Wednesday, April 24, 2019

Base Channels and Out-sized B Waves

Some of you will hate this post. Some of you will like it. One of the best ways I can think of to show why I think the current up move in equities is a Minor B wave is to show you an example of a true impulse in another market. This one is current. One reason I show it to you is to show you than I can, indeed, count an impulse. The chart is the U.S. Ten Year Treasury Note Futures Daily.

U.S. Ten Year Treasury Note Futures - Daily - Impulse

First, let's be clear, it took me less than 15 minutes to analyze this chart and to find where you and I would likely differ.

Starting at the lower left, you see a wave labeled 1, that looks remarkably like a "three". But, it is either 1 and and flat 2, in which case the b wave of 2 is larger than 1, or it is just 1 with a very brief fourth internal wave that gives it the appearance of a "three". Either way, the second wave retraces a very deep 82% of wave 1 as shown. Remember Neely's caution about the extremely low probability of a second wave beyond 62%? Throw it out the window in this chart! The extremely deep base sets the foundation for the large rise that follows.

Also - in terms of time - if wave 2 is a Flat, then it does take more time than wave 1. If it is not a flat, then it doesn't.

What follows should be quite clear. There is a clear break of the dotted "base channel" drawn around waves 1 & 2 just as R.N. Elliott instructs us. Then, the third wave is a clear non-overlapping five wave sub-division with gaps that ends beyond the 1.618 level. But, the wave did make the 1.618 level. 

Where most of us will differ is that most of you will be tempted to put wave 3 on the spike that I have labeled the b wave of 4. But if you do this, you will quickly note that wave 3 then gets one too many sub-divisions, and no longer counts like an impulse, itself.

Further, you will fail to recognize that wave a of 4 is too short in time to correct any of the previous up waves - leading to - yes a corrective wave b that is massive in comparison to it's a wave. This over sized b wave is the b wave of a "running triangle" and it clearly looks like a "three", regardless of it's power to move prices higher. The rest of the triangle clearly is designed to "take up time and move prices sideways" until the e wave overlaps wave 3, again, as wave 4.

Wave 4 is then longer in time than wave 2, yes, but it is also longer in time than wave 3, which Neely likes to see. Next, when we draw the channel from wave 2 to wave 4, with a parallel copy on 1, we find that wave 3 is somewhat outside of the upper bounds of the channel. This helps indicate that wave 3 is the wave with the most amount of momentum.

It turns out in this chart, the maximum of the MACD is on the b wave of that triangle, not on wave 3. Fooler? Or does it just represent the power of an out-sized b wave. Then as Neely correctly predicts, the out-sized b wave leads to a "failure" wave. The c wave of the triangle does not break the b wave low. There are some things Neely has gotten exactly correct, there are other things which have not passed the test of time.

After the triangle, wave 5 breaks out with five quick waves up - which is almost, but not quite - the size of wave 3. The fact that wave 5 did not exceed wave 3's length, shows that wave 3 is the extended wave in the sequence and should be denoted x3. The MACD does diverge on wave 5, as expected.

Now I know that most of you hate this b wave. You will look for another way around it, like putting "three" at that high, and saying there was only a double combination downward after it. Fair enough. But, keep in mind, we have said that by the principles of degree labeling it is very hard to find ways where the third wave can exceed the 2.618 Fibonacci extension level.

Further, the Elliott Wave Principle indicates that the "running triangle" is a very common structure - particularly in strong markets. And, the triangle indicates the "last wave in the sequence" is dead ahead - which it was. The downward wave has overlapped a prior wave and appears to have broken the channel lower. Beyond that - since fourth wave triangles provide alternation for any type of second waves, having a triangle here "cleans up the mess" left by trying to determine if wave 2 was a flat or not.

Again, this analysis of a current chart took only 15 minutes - start to finish - although it took longer to write about it. Yes, I can actually analyze impulse waves. I do it all the time, and this one  is quite messy at that. Hopefully, analyzing a current impulse independent of anyone else's view might prove helpful to you and lend some additional confidence to what I do.

It is many of these above characteristics that I can not find in the current stock market rise. Is the current rise just like that little (sic) b wave, above? Only time will tell. The question is not how I will count it. The question is how will you? Or .. will you even bother...

Have a good start to the day.
TraderJoe

P.S. At the risk of generating any 'degree violations', I tried to clean up the 'bottom' of the above chart. Below is a four-hour chart in what clearly looks like an expanding diagonal off of the bottom and a deep >80% retrace as a zigzag and back to a prior fourth wave, at that.

US Ten Year Note Futures - 4 Hr Chart - Expanded Diagonal

This, now proven and not potential, diagonal would be of the 5:3:5:3:5 variety. And, yes, I do have a lot of questions about this count. But I have to say this. Of all of the Elliott wave patterns this one is the least frequent, and therefore the most difficult to study. But this would not be a small diagonal. It occurs on the four hour time frame, by gosh. But, it seems that the internal overlaps of the diagonal require the count, as do the subsequent waves of the further impulse that follows. It is also characteristic of some leading diagonals that they have the "deep retrace" afterwords. So, the wave personality seems to fit, as well.

51 comments:

  1. Joe, when you get a chance, can you provide your longer term roadmap? The last I recall the roadmap was a diagonal wave 1 from the Oct 2018 highs. Now that we'eve been talking about the trend up from Dec lows being a B wave with higher high than Oct, it implies we're in a corrective structure and that the Oct 2018 highs are no longer 'the top'. In other words, we should expect the current levels to be exceeded in an impulsive fashion in 2020 or 2021. Did I get that right?

    Thanks in advance.

    -TJ

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  2. The Dow cash has broken it's lower potential diagonal trend line to the down side (see yesterday's post). The YM futures are sitting right on that lower trend line of the potential diagonal. The other post-pattern confirmatory steps are required.

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  3. Here is a very interesting pattern formed on the Russell 2000 futures in real time. We don't know whether the diagonal is 'Leading' or 'Ending'. We only know that it looks, measures and counts properly.

    https://invst.ly/amb-s

    TJ

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    1. Here is now a "deep" 78.6% retrace of such a potential diagonal back to a prior 4th wave.

      https://invst.ly/amc-2

      TJ

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    2. Here's how this has worked out in 'real time'. There are five-waves down, and for the count to be valid, the 'c' wave at the 1,598 level must hold.

      https://invst.ly/amdci

      TJ

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  4. https://pbs.twimg.com/media/D42UM2NW0AIUbtg?format=jpg&name=large

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    Replies
    1. Just another cartoon. Can't have the interior ((i)) be longer than (1) of black (3). That is just another clear degree violation. You are naming it as a 'lower' degree wave, but it is longer than it's larger degree wave. Further, your brown (4) takes less 'time' than your brown (2) which would be very 'odd' given all the work I've shown you. There is also questionable alternation between waves brown (2) and brown (4) because of their higher b waves. Further, we know that what you are showing as C down of brown (4) was only in 'three' waves, not five. Therefore, your labeling there would have to be W-X-Y.

      It is very clear I have been writing this blog for nothing. Your count makes me want to stop.

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    2. Your work is appreciated and I am humbled by the time you sacrifice towards this blog and your generosity relating to the information you provide.

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  5. TJ, Thanks . Learning a lot.

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    Replies
    1. Replies are not generally provided to the Unknown account. Please select a user name.

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  6. I added a P.S. to the chart above.

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  7. Good Afternoon TJ,

    Just received Bloomberg email with the heading "What if the bull market just never ends". Pundit in the article states "stocks are still historically cheap". Certainly sounds like ole Irving Fisher's "permanently high plateau" quote.

    More and more evidence piling up that sentiment is extreme and very few are expecting a downdraft.

    Thank you for offering a sane countervailing opinion,

    Regards,

    Andrew

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  8. The initial comment on the Jan 5, '19 post was as follows:

    Or the start of wave B to retest Jan '18 high? Or B to new highs for an expanding flat?

    The response given was as follows:

    Elliott_TraderJanuary 5, 2019 at 12:38 PM
    No, it is already way longer than (4); that is a degree violation.

    Now that we have actually retested (and exceeded) the Jan '18 high, and have come within just a few points of a new all time high (so far), this obviously raises a question. It would appear in order to eliminate the alluded to degree violation, a change in count(s) at some degree level would have had to be changed.

    In order to update all of us here, a simple question:

    What specific change(s) has/have occurred to eliminate the degree violation cited in the January response?

    Thank you!

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    Replies
    1. None. As far as I can tell, it is a 'larger degree' fourth wave. Not a smaller degree one. That's not going to play well in Peoria.

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    2. Interesting, I gave up on traditional EW patterns for 'larger degree' 4ths a few years back with the price gains of this bull run off 2009. I have learned more since then (and learned about Neeley's patterns - which I am not sure I buy into) so maybe I should revisit.

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  9. Thanks, TJ.
    Love your conviction and supporting work for explanation!

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  11. I'm not sure I follow you. If there has been no change in a count at any degree, then would you not have been expecting to see a larger degree 4th and not seen a degree violation in Jan?

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    Replies
    1. No. I have been looking for a "larger degree" wave since the October high. It was only a question of how the larger degree fourth wave started - with a :3 or a :5. Fourth waves can start with either. This one started with a :3. Still on track.

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    2. Then how was the suggestion of a possible flat a degree violation if a 3 wave was deemed to be a possibility at the outset, and a larger degree wave was expected? I can't see how that makes sense?

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    3. The wave took more 'time' and covered more price that the prior 4th degree wave from 2015 - 2016.

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  12. The Dow Futures (YM) are now below, 1) their trend line, 2) their prior wave ((4)), and 3) they are working on the prior b wave now.

    https://invst.ly/amohl

    TJ

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    Replies
    1. The YM futures have taken out that prior b wave.

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  13. The Russell 2000 futures (RTY or TF) now have a 2.618 x wave from the high we showed yesterday as a diagonal.

    https://invst.ly/amp1l

    TJ

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  14. Replies
    1. at what level (daily, 1 hr?) and reproduce the last chart if you can. I'm curious also in terms of where GLD and miners are headed. Thx

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    2. Flat since the 18th, I'm on the phone, will try and get something up tonight.

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    3. Was not a three, gave it all back.

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    4. Rejected at mid channel. That may be all it can do if the count is right.

      https://imgur.com/4HuKwQk

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    5. BBRider:
      fwiw, I had c of Y completing on 4/23. Would be looking now for 5 waves up from there.

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  16. One last question:

    Specifically, what 3rd wave (beginning date/ending date) is this larger 4th (possible flat) correcting?

    Thanks!! Just trying to be sure I know where we are in the bigger pic.

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    1. Read this post, it can help you.
      http://studyofcycles.blogspot.com/2018/11/confidence-level-of-down-market.html

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    2. Fyi - R. Prechter of Elliott Wave International yesterday published the Expanding Triangle scenario (as his main count) at the lower degree. I did rule that one out for degree reasons (length and time) in paragraph 14 of the post at the above link. But in order to do it, he had to go back and re-label all of the waves since 2010, and create 'new' degree violations where there were none before. I don't think I'll be going that route.

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  17. RALLY LOOKING FOR AN EXXON STATION?

    Viewing monthly charts, the Dow and the S&P have formed triple tops with a two negative divergences.

    http://tos.mx/XccQri
    http://tos.mx/dUrQfS

    The Nasdaq has formed a double top with a negative divergence.

    http://tos.mx/DmASln

    The Russell is the only index in which price is in sync with the true state of momentum.

    http://tos.mx/DmASln

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  18. Joe, per your count above, yields could really come crashing down!
    Thanks for the analysis

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    1. Your welcome for the analysis Walter. But be careful about the interpretation. First, a five wave move up should have a significant retracement - which means yields would go up first. Then the longer term weekly has a prior five-waves up - which means to only look for a retracement of it - maybe 62%.

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  19. Gold bears watch out. Is this week the Gold weekly base bar? Is it a buy above last weeks high 1295.2?
    https://www.tradingview.com/x/oV7QjiTF/

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  20. Thanks Joe,
    I'm trying to piece together a bunch of info from several posts. Are you saying that October was beginning of a fourth wave, which should be longer in time and price than the lower degree fourth wave which was 2000 top to 2009 low? This count puts internet bubble as iii of 3 and v of 3 was march 2009- oct 2018.

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  21. That count seems to be the alternative that I have been asking about. It has never been clear from any posts if you believed October was marking all of a multidecade+ 5 wave move - but rather 5 up from March 2009. The price movements and degree violations since the October count have eliminated the latter.

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  22. I am not an elliotician by any means but I like to find a count that matches my current view based on options open interest and stock patterns. Can anyone provide a valid count where we go down to around SPX 2700 by May or June and then rally to a final high between SPX 3200-3400 by Oct or November?

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  23. Wouldn't Joe's be a b wave followed by a c wave that breaks below SPX 2700 and down to a new low below the December low?

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  24. no this b wave can be complex and can allow for a leg down and another leg up. wait and see if he agrees

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  25. There is a new post started for the next day.

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