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

26 comments:

  1. FWIW, I'm still going with the 11 wave corrective structure that I mentioned a few days ago. The final wave (a) was 2682-2790 = 108 points. Then a .618 correction to 2723 for wave (b). Followed by another 108 point rally for wave (c) to today's high.

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  2. Thanks TJ didn’t see that one

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  3. Joe, b wave from 7/13/10 (approx) to 4/29/11 (approx) in your long term count is lower degree than B wave from 11/2/18 to 12/7/18.
    So if the count is 1 2 3 4 5 A B C from 2009, with 2 being abc, your count long term has b bigger and longer than B.

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    1. or are they same degree? being that A is also abc??

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    2. and that would be another reason to think that the correction was not over at October lows because it would be violation??

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    3. Both b waves are currently minute degree, ((b)), waves. They are of the same degree. No, the primary reason to think the correction was not over at the October lows is that you don't correct a 9-year bull market with only a three-month move. What does Neely say about wave 2 in relation to wave 1's time, and wave 4 in relation to wave 3's time?

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    4. equal time - thus it becomes important how you use the triangles and running flats to extend time.

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  4. Russell 2000 futures are currently on a fairly large red candle, as below. Watch 1550- 1552.

    https://invst.ly/aalpr

    TJ

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  5. This count would really seem to work with a SPX ED. SPX could do throw over when Dow does deep retrace. Nice Work.

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  6. This entire rally so far looks like a WXYXZ correction, please see my post. https://www.tradingview.com/chart/SPX/k1IAnL0P-Making-sense-of-what-s-going-on/

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    1. There is absolutely no Elliott Wave pattern like that one. You are just placing letters on the chart at random. Your waves break the 'rules'.

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  7. S&P No weekly RSI divergence. Weekly RSI still below 60. With weekly RSI not having shown reasonable divergence I hope this B wave doesn't morph into a much larger pattern. Look back at summer of 2010 through fall of 2011.

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  8. ET, relating to the DOW, 5 waves down (blue) or abc (black)?
    I was not sure if there were degree violations relating to the impulsive count, even though the fibs & channeling are working.
    SEE IMAGE
    https://ibb.co/fCqDqDJ

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    1. Yea, there are definitely degree violations in the impulse version. i of 3 would be longer than 1, and ii of 3 would be longer than 2 violating the definition of wave degree. The abc might work OK.

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    2. Thanks for clarifying my thought process.
      Futures giving us hints perhaps - see image
      https://ibb.co/0YnCBBp

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  9. Joe, wave a after blue ii covers too much in price it is ~1.52 of blue i.

    I think we have three down to the a after your blue ii and then that move up that just retraces your blue i it is not larger in price or time than your blue i to blue ii. I think that means it is simply a corrective wave.

    30 min chart of DIA the etf of the dow ewo looks like a 3 wave move if i am doing that right.

    We don't hit 90% after your blue i so that means it has to be wxy down to 12:00 3/4. We get the retrace of w at 14:30 3/5.

    So it is a double zig zag. wxyxz.

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    1. Hi Gerald, Could you please clarify which of Joe's charts you are referring to? Perhaps paste the link?
      Thanks

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    2. the one featured in this blog post.

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    3. I am not the best at understanding how to label corrections. If this stuff was cleared up for me I could be more helpful. It could just be a wxy. a after blue ii would be w x would be that which just got over blue i. the lowest point on chart y. y being ~1.03 of w.

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  10. Replies
    1. I should have known that. In fact, it is mentioned in this blog post. Did you see my post at 8:02 am?

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  11. A new post was started for the next day.

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