Friday, August 2, 2019

Second Close Outside Lower Band

Today for the equities market, as measured by the ES E-Mini S&P futures, it was a another lower low day. It was also a second daily close under the lower daily Bollinger Band (18), as in the chart, below.

ES Futures - Daily - Second Close Outside Lower Band

As most know by now from reading this site (see this LINK) price has a random chance of closing outside of the daily bands of about 5% on any given day, at least that is the intent of the construction of the Bollinger Band (assuming prices are distributed in a Bell-shaped, or Gaussian, curve - which they are most definitely not!).

However, a rule of thumb is to subtract 1% for every consecutive close outside of the band. Therefore, with two closes outside of the bands the chances of prices closing below the bands on Monday drops to about 3%. There have been instances of 5 - 7 consecutive closes outside of the bands, and that is why the rule of thumb is only that.

Since the "smart money" usually takes some money off the table at the bands, it is sometimes wise to recognize that fact in wave counting. Notice what happened to prices at the middle of May, and the end of May when prices closed outside of the bands. (Past performance is no guarantee of future results).

Further, the daily slow stochastic is in oversold territory, although it has not curled up yet. It is possible and perhaps even somewhat probable that prices will come down to touch the 100-day SMA on Monday and / or Tuesday. But it does not have to occur. So, once again, it is time for caution, calm and patience.

And a reminder: upward wave counting will not begin until there is a higher high day.

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

8 comments:

  1. Thanks ET. Things are pretty stretched. I'm sure we'll get to and thru the 100 day SMA but I think we retrace first. I just observed YM, ES and NQ all have this same set up, namely a 1.382 relationship between the 2 portions of their decline separated by the biggest retrace. This is most interesting because 1.382 is a very common relationship between "a" waves and "c" waves. According to another well known Elliottician it is more common than 1.618. So we have 3 major US indices with this exact same relationship and is strong evidence for me we have completed a larger degree "A" wave at today's lows.

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    1. If my "A" wave assumption is correct we can do some math on the retrace. The internal "b" wave of the "A" wave was 457 points on the YM and 57 points on the ES. A larger degree "B" wave upward has to least match those price movements. Therefore we are looking for least 26704 and 2970 noting that prices are cash market equivalent prices and not nominal futures prices. This only about 1% or a little more from current levels. 2970 is actually the 50% retrace whilst 26704 is only at the 40% level. If I apply the "1.382 formula" for upward retrace the numbers come in at 26896 and 2973. The DOW gets a boost noting that Boeing has fallen 14% in 5 clear waves since this main decline has started and has only retraced 1.5% so far. A similar improvement in the DAX would suit as part of a iv wave. However the CAC really needs to outperform to make a decent retrace as part of its own "B" wave. Maybe Mario will step in and do some heavy lifting … who knows. If equity markets cannot get up and going to match the targets mentioned then my final possibility is a "B" wave triangle to burn up some time and refresh and reposition some oscillators for the next leg lower.

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    2. you are pretty certain low is in. what probability are you lookong at?

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    3. marc, having the 3 main US indices all exhibit the same a/c relationship can't be just coincidence. I think the market is trying to tell us something, it always does. We just have to find the clues. My concern is more with European indices. They look awful and haven't been able to rally at all … but next week is a new week. Milan and Madrid in particular look ready to fall off a cliff. However if one looks a bit closer without emotion one can find 5 waves down complete on those indices. The chief concern with these guys is if Wall Street rallies 1% to 2% European indices have lost 6%. Thus any similar gains in Europe will be very shallow retraces. However that is okay as long as the retrace is the biggest upward move which it still can be. There is no such thing as "certainty" in this game. All I can say is on what I am seeing the odds lean strongly towards the likelihood the initial drop is done.

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    4. There is a new post for the next day.

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  2. hi joe
    your weekly chart shows the decline to go on c (b) then up to look for Y
    is it still relevant?

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  3. A new post has been started for the next day.

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