow is reasonably clear. But, unfortunately, it too, provides a slippery alternate.

DJIA Cash Index - Half Hour - Reasonable Counts

Because the (A) wave of the triangle starts with a flat, the triangle can also be interpreted as w-x-triangle y. So, the alternate ((1)), ((2)) count is in blue.

Yesterday, I had called out the possibility of a potential diagonal wave,  but I had said that there was a FLAT wave in the making, so it might not be over with. This morning, due to lengths, and with alternation an impulse can now be counted.

S&P500 Cash Index - Half Hour - No Overlap Impulse
Wave ((4)) does not overlap wave ((1)) in the above chart.

TraderJoe

P.S. Because of downward overlap, the Dow's current ((C)) = ((A)) count could be complete with as close a Fibonacci as you will see.

DJIA Cash - Half Hour - ((C)) = ((A))

It would be another one of those "short fours" for alternation, and a break of the channel on an hourly basis should provide increased confirmation.

Sunday, March 17, 2019

The SAME Three Waves Down

I have written about this before in the early days of the blog, and during the days when I was making YouTube videos. I am writing this post to re-emphasize the point and introduce some who may not have seen the earlier information. I specifically coined the term, "The Fourth Wave Conundrum" to recognize that when a down movement starts with only three-waves-down, then the number of Elliott wave possibilities explode (to thirteen or more).

During this time, people get "testy" with each other. You will recognize people who just "want to know when this up movement is over, and when the big down waves will begin". Everybody wants to "know what the count is." They don't care how to analyze the waves, they only know they are getting whipped around and their account may be getting trashed. So, they don't care about anything else except who is right, and who's count is going to make the agony end by price starting to trend again.

For that reason I show this schematic. It shows the very same three waves down in red, as they start only several of the possible patterns which can be part of a larger degree fourth wave. Assume the three red waves are from the October, 2018, all time high.


The Same Three Waves Start Multiple Elliott Wave Patterns

By now, if you have followed my work, you know that each of these patterns is possible from the start of three waves lower. So are the expanded flat, a truncated flat, an extended flat, a FLAT-X-Triangle, a FLAT-X-Zigzag, and, yes, even just a simple impulse up to new highs.

Your chances of determining the correct pattern by random chance are about 1 in 13, or less than an 8% chance. Those are not especially good odds. About the only thing I know that can 'help' in this problem is degree labeling and the break of upward sloping trend lines.

But, during this time, be especially kind to your Elliott analyst - especially if it is You! This is the true science of Elliott Wave as few others will take the time to describe to you. Do you have the patience for this? Does it help you in your trading or investing? Maybe so. Maybe not.

The market is just providing you with information. What you do with it and how you use it is totally up to you. Maybe the reason the current up wave is so hard to describe is that it's an "X" wave. They can be really tough. But so can a B:3 wave. And so can wave (ii) in a diagonal. And, clearly there are other possibilities.

This is what the Elliott Wave Principle means by (paraphrase) "sometimes the analyst just has to let the situation clear up".

As of this time, we have not broken the upward sloping trend line from the December 24th low through the March 8th low in the S&P500 cash index. Maybe we will soon. That would be an event to watch for. If it doesn't break, it will tell you "something" about the count.

Have a great rest of the weekend.
TraderJoe

P.S. As I said over the weekend, we have no right to assume upward movement has ended. We just have no "proof positive". We have not broken the lower channel line in the chart below. MotiveWave has no issue with the count shown, and the alternate is shown too.

S&P500 Cash Index - 4 HR - Needs Resolution

The longest correction in time may be the ((b)) wave. A second S&P500 15-minute chart was added below.

S&P500 Cash Index - 15-Minute - Potential Diagonal

Notice the declining AO within the wave. That's a good signature for a diagonal, but it would need to prove itself. Because we have not exceeded the time of (iii), yet, then (v) could go longer as a flat b wave and c wave up to follow, but does not need to.

Saturday, March 16, 2019

Out-of-Synch Time-Wise Again ?

Based on degree labeling considerations, I was wondering, perhaps, if the Dow and the S&P are just "out-of-synch" time-wise. It has happened before - maybe it's happening again. I want to preface this post by saying we do not have "proof positive" that the upward movement in equities is over. But, we do have the Dow and the Russell providing a different message than the S&P500 Cash Index. Let's assume for the moment that the upward movement is over, and the 90% level upward in equities is NOT reached, which means the waves since October 2018 would not qualify as a flat.

That would mean that the downward diagonal can be back on the table, and in that case, both the Dow and the S&P500 would be seen as zigzags, upward, since the December 24th low. So, play along for a moment. Here are the degree considerations on the Dow.


DJIA Cash Index - 4 Hr - Close Only

If we remove some of the noise from the charts by just using a line chart, then we see the DOW 'might' be able to be counted as five waves in a channel for a minuet (a) wave, followed by a break of the channel, lower, representing a minuet (b) wave, followed by a re-acceleration upward in five waves for a minuet (c) wave of Minor 2.

Now if we look at the S&P500 Cash Index in the same manner, we might find that the main difference is the nature of it's minuet (b) wave. Perhaps this wave just "takes longer" in the S&P500 than it does in the Dow.

S&P500 Cash Index - 4 Hr - Close Only

In this case, the S&P makes a (b) wave that is much more proportional in time to it's (a) wave than the Dow does. The S&P has 470 more stocks than the Dow. Perhaps that is what accounts for the difference.

Again, there is no proof, yet, that upward movement is over. But, what I am saying is that if the 90% level is not met to qualify for a true flat, then a schematic like this might explain it. Yes, the Dow and the Russell 'could' re-accelerate higher. But those are not the patterns we are not seeing yet in those indexes.

Are there aspects of this count I don't like. Yes! One would be a third wave not reaching a 1.618 extension. But, again, if this is a 'corrective sequence' then that may go a long way toward explaining it.

Have a good weekend.
TraderJoe

Friday, March 15, 2019

Potential Diagonal and Risk (Of a Wrong Count)

Below is the current two-hourly chart of the Dow Jones Industrial Average, and a potential count of an expanding diagonal (or alternatively) triple zigzag.

DJIA Cash Index - Two Hour Chart - Potential Diagonal

First, it needs to be very clear that this is a potential pattern. To emphasize that point, I have shown only a dotted trend line above. Including the ((A))-((B))-((C)) pattern we have have uncovered today where the ((B)) wave is a triangle, there is some justification for looking for the expanding diagonal pattern, or its alternate cousin the expanding triple zigzag lower (shown in red below the waves).

The primary and only purpose of this chart is to show you how to define your risk of an incorrect count. We know in an expanding diagonal that wave iv may not travel above wave ii. That would invalidate an otherwise correct pattern to this point in time - which, in the cash market is composed entirely of zigzags.

Notice, too, in the cash market that sub-wave ((B)) of iii is just points shy of  exceeding the length of ii, adhering to wave degree considerations.

So, this is how knowing the Elliott Wave patterns can help you objectively define your risk of an incorrect count. It is also a clear example of why there are alternate patterns in the market. Downward overlap on ((A)) downward, or trading below the recent ((B)) would be better confirmation of the pattern counting out correctly.

Have a great start to your weekend.
TraderJoe

Thursday, March 14, 2019

A Question

Is it true the count below has no issues with either degree labels OR with the third waves being completely above the 0 - 2 trend lines as per the Neely guidelines. Please study. I don't like to wind up violating either degree labeling or trend line guidelines, and this doesn't seem too.

ES E-Mini S&P500 Index Futures - Daily - Degrees in Place

Let me know your thoughts. This count was spurred by a comment in yesterday's post by trader Gerald who noted that (ii) is longer in price and time than b. This would fix that issue. Help us stay sharp, Gerald!

Have a good start to your evening,
TraderJoe

Re-examination of a last option for Minute ((c))

The idea of violating Neely's guideline regarding wave three being entirely above the 0 - 2 trend line is and was still disturbing. So, in the work of Elliott Wave, I took a look with fresh eyes, and found that one of our commenters had posted the best solution. That solution is shown below, and it was first posted by Erik B. I couldn't see the entire chart at the time, and couldn't see the entire count in my mind, but now it is pretty clear.  So, before I post the chart let me give kudos and full credit to Erik for this idea.

S&P500 Cash Index - Four Hourly - Ending Diagonal Minute ((c)) Wave

What makes this chart possible is the clear and unmistakable zigzag down from the Mar 4th high. And yesterday's higher high reinforces a potential diagonal pattern.

Because minute ((c)) is not yet 62% x minute ((a)), then there is no degree violation between (i) of ((c)) and minute ((a)). There is also not a 'time' violation between (ii) of ((c)) and minute ((b)), but there is definitely a price violation between (ii) of ((c)), and minute ((b)). Now, the question is, does that matter in a zigzag? After all, we are not counting increasing extensions within a third wave in this count.

Importantly - all of the wave 3's are above their respective 0 - 2 trend lines. Yay! Again, will all thanks and due credit paid to Erik.

Have a good start to the day.
TraderJoe

Wednesday, March 13, 2019

(a)-(b)-(c) became (i), (ii), (iii)

With today's higher high, and in significant agreement with The Eight Fold Path Methodology, we must simply allow that - where we were counting the waves up from the Dec 24th low as a zigzag sequence - that "five waves up" must now be counted instead of only the three-waves up. The daily chart now looks like the following, with each of the prior peaks labeled keeping its internal label from December 24th. Only the exterior labels have changed.

S&P500 Cash Index - Daily - Five Waves Up to Minute ((a))

Like it or not, waves (ii) and (iv) have alternation, and although wave (iii) does not break a base channel higher, it does not break any rules, and likely signifies just an impulse in a corrective sequence and not an impulse in a larger impulse. Clearly, it breaks Neely's guideline that all of wave three in a true impulse should be above a line from zero-through-two. But, that is a guideline.

The up wave from Dec 24th is exceedingly choppy, and has very short pullbacks, and this is characteristic of ((a)) waves, as well. That's the best I can tell from the data we have. And none of the interior waves from the October 2018 high to the Dec 24th low have changed their labels. The label at the Dec 24th low, itself has been changed from Minor 1 to Minor A. It might be expected that a B wave could reach 90%.

Have a good start to your evening,
TraderJoe

Tuesday, March 12, 2019

Brexit Mish-mash

The House of Commons voted down Prime Minister Theresa May's revised proposal which was to provide certain legal assurances and offer a defined 'deal' to the process. By being voted down, the stage is set for continued uncertainty in the U.K., including calls for the P.M. to step down. We don't know how this will go in the end. 

Yesterday, we cited the count of a likely 'a' wave up. Today during our comments we cited the possibility of starting the 'b' wave down. A chart is below.

S&P500 Cash Index - 15 Minutes - Possibly into b lower

This sideways wave, with marginally higher highs is one of the longest waves in time since the recent up turn began. For this reason, we think the degree of the wave has turned from 'a' to 'b'. Filling the gap made today would help provide confirmation. Sometimes, 'b' waves stop at the fourth wave of a lower degree, and  that would be about a 38% retrace. (But, it could also go lower). Then, we might expect a 'c' wave up to begin.

All-in-all, with the exception of the gaps, the trade has been real grinding and choppy.

Have a good start to the evening.
TraderJoe

Monday, March 11, 2019

One-two-three became a-b-c

As per The Eight Fold Path Methodology, the three-waves down we described in the last post, became a-b-c once there was upward overlap in the cash market. That likely means if there is to be any further downward movement, it would continue as another diagonal. At the present time, we can not say whether that would be a contracting or an expanding diagonal as there are insufficient waves to base that on.

As of the end of the day, we were able to count "five waves up", with the third wave as a solid 2.618 extension. (That's what we did not get on the way down, not even a solid 1.618 extension. We came two points within that level, but never crossed it.) Today's up wave could not be confirmed to be over at the end of the day, but given the shallow pull-backs it can easily be another "a" wave up.

There is not much point in updating a chart today until there is more information.

Have a good start to the week,
TraderJoe

Friday, March 8, 2019

Lower Close, But Only Three Waves Down

According to The Eight Fold Path Methodology with 128 candles on the S&P500 Cash Index 15-minute chart, below, there are only three non-overlapping waves down from the top, so far.

S&P500 Cash Index - 15 Minute - Three Waves Down

Based on degree labeling requirements, we are very sure that wave ii / b is a sharp wave. Wave iii / c down is in five non-overlapping waves. Wave ((3)) of iii / c is on the low of the Elliott Wave Oscillator, and wave ((5)) of iii / c diverges from it. Wave iii / c is just 2 points shy of a 1.618 extension on the first wave down. Not too bad.

The Elliott Wave Oscillator for wave iv? is already above the zero line. And the b wave of the possible wave iv did exceed the 90% level to qualify for a potential true flat. For this count to hold, it would be good to see wave iv end in the vicinity of the prior wave ((4)), and it must not overlap wave i / a down for the impulse count. Otherwise, one-two-three is the same as a-b-c until it is not.

IF for some reason there is overlap on wave i / a on Monday, then yet another diagonal count would have to be considered lower as the alternate.

Have a very good start to the weekend,
TraderJoe



Thursday, March 7, 2019

Below Zero

Although some might think so depending on their locale, but I'm not talking about the weather. Instead, I'm talking about the fact that the Fisher Transform indicator in the daily S&P500 Index chart, below, has now made it's first close below the zero line. Although the histogram bar is too small to see, the black arrow in the lower right points to the indicator flag now showing a negative number.

SP500 Cash Index - Daily - Fisher Transform Closes Below Zero

We stated that once this indicator finds it's divergence it is a relatively smooth transition to it's lows. That said, depending on the exact Elliott Wave count lower, you can see - as in November and December of last year - that a few smaller term and smaller height humps might be made on the way down.

Prices traded low enough today to close the first gap from the top - now shown in the black circle on at the upper right. There is another gap at 2,709.80 which represents the 62% retracement of the entire move upward from December 24th. (It is not circled). That gap, too, is likely to fill.

Just as we did on the way up, we are looking to count five minuet waves down to a minute ((a)) wave lower. We have not yet completed the minuet wave i, but have a good start on it.

This is just a reminder that tomorrow is the payroll employment report before the market opens, and the count we have allows for some volatility and whipsaw around today's close. So, as always, be calm, patient and flexible.

And have a good start to your evening.
TraderJoe

Wednesday, March 6, 2019

The Weight of the Evidence Prevailed

Yesterday we cited five criteria why more downward movement in prices should be ahead of us. Today's lower low tends to confirm that view. Prices initially played with higher futures just shortly before the open, but lost the gains as the market opened. Prices declined largely for the balance of the session with moderate backing-and-filling.

SP500 Cash - Daily - Fisher Transform Lower Low

As well as the lower back-test line we cited yesterday holding, the lower close today sent the Fisher Transform Indicator to its lowest low since the double-divergent peak. 

The chart shows only a few of the larger several gaps that could fill. The serious student should highlight them all.

By the end of the futures trading day (5 PM ET) each of the Dow (YM), S&P500 (ES), Russell (TF), and Ndx (NQ) futures had lost their embedded daily slow stochastic reading. It is now below the 80 level on each of these equity indexes. And only the NQ has not crossed the "line in the sand" or the 18-day SMA. Each of the other markets now has the "negative bias" from doing so, and the Russell seems the weakest. It is already half-way down to its lower daily Bollinger Band. 

Here is the daily chart of the Russell futures.

Russell 2000 Futures - Daily - Weakest of the Group

The red arrow on the above chart points to a peculiar failure we noted where the S&P500 cash, ES and NQ futures made a new high, but the Russell 2000 and Dow futures did not. So, this chart has lower daily highs and lower daily lows. And that means the "swing line" is bearish. Price is also below the 18-day SMA so the bias is down. The two are not fighting each other. Further, momentum is down and the daily slow stochastic is not yet in over-sold territory.

Because of the length of decline in the Russell (i.e. number of price points traveled lower), in this index we can say that the degree of the wave has turned. We can also - just barely - say this about the Dow (YM). We can not yet say this about the ES, or the NQ futures. But, even so, IF the week closed here, the ES would have a large weekly bearish engulfing candle. I hope people are paying attention.

I should add today that we were able to count five-waves down as a contracting leading diagonal on the intraday chart. If you'd like to look that one over, you can find it at this LINK.

Cheers and have a very good start to your evening.
TraderJoe

Tuesday, March 5, 2019

Slightly Lower Close

Today's slightly lower cash close was not much, but was sufficient to confirm yesterday's outside key reversal day down. As most technicians know, the outside key reversal day - whether up or down - is one of the strongest technical signals there is. That is because it indicates that a group of participants were caught at the highs, and they are looking to get out (in the case of an outside key reversal day down.) Or, on the flip side, in the case of an outside key reversal day, up, there is a group of market participants that got caught at the lows, and they are looking to get out, too.

Today, we have have several things: 1) we not only have yesterday's key reversal day down, but, 2) we have a confirmation of that day with a lower closing low; 3) further we had at the end of the day a near exact 62% retrace of the down wave - from the truncation - on the cash S&P500 index, 4) as the daily chart below shows, we also had a back test of that lower wedge line - and so far - that back test has held. Finally, 5) fifth and Fibonacci last - there was a countable ending contracting diagonal at the end of the day that met all of the degree requirements. Elliott analysts know the significance of that pattern, so I do not note it lightly!

You can see the contracting ending diagonal and the intraday chart at this LINK. The pattern has an excellent 'time signature' as each of the waves is contracting in time, just as expected!

SP500 Cash Index - Daily - Fisher Transform Dropping

Because of the lower closing lows, the Fisher Transform is dropping and further confirming the divergence with price.

Next, as of the futures settlement all of the Dow (YM), S&P (ES) and Russell (TF) futures had lost their daily embedded slow stochastic readings. Only the NDX (NQ) futures had not. So, this likely means many stock indexes will begin to interact with their "lines-in-the-sand", their 18-day SMA's, and there might be some battle there between the bulls and the bears.

Some have said, "today was clearly a consolidation day for a move upward." To the contrary, the evidence above suggests today was a consolidation day for a further move downward.

Have a good start to your evening.
TraderJoe

Monday, March 4, 2019

Likely Completion of Minute ((c)) wave of Minor 2

Here's the daily chart from today. During the day, we called a likely truncation at the high, after a triangle we described in the last several posts. We waited just a few bars to see if yet a smaller degree fourth wave triangle would form. It did not. After the truncation, we were able to count five waves down, and three waves up, on the intraday chart. (Here is what that intraday chart looked like LINK. The red star is the truncation.)

S&P500 Cash Index - Daily - Likely End of Minute ((c)) of Minor 2

Notice that this minute ((c)) wave did have a divergence on the Elliott Wave Oscillator, and there is no third-wave peak on the daily chart. Because of the lower closing low, the Fisher Transform continues to confirm its divergence, as well.

SP500 Cash - Daily - Lower Fisher Transform

As can be seen from the above chart, the retracement at the end of the day was back to the lower trend line shown on the right of the chart above. It will be interesting to see if the back-test holds. What is critical is that the downward bar is clearly one of the longer ones, and that it occurred with nearly precise timing in relationship to the triangle completion.

As of the close of futures trading at 5 PM ET, both of the Dow and the Russell 2000 futures had lost their embedded daily slow stochastic readings. The ES and the NQ had not (yet).

Have a good start to your evening and to your week.
TraderJoe

Saturday, March 2, 2019

When the Count is Working ...

... you just keep on counting.

On Wednesday's post we showed the possibility of a fourth wave triangle using The Eight Fold Path Methodology as indicative of a fourth wave in progress. If you did not read that post, then you may wish to review it now. But essentially with 140 candles on the chart, the Elliott Wave Oscillator had gone below the zero line, indicating a likely fourth wave in progress.

The triangle played out on Friday, and we also indicated in the comments on Thursday, as follows.

"A reminder that today is the last trading day of the month - which often sees 'sloppiness' which is sometimes termed 'window-dressing'. Then, tomorrow is the the first trading day of the new month which 'often', not always, sees inflows from 401k's, mutual funds, pension funds, company bonuses, dividend reinvestment and other sources. However, according to the Briefing.com Economic Calendar, tomorrow is not a payroll employment report day."

So, Thursday was the sloppy end-of-the-month window-dressing day, and Friday did provide the often expected inflows. Here is the unchanged, but updated, chart using The Eight Fold Path Method on the minute ((c)) wave.

S&P500 Cash Index - Hourly - The Eight Fold Path Method

So, the triangle completed on Friday, with the expected e:3 wave overlap of the wave (iii) as required. The triangle is shown in brown in the upper right of the hourly chart. That means that wave (iv) is likely completed as we were able to count a five-wave sequence up at the end of the day on the five-minute chart. You can view that smaller chart at this LINK.

Given that wave (iv) is completed, then a new trend line should now be drawn from wave (ii) to wave (iv). That new "Applicable Trend Line" is shown on the chart in black and labeled as such. Any impulsive break of this trend line, lower, and failed back test should at least put the market into corrective mode if not full-on down trend mode.

But first, the end of wave (v) must be found. The first five waves up shown in the chart at the above link are likely wave i of (v). Space should be given for a wave ii, down, followed by a iii, iv, and v, up. OFTEN, not always, the typical triangle target is "the widest width of triangle added to the break out point". I'm going to let you do the math on that one as an exercise to see if you have any interest at all in wave analysis or you just want to continue to receive "free stuff".

Meanwhile, above the prices at specific points you can note some very small red arrows pointing downwards. Those red arrows show how tiny their fifth waves were compared to their first waves. Here I am referring to the unlabeled v of (i), and v of (iii)

This being the case, it would not be out of the realm of reason to expect that a shorter-than-typical fifth wave could occur. So, be aware that a (v) = (i) might not be expected.

Here are a couple of additional points of reference. The first is the now familiar daily chart with the Fisher Transform indicator that still shows divergence.

SP500 Cash Index - Daily - Fisher Transform Still Diverges

And the second chart is the daily S&P500 cash index along with it's Chaikin Money Flow indicator. Readers should be able to see the divergence - even if higher prices occur.

S&P500 Cash Index - Daily - Chaikin Money Flow Diverges

So, from this chart, the volume is also starting to 'bail-out' on the rally too. This does not mean that further highs are not possible. It does mean that the rally is beginning to run out of support from volume. 

There is one additional "third leg of the stool" that I would like to see fall in place, and that is sentiment-related. Perhaps it will by Tuesday of next week. If it does, I will let you know.

Have a good start to the weekend.
TraderJoe


Wednesday, February 27, 2019

Looking for the Last Waves

Below is the hourly chart of the cash S&P500 Index. By measurement, you can see with about 140 candles on the chart, the Elliott Wave Oscillator has now crossed down below the zero line and is likely indicating the fourth wave sequence, (iv), of the minute ((c)) wave. If you are new to this blog the 'double parentheses' in text are to be read as circle-c in the upper right of the chart below.

S&P500 Cash Index - Hourly - Looking for Final Sequence

Because every fourth wave at every degree of trend poses it's own set of challenges - which I have termed 'The Fourth Wave Conundrum', the question now becomes whether this fourth wave, (iv), will end as a 'running triangle' or as an 'expanded flat'. Today's waves downward ended at the 78.6% level of the b:3 wave upward, bolstering the case for the triangle.

If a triangle forms, it would be making the case that "the last wave sequence is dead ahead". But the triangle must form properly in every detail. In this case, the d:3 wave would likely be limited also to a 78.6% wave upward on the c:3 wave downward, and then the e:3 wave must cross down over wave (iii) to be corrective to it as a fourth wave. 

The alternative is that the entire downward wave from b:3 is really an ending expanding diagonal in construction, but then a fifth wave down is needed to end the sequence as a 3-3-5 expanded flat wave. This would allow a deeper wave (iv), and better challenge the lower boundary of the Elliott parallel channel from wave (ii). I have no preference as to which occurs as long as the rules are followed. That includes that wave (iv) must not overlap wave (i), up, in the downward direction.

Further, if the b:3 wave is exceeded in the upward direction then we may have to again consider an ending diagonal.

This is just the nature of The Fourth Wave Conundrum, and it is why patience and flexibility are required to avoid getting turned around as best as possible. This is the true nature of alternates which the analyst must learn to appreciate and grapple with.

Have a good start to your evening,
TraderJoe

Monday, February 25, 2019

For the Beginning Elliott Analysts

Please review the chart below. Hopefully, because it is annotated it is self-explanatory. The issue is whether we are in an overall impulse wave. My question to you, is based on what you know about Elliott Wave theory, does momentum indicate that we are?

ES E-Mini S&P500 Futures - 5 Hour - Momentum

The chart helps explain with few words why my analysis is that we are in a corrective wave - as long as it takes.

Have a good evening,
TraderJoe

Near Conclusion

When applied to the ES 2-hr futures, The Eight Fold Path Method suggests we are nearing a conclusion to an impulse wave. See chart below.

ES E-Mini S&P500 Futures - 2 Hr - The Eight Fold Path Method

After having dipped slightly below the zero line (at the black circle) for a likely fourth wave, there now appears to be a divergent wave up within the correct number of candles. Again, this does not mean the wave 'is' over. It just means the likelihood of a wave being over is getting increasingly high.

Again, because of the nature of the advance - and the degrees of the various waves involved - we still think this is the minute ((c)) wave up from the January low which was the minute ((b)) wave. For those who have read and studied The Eight Fold Path Method it should be very clear there is no "higher high" peak in the center of the Elliott Wave Oscillator which is likely the clue that this impulse is an impulse in a corrective wave, and not an impulse in a larger impulse.

As always, time will tell. Have a good start to the week.
TraderJoe

Thursday, February 21, 2019

Consistent With

In a daily price pattern that is at least consistent with the potential ending contracting diagonal count we posted yesterday, today the daily ES E-Mini S&P500 Futures made an outside day down as the chart below shows. One does have to ask, "why did it do this today?". Is it because the cash index can not travel any higher? Cash did not make a higher high today as the futures did.

ES E-Mini S&P500 Futures - Daily - Outside Day Down

We are the first to admit that it's not the largest down candle ever, but it did make a higher high than yesterday's bar, and then it turned around and made a lower low - not only over yesterday's low, but also of Tuesday's low, as well.

Again, we said yesterday this price behavior simply is simply not reminiscent of a powerful third wave in an impulse, and therefore, it seems best - at this time - to call it the minute ((c)) wave of Minor 2.

The slow stochastic indicator is shown for reference only. While there is a cross lower - showing some loss of momentum - neither of the lines of the indicator have crossed below the 80 level. There is still nothing overtly bearish on the chart, and even today's price decline was quite choppy. Still, this is the best way that we can count and maintain the required degree labeling, so we'll see what develops in the next couple of days. 

From an Elliott wave perspective, the chart can be counted as if a top is 'in'. Now we need to see if confirmation occurs. An initial confirmation would be making a low beneath wave (iv) of the diagonal. Refer to yesterday's chart if unclear. A second level of confirmation would occur by overlapping the upward minute ((a)) wave in the downward direction. A third level of confirmation would occur by trading below the ((b)) wave in less time than the diagonal took to form. This would be the 'post-pattern-behavior' that an analyst such as Neely would expect us to obtain to call the count correct.

Have an excellent start to the evening.
TraderJoe

P.S.  Early in the morning, the DJIA made a new daily high. Shortly before 11:30 AM ET the S&P500 also made a new high. As a result, the minute ((b)) wave triangle can be re-established as the more correct count, as below. And, there are either five waves up or three waves up to the current high. Price is closing in on the 50%, and possibly the 62% Fibonacci extension on the minute ((a)) wave, as below.

S&P500 Cash Index - 90 Minute Chart - Back to Minute ((b)) Triangle

The alternate is clearly shown in red as minuet (iii), still.

Wednesday, February 20, 2019

FED Caves to Markets

Minutes of the prior Federal Reserve Meeting were published today at 14:00 ET, and even as some news outlets were having trouble getting copies of them and interpreting them, it was pretty clear the FED had acquiesced its policy in favor of calming the markets. CNBC reports the minutes of the meeting below have an unabashed reference to the decline in equity prices since the fall of 2018, as follows:

Participants noted market belief that the balance sheet reduction helped cause the late-2018 market volatility, and noted that investors interpreted communications from the December meeting as "not fully appreciating the tightening of financial conditions and the associated downside risks to the U.S. economic outlook that had emerged since the fall."

Meanwhile, back at the S&P500 Cash Index, as this 90-minute chart shows, prices keep getting wedged into a tighter and tighter formation.

S&P500 Cash Index - 90 Minutes - Still Wedging Below Channel


This action does not seem characteristic of the broad gains in the middle of the third wave of an impulse. Therefore, we still think it is the minute ((c)) wave of the overall Minor 2 correction. And it may end shortly, but has shown few price declines significant enough to draw that conclusion.

From a price perspective, nothing has invalidated the count of an ending contracting diagonal for the minute ((c)) wave. Wave (v) is still shorter than wave (iii).

Things could start to get bumpy soon, but remember, ending diagonals can be cantankerous to count. They can give the appearance of ending, only to begin another series of waves. So, patience, calm and flexibility are still required until the pattern resolves.

Have a good start to your evening.
TraderJoe


Saturday, February 16, 2019

Common

There is a favorite character of mine in the television series about railroading days in the wild west called "Hell on Wheels" that is played by an actor named Common. It is because so many people now think that the market "on a straight track to new highs" that I talk briefly about what is Common.

In section 2.5 of (the online edition of) The Elliott Wave Principle by Frost & Prechter, this statement appears as the very first in the guidelines for diagonal waves.

"Waves 2 and 4 each usually retrace .66 to .81 of the preceding wave."

This means that if we are making a diagonal, lower, as the start of a bear market, that it is "usual", which means it would be "common" to allow the second wave to retrace up to 81% of the first sequence downward. It is not a 'rule' but is a tendency which has been observed enough on different time scales to call it 'usual' or 'common'.

A quite typical criticism of people who chart the market using Elliott Waves is that "the count is wrong", or "the count changed", or "you said the market movement might stop here, but it didn't". But, what many such people also don't quite get is that counting any corrective wave - whether it is a minor wave 2, as I think we are now in, or a minute wave ((b)) - can be as confusing as heck. I don't say that lightly. It is the very purpose of corrective waves to confuse. Sometimes, they can start, appear to stop, and then re-accelerate to convince us of a new trend in the corrective direction - only to immediately and sharply reverse without warning proving out the now abandoned corrective count. 

Other times, after the correction ends prices can only "ooze" lower or higher at the start - making one think nothing of it - only to explode later in a volley of impulsive behavior in the direction of the expected reversal.

If you have not seen this and experienced the same, then you have not been observing the market for long. This is the case often enough for corrective waves that it must also be called "usual" or even common.

And if counting corrective waves is "usually" confusing, then why would you expect it to be anything else? Why would you expect me not to become at times incorrectly reversed, or only be correct in the short run? This is the nature of corrective waves. It's what they do. The question is why would you expect differently? I don't.

We write this today again to try to sever what some people see as the "pure link" between an Elliott Wave Count and a trade or a market action by a participant.  For example, yesterday we posted a count of potential diagonal. The count currently follows the rules of wave counting. But, is the pattern done to the upside? We don't know that definitively for certain. Diagonals can "throw over" their upper trend lines. And, diagonals are a pattern that can even "explode" upward into their alternate of 1-2-i-ii. Have we seen this before? Yes, we certainly have. Has it surprised us when it has happened? Sometimes. 

That is why one becomes familiar with Elliott Wave patterns. I'm not just talking about what the patterns are, but how they also form their alternates. This is what helps to prevent such surprises.

Now, I know what you're thinking - "hmmm, I wonder by this if TJ is hedging on his longer term count?". And the answer is a clear and unequivocal "No."

But, does this mean that action is to be taken Monday, or that it should have been taken on Friday? That choice very clearly remains up to you. 

In two articles going back more than three years I have paraphrased what one broker sees as the correct market steps to take, and when to take them. The articles are below.

A Paraphrase of Ira Epstein's Guidelines for Trading : LINK
Ira Epstein Example - Part 2 : LINK


In it, Ira - as well as a number of other trading coaches, master trader's, and market writers that I have learned from - teach that one should generally trade in the direction of the trend as given by a significant moving average. This is what is known colloquially as "putting the wind at your back" or "not fighting the trend of the market". 

Now while I do not offer any trading or investment advice - at all - ever - I can tell you what I have personally found to be valuable lessons from others.  And trading only with the trend is one of them. Sometimes not trading during FED meetings or major significant economic report - like a payroll report - or sometimes not trading while on vacation or away from home - are some others. 

So, because I do not offer trading or investment advice - you are clearly free to trade against the trend, or to trade impulsively from your phone, or to trade through a FED meeting. Go right ahead. That is up to you.  All I can tell you is very rarely will you catch me doing the same. I view it as one of the surest paths to ruin.  Again I offer no trading or investment advice, and you are solely responsible for the consequences of your decisions and actions.

But I can also tell you, that by keeping an Elliott Wave count - one that follows the rules and guidelines - it will help open your mind to possible market action. And it can sometimes provide clear invalidation points which can be used for ... ? No, not necessarily only stops, but for determining what alternate the market may be trying to construct.

Use wave counts for stops? Well. Does that mean you are trading against the trend? Why would one do that? Again, your choice. Not mine. Perhaps if you are a highly, highly skilled individual with a truly first rate level of market knowledge or available metrics, or if you are exceptionally well capitalized and understand what it is to 'probe' a trade, you might attempt such a thing. Many, perhaps most, blog readers are likely not in that category. So, be realistic. That's all I ask.

Lastly, in this discussion of what is common, or usual, I find that people who criticize Elliott Wave or it's practitioners "usually" don't have a deep appreciation of what Elliott Wave counting involves. That's OK. It takes many months, sometimes years to get even a clear overall grasp of the concept.  But beyond that there are intricacies such as "the speed of moves", or the importance of "degree" that can take even a seasoned professional many more months or years to grasp or to actually see examples of it in action in the market.

So, you can take the position, "I know everything I need to know about Elliott Wave, and this is it in the nutshell: it's hogwash!". Fine. So be it. But I can tell you - when used properly - it can be used as another great lens with which to view market action through, and to help shape your opinion. And I can also tell you what it is not. It is not a fail-safe, fool-proof manner by which to use to place trades against the trend.  And, if you think it is, or you have heard that it is, or if you are trying to use it for the same, then you probably fall in the category of people that do not have a deep appreciation for it yet.

Which will it be? Ignore it? Or try to learn something from it?
The choice is entirely yours.

Have a good weekend,
TraderJoe

Friday, February 15, 2019

Potential of An Ending Diagonal

I have showed this as a possibility before. But it counts much better today. As a diagonal, the upward structure is not definitively over, yet.

S&P500 Cash Index - Hourly - Potential Ending Diagonal

As a potential diagonal, such a count must prove itself by retracing below the minute ((b)) wave in less time than the diagonal took to build.

More later.
TraderJoe

Thursday, February 14, 2019

Lower Low Day

In case you weren't able to follow all of yesterday's intraday comments, we may have been able to rescue the Minor 2 label at this level. First, here is the daily chart of the S&P500 cash index.

S&P500 Cash Index - Daily - Does ((c)) = ((a)) in Time?

On a two-hourly chart, we showed that from a time perspective, wave ((c)) could equal wave ((a)) in time two within two bars! That was quite astounding. We are showing it above on the daily chart.

Next, using the following chart, we were able to count five waves for a minute ((c)) wave as follows.

S&P500 Cash Index - Hourly - Minute ((c)) Completed?

It turns out in this count, all of the sub-waves of minute ((c)) are smaller than minute ((a)). So, degree labeling is adhered to in that regard. Further, within minute ((c)), when counted in this manner, each of minuet (ii), and minuet (iv) are shorter in price than the minute ((b)) wave. And, so, degree labeling is adhered to in that regard, as well.

With today's downward movement there was at least an overlap on wave minuet (iii) of ((c)). We just note that so that it prevents calling minuet (iii) as minuet (i), instead, and this down wave as minuet (iv), because that count would not be allowed by the overlap rules.

Further, today was a true "outside day down" in the daily ES E-Mini S&P500 Index futures. We have not seen one of those in quite a while, and it was maintained into the close. So, there is some level of evidence the downside is being temporarily favored here. Further indications would be a gap down day tomorrow, and lower histogram bars on the Fisher Transform indicator. We are not quite there yet, so patience, flexibility and calm are still required.

Have a good start to the evening.
TraderJoe

Wednesday, February 13, 2019

Doji on a Divergence

While there is nothing concrete, yet, warning signs are building. In the chart below, today there was a Doji candle at the recent top of this upswing. The Fisher Transform is still on a divergence (a double divergence - which is quite rare for this indicator). Here is the chart again.

S&P500 Cash Index - Daily - Double Divergence from Fisher Transform

Relative to wave labeling - as awful as it is - for reasons of avoiding degree violations, one good way to label the chart, now, is as the minute ((a)) wave up. That count works as follows.

ES E-Mini S&P500 Index Futures - 5 Hour - Wave in a Wedge

It was not possible to show this count in its entirety until the final up waves today. However, as a five-wave-up sequence, the cash S&P500 truncated twice - the second time today - when compared to the Dow. In this sequence wave ii is only a 38.2% retrace - allowing wave (i) to be the extended wave in the sequence. And wave (iv) did not overlap wave (i).

This 5-hour count assumes there is no additional upward movement. There were signs at the end of the day - the possible truncation, and the Doji candle - that upward movement might be over. But there was nothing conclusive. So, the overnight futures need to be examined to see if the 2,745 level is exceeded lower or not. If it is, a downward wave may well have started. However, it is only overlap of wave (i) at 2,675 that will force that call.

If there is one more downward, and then one more upward wave sequence roughly equivalent to the former ones, then, and, only then, might it suggest that (i) = ((a)) and the new wave up = ((c)), as there would be seven waves up, not five, and that would be corrective. But such a wave is not at all in evidence, yet.

The market is not yet making this call definitive. So be patient, calm and flexible. Remember, even if this is minute ((a)) up, then a minute ((b)) wave could be anywhere from 38 - 78%, as typical. Then, we could only project minute ((c)) from the end of minute ((b)). But that is putting the cart before the horse. Tonight and tomorrow we need to determine if this up wave has ended or not.

If you would like more detail on the possible truncation count, see my comment at the end of the day in yesterday's post.

Have an excellent start to your evening.
TraderJoe

P.S. Is this count workable? All the sub-waves of ((c)) are smaller than ((a)). That much is clear. And there is no overlap between (iv) of ((c)) and (i) of ((c)). Such a count would prevent another round trip to the top.

SP500 Cash Index - Hourly - Zigzag Count

The question becomes, within a zigzag how does the degree labeling of the "b" wave of the zigzag relate to the waves that emerge after it? For those who are wondering, both the wave (ii) and the wave (iv), the downward waves, are smaller than ((b)), which is a downward wave. So, that portion of degree labeling is maintained.