Rescued at the Close

U.S. Debt Clock: $22.93 Trillion; prev $22.93
ES Daily Candle: Lower High, Lower Low, Lower Close: Yin-Yang Candle
Market Posture: Neutral-to-negative and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Up (Settle Above 18-day SMA)

Earlier in the day, in the comments, I published a possible fourth wave in a channel diagram for the ES hourly futures. You are encouraged to review that chart. There is one modification that allows any higher all-time high to be a completed impulse (overall, upward). 

The Dow hourly chart is intriguing and is shown below.

DJIA - Hourly - Potential Diagonal

The "rescue" at the close refers to the fact that this pattern, and the fourth wave of the larger impulse pattern were prevented from failing today by a sole bar in the last hour. Further, the ES daily slow stochastic, which was in jeopardy of losing it's embedded reading, was also prevented from going below the 80 level by the cash settlement.

IF the above Dow diagonal forms properly, and if the larger "impulse in a channel completes properly then it might be possible to label the minute ((a)) waves at the same location, and begin monitoring for the minute ((b)) waves. Again, the above potential diagonal must form properly in every detail, including a wave ((4)) that remains shorter than wave ((2)), and a wave ((5)) that remains shorter than wave ((3)).

The market is clearly jerking prices around as it is buffeted by trade news, poor manufacturing growth, and the latest impeachment resolution. Still, there is an upside bias as given by the 18-day SMA, so now - as always - is the time to be flexible, calm and patient.

Due to being near to a potential fifth wave location, my market posture has changed to neutral-to-negative from just neutral (this is not to be taken as trading or investment advice).

Have a good start to the evening,
TraderJoe

Japanification (No Inflation = No Hikes)

U.S. Debt Clock: $22.93 Trillion; prev $22.93
ES Daily Candle: Higher High, Lower Low, Higher Close: Outside Candle Up
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

Today, the FED lowered short term rates, the quarter-point, as expected. But, with the look of a scared puppy-dog, Chair Powell said this rate is "appropriate", and they removed some words that were previously signalling more rate cuts - meaning something like, "this is it, for now".  But, then in the following news conference he answered a question stating (paraphrase), "if inflation does not increase, then there will be no rate hikes". This essentially meant, "we're on hold for now, but don't expect to normalize the balance sheet, or get any rate hikes without inflation". Wow. Welcome to Japan, Inc, USA.

Long before the FED announcement and meeting, and in continuation of the work done yesterday, we published a partial chart in the comments indicating that The Eight Fold Method was showing that an impulse upward on the hourly time scale was very, very possible. Here is the continuation of that chart at the futures settlement.

ES - Hourly - The Eight Fold Path Method

We published the chart when the lower lows of the day were in place, with about 134 candles on the chart, and EWO had just gone below the zero line but not by more than -40% of the peak value. (If you are not familiar with this method, please see the Featured Post on this blog).

You have to admit - when the market is impulsing - this method shows it quite well. When it is not, we then have to noodle what kind of non-impulse structure is taking place.

The Dow made a marginal local higher high today (not a new all-time high), and we wonder if it is not forming a diagonal instead of an impulse. While we will watch Facebook and Apple earnings with interest tonight, it is, as we said, possible that the minute ((a)) wave is extending from a diagonal to an impulse, as was discussed in yesterday's blog.

The fifth wave, ((5)), above, looks like it could use another wave series upward, and therefore may not be over yet. But, the invalidation of that would be any movement below ((4)).

Have a good start to the evening.

TraderJoe

Clarity Required

U.S. Debt Clock: $22.93 Trillion; prev $22.93
ES Daily Candle: Higher High, Higher Low, Lower Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

Yesterday, we said that if there were higher highs, it was possible to begin to make an impulse out of the minute ((a)) wave up, which started out as a diagonal. This morning there were higher highs - for a few brief moments. The three-block below shows why this 'third wave up' consideration is possible using the S&P500 cash, the NDX cash, and the DJIA cash indexes.

Is the Minute ((a)) Wave Extending?

You can see on the left and the middle, that is is possible to consider a short, running flat wave ii, (in the SP500) followed by a five-wave-up wave for wave iii. In this case, wave iii would be shorter than wave i. That is OK. There is no rule preventing it. The rule is simply that wave three is not the shortest wave.

But the Dow seems to be having none of it, and had not made an extension up yet that allows enough room for a fourth wave without overlap. So, is minute wave ((a)) still in progress? More waves are needed. 

With the FED announcement tomorrow, and such uncertainty in the wave pattern, it seems best to let a few things shake out. For the "diagonal-turned-impulse" sequence (ala the first two charts) there should not be overlap on wave i, as shown by the red dotted line.

And yes, if minute ((a)) was completed as we originally indicated, and as shown on the Dow chart, then it is possible that the wave ii, and a are really the minuet (b) wave after the diagonal minute ((a)) and we have started minute wave ((c)), upward.

Flexibility, patience and calm are required as well as some quick thinking here to see what wave pattern is becoming most prominent. So, get some rest, and ...

Have a good start to your evening.

TraderJoe

Higher High Day

U.S. Debt Clock: $22.93 Trillion; prev $22.91
ES Daily Candle: Higher High, Higher Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

Yesterday, we said we suspected the larger daily triangle was, in fact, completed. Today's higher closing high day sealed that case. Stocks gapped up moderately at the open, made their high of the day (in futures) of 3,042.75 at 10:30 am ET, and then began to push downward. By the end of the session, neither the high or the day or the initial low of 3,034.50 in futures was exceeded.

The fact that we have made the higher all-time daily high - while APPL exceeded it's diagonal - tells me that the daily and weekly count I've published of  the Intermediate (B) wave, is very highly likely the correct one.

I will publish more charts with counts once we find out the answer to this question: "Are we headed down in minuet (c) of minute ((b)) as of today's high, or, are we possibly still in the minute ((a)) wave upward?" 

The answer depends on whether there are additional overnight gaps upward or not in the next few days. If we started with the diagonal, but add a full third, fourth and fifth wave, then it would be possible to consider a 'five wave move up', starting with a diagonal. As of this time, we are not there.

Therefore, it is still time to remain flexible, patient and calm. So far, the longer term road map has gone as plausibly laid out in the weekend video. Higher highs have resulted. AAPL has busted it's diagonal higher, and therefore, this is likely NOT the ending diagonal Intermediate or Primary fifth wave that several sites and casual analysts are ascribing to this wave in error. 

The daily slow stochastic remains embedded over the 80 level, and the price bias remains up as long as prices are over the 18-day SMA.

Have an excellent start to the evening.

TraderJoe

Triangle Seen as Completed

In my humble opinion, the large daily triangle we have been noting as of October 17th is completed. We saw a way to complete it then, and it still appears to be a done deal. We have counted the minute wave ((a)), up, as a diagonal, and it is likely a leading diagonal. See chart below.

ES Futures - Daily - Triangle Wave X appears Completed

As of this time, it does not appear to me that there is a satisfactory minute ((b)) wave, down, yet. There is nothing wrong or incorrect (that I have ever read) about a flat wave following a diagonal. Let me say that again: there is - from what I have read - nothing wrong with a flat wave following a diagonal.

What would be odd is another triangle of the same degree immediately following a diagonal. Why? The triangle and diagonal are "cousin" patterns. They both consist of five overlapping waves, and to have a triangle minute ((b)) immediately follow a diagonal minute ((a)) would be poor form. It would be poor alternation.

So, here is the best short term count I can develop.

ES Futures - 4 Hr - Minute ((a)) and Flat Minute ((b)) ?

The possibility of a flat wave in this location was discussed before, but when it apparently ab-ended prematurely, perhaps I just did not give enough 'time' for the minuet (b) wave to develop fully. Such a count would allow the minute ((b)) wave to provide both more time and more depth for a more full correction of minute ((a)). As shown, minuet (b) is shorter as an up wave than the minute ((a)) wave, and thus the pattern and its subwaves fit within the allowable degree considerations.

I think this pattern would also confuse the daylights out of others who may try to extend the triangle count. That is always to the market's advantage to do so, thus it makes some sense.

For this count, a down wave would likely begin on Monday, and perhaps go into the Federal Reserve announcement on Wednesday.

Have a very good rest of the weekend.
TraderJoe

P.S. Readers of my blog would also do well to watch this brief video. LINK.

Maybe Yes, Maybe No

U.S. Debt Clock: $22.91 Trillion; prev $22.91
ES Daily Candle: Lower High, Lower Low, Higher Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Up (Settle Above 18-day SMA)

IF yesterday was wave i, down of (c), as we indicated, then it is possible that today was ii up. The cash market retraced almost 62%. The futures market retraced nearly 78.6%. Unfortunately, the invalidation level for wave ii is back up at the high of 3,014.

For that reason, there is not much to update, until we get some clarity on this issue.

Have a good start to the evening.

TraderJoe

Start of Minuet (c) Wave

U.S. Debt Clock: $22.91 Trillion; prev $22.91
ES Daily Candle: Higher High, Higher Low, Lower Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Up (Settle Above 18-day SMA)

There were about 5 - 7 points of positive movement in the ES futures overnight and the futures got up to 3014. Likely that was related to relatively positive news about the Canadian elections. That was given up and then some by 04:00 ET, still in the overnight session. The cash market opened up, and the futures tried  to bust the 3014 level four or five times. They couldn't. That level is where the minuet (b) wave is 150% times the minuet (a) wave in the chart below.

ES Futures - Hourly : (b) = 150% x (a)

Prices battled within the new hourly up trend channel for the (b) wave for several hours. There was all sorts of difficult news including an earnings miss by MacDonald's, problems with Boeing, and problems with Brexit. At 14:40 ET we noted that price was leaving the hourly channel to the down side on a divergence with the hourly MACD, and it fell quite hard. It took out the prior up wave in less time than the wave took to form. At this point, it only looks like a first wave down.

If the minuet (c) wave has started in earnest lower, there could easily be backing-and-filling for a second wave. A first price target from a wave counting perspective would be 1.62 x (a) subtracted from the (b) wave high. The (b) wave count is very difficult - as they typically are - and appears to be either a double or triple zigzag. (Notice that if you tried to count the wave as an impulse, then no part of a supposed third wave broke the upper channel boundary). And the last wave may have truncated a bit.

With the upward (b) wave measuring inside of 150% x (a) wave, then it is not as prone to failure, as if the (b) wave was greater than 162% x (a). So, we should expect price to move below the minuet (a) wave at some point, and could get to the 18-day SMA, or lower. (Nothing here is intended as or is to be taken as trading or investment advice).

Have a very good start to the evening.

TraderJoe

Three Waves down and Three Up

U.S. Debt Clock: $22.91 Trillion; prev $22.84
ES Daily Candle: Higher High, Higher Low, Higher Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Up (Settle Above 18-day SMA)

The minute ((a)) wave is shown at the upper-left side  of the chart. After only three-waves down from that wave, which were called properly in real time, we said virtually any type of "three-wave" structure could form for a minute ((b)) wave, down, and possibly take us to the 18-day SMA.  That could be a zigzag or series of zigzags, a triangle or a flat.

ES Futures - Hourly - Near Equal High

Today, prices rallied to a "near equal high" with the prior wave, and certainly rallied slightly beyond that 90% retrace level shown by the Fibonacci ruler and the blue arrow. Thus, prices could have created the structure of a three-wave a:3 wave down, and a three-wave b:3 up, which could mean that the minute ((b)) wave will form as a flat wave. And, if that is the case, then the most common expectation is to form a c:5 wave downward.

One of the reasons I favor the flat interpretation at this time is that the upward wave is almost equal in time to the downward wave. So, typically, by the principle of alternation, the next wave in the set will break that pattern.

For the present, it would not be good to assume too much until prices are again below the ((B)) wave shown from Friday. The reason is, there are still ways the market could exceed the high, IF the b:3 wave of an expanded flat is to be constructed, instead.

So, we may well be in the b wave of a ((b)) wave of a (B) wave. Do you wonder why the Elliott count might be sloppy and uncertain at times? Thus, patience, flexibility and calm are especially needed at this time.

Have a good start to the evening.

TraderJoe

Minute ((a)) Complete

U.S. Debt Clock: $22.84 Trillion; prev $22.84
ES Daily Candle: Lower High, Lower Low, Lower Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Up (Settle Above 18-day SMA)

Last night we asked readers to keep an eye on the overnight futures. Although prices started down somewhat last night - on data out of China - the price decline accelerated a bit in the pre-market when the U.S. Leading Economic Indicators also came in negative. As a result, the lower trend line of the two-hour diagonal was broken, as in the chart below.

ES Futures - 2 Hr - Minute ((a)) Likely Completed

The Elliott Wave Oscillator turned negative, and that price shelf we discussed at 2,954.75 broke lower, along with the prior wave (iv) as we identified it. Further, yesterday's 'spinning top' candle appears to have a confirmation lower close candle following it.

However, during the decline in the cash market, we noted that to this time there were only three waves lower. A rally started at about noon, and can be counted as five-waves up in the futures. So, any number of structures is possible, including a flat, a multiple zigzag, or a continuation of the downward wave as an expanding leading diagonal (it would likely be an 'a' wave, down, if it occurred.) Right now, such a downward wave looks exceptionally shallow. We will try to provide more clarity as the wave progresses, but a first wave-counting target might be the 18-day SMA at 2,955 (not to be taken as trading or investment advice).

Please reference yesterday's post for the daily chart as needed.

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

TraderJoe

Triangle Continues - 3

U.S. Debt Clock: $22.84 Trillion; prev $22.83
ES Daily Candle: Higher High, Higher Low, Higher Close: Spinning Top
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

As if right on cue, each of the major stock index futures (the ES, YM, and NQ) made higher highs this morning within the 12 - 18 hours from last night's 5 PM post. The S&P500 cash index did also. The only problem is that the Dow cash did not - although, again, it's futures did. Yesterday, we did mention the possibility of failures at this level. Did the Dow cash fail? Let's see what tomorrow looks like to help answer that question.

So, there are sufficient waves to say that an upward diagonal is properly formed in the majority of the futures contracts. This may be sufficient for the minute ((a)) wave, upward, as below.

ES Futures - 2 Hr - Enough Waves for a Diagonal

After 10 AM there was the two-hour bearish engulfing candle that can be seen at the point of the current wave (v). So, a diagonal could very well be complete here. However, if you drop the lower trend line to include all of the current candles, it is possible that today only resulted in wave (iii) of the diagonal. That is shown as ALT: (iii), above. This is why it is so crucial to keep a close eye on the overnight futures at present. Today's down move did not take out that 2,954.75 level in the ES futures which we said yesterday was a well-tested shelf. So, like it or not, there is the clear possibility of one or two more marginal highs in this pattern as the Elliott Wave Oscillator continues to diverge from price.

From a daily perspective today's spinning top candle would require closing confirmation lower - as with all one day candle patterns.

Minute ((a)) may have ended. Whenever, it is confirmed to end, then it would fit into the potential triangle continuation count in this fashion on the daily chart, below.

ES Futures - Daily Close Only - Continuation of Intermediate (B)?

We can not stress it enough. We are in an Intermediate (B) wave. It is not a daily diagonal - as some suggest - because we have shown the lengths of a daily diagonal are incorrect. But all (B) waves are highly intractable affairs. Their very purpose is to trap money in at the highs. That's why they are termed "phonies" in The Elliott Wave Principle by Frost & Prechter. And, the expanded flat "b" style wave can always travel to 1.27 or 1.38 times their respective three-wave "a" wave. And that's what we had at the December, 2018 low - three waves down of Intermediate degree. I'm going to leave you to do those Fibonacci measurements as an exercise - especially if you are relatively new to Elliott Wave theory.

So, we'll take it step-by-step.  Clearly, for the continuation count there should be a new all-time-high. Perhaps the FED meeting near the end of the month (Oct 29 - 30) will provide some additional clues.

Have a good start to the evening.

TraderJoe

Triangle Continues - 2

U.S. Debt Clock: $22.83 Trillion; prev $22.83
ES Daily Candle: Lower High, Higher Low, Lower Close: Inside Candle
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

The diagram of the potential diagonal in the upward direction is dependent on making another new local higher high in the ES 2-hr futures, as shown below, with prices at the daily settlement.

ES Futures - 2 Hr - Potential diagonal

A new local high above (iii) should happen within the next 12 - 16 hrs or less based on the prior waves. Unfortunately, because we are likely in the larger daily triangle, failure is an option here. In the above chart, the first three waves, a-b-c, are sub-waves of the larger degree wave (i) in order to prevent degree violations.

Then the question will become is the diagonal leading - as with a minute ((a)) wave - or is it an ending diagonal, as with a larger minute ((d)) wave in the triangle, or the end of the move altogether? (Hint: degree labeling argues slightly against the ending version and slightly against a failure). In either case, the upward count is getting temporarily mature, and a downward wave - even a minute ((b)) wave - should be expected after a slight new local high.

All night and all day - after the 2,984.75 low was made in the ES futures - the futures hammered against that level. I can count 14 to 15 spikes down against it, and it held. So, right now, it is a very important level, and breaking it lower would likely be significant.

Have a good start to the evening.

TraderJoe

Triangle Continues

U.S. Debt Clock: $22.83 Trillion; prev $22.82
ES Daily Candle: Higher High, Higher Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

Yesterday, we made an interim post as a heads up, that there were only three waves up and a failure could have resulted. But, we plainly stated it was only a potential count and that the point loss on the day was minimal. Further, price settled above the 18-day SMA and the daily slow stochastic was not over-bought. We said - because of only 'three-waves-up' - that any upward further progress might be by diagonal wave, and we could wait to see if a diagonal started forming. Today it did.

So, the flip side of the completion count is the 'continuation' count where the large daily triangle is now likely a continuation pattern and not a terminal pattern. Here is the chart below, showing the triangle as the likely continuation pattern.

ES Futures - Daily Close - Continuation Count

So, if an upward diagonal forms properly, it would likely be the minute ((a)) wave of the Minor Y wave. Then, there should be a pull-back for a minute ((b)) wave, to be followed by a minute ((c)) wave higher to end the Minor Y wave.

Again, the purpose of this Y wave would be to see if the Intermediate (B) wave wants to get to 1.27 or 1.38 times the length of the Intermediate (A) wave down to the December, 2018 lows. It is fine with us if it does.

It is worthwhile for the next few days to pay attention to the overnight futures and earnings. Today, the bank earnings were the driver. It will be interesting to see other non-financial sectors, soon.

If we get a diagonal minute ((a)) wave up, we will post it in the comments. As of the settle we were waiting for wave (iii) of such a diagonal to overlap wave (i).

Until there is more to report - have a nice start to your evening.
TraderJoe

Potential Completion Count - Interim Post

In the event the market makers want to try to fake us all out, here is a potential completion count for the Intermediate (B) wave. The count is read as Minor Y = Minor W in time, and Minor Y of Intermediate (B) ends as a terminal triangle.

ES Futures - Daily - Y = W in Time

The reason for this count was the "three wave" up wave to Friday's minute ((e)) wave that I asked readers of the blog post to watch for down side overlap on. The down side overlap did occur in the overnight futures. This makes it somewhat problematic to get an upward wave - unless such an upward wave starts with a diagonal. We can certainly await to see if an upward diagonal forms. Notice that the ((e)) wave does not end on the ((a)) to ((c)) trend line - just like an ((e)) wave is supposed to in a triangle.

If an upward diagonal A or 1 wave forms from here, then the entire triangle structure becomes Minor X because the entire triangle would be longer in time than W which would mean that that the triangle is of the same degree as W. In the case of the alternate, the triangle would be a continuation structure instead of a terminal structure.

Better confirmation of the completion count would occur if the futures trade below the minute ((d)) wave of the triangle.

Have a good start to the afternoon.

TraderJoe

P.S. After the settle - the ES futures settled above the 18-day SMA, so prices - for the time being - have a positive bias. And the daily slow stochastic did not enter the over-bought zone by the settle. So, there will not be a further update. Key your eye on the overnight futures for the next several days.

Settle Above the Line in the Sand

U.S. Debt Clock: $22.82 Trillion; prev $22.82
ES Daily Candle: Higher High, Higher Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Up (Higher High, Higher Low)
Daily Bias: Up (Settle Above 18-day SMA)

Yesterday at the end of the session we counted five-waves-up, and showed that chart. We indicated that the 18-day SMA could be a first target. Today, on tariff and trade talk day, the market was brilliantly hopeful of a completed deal, rallied up through the "line in the sand" and closed there - but had it's hopes dashed a bit at the very end of the session and there was a bit of "sell on the news". The news was somewhat disappointing as it is a phased deal and, today, only phase one was announced - but it still has to be signed yet.

First a look at the daily chart. The daily slow stochastic indicator is still pointed up, and it is not in over-bought territory.

ES Futures - Daily - Higher High

The Dow futures (YM) just managed to eek out an impulse with an extended first wave today. The chart is below. The ES futures missed it by just 1 point, and may have simply been a truncation due to the number of stocks in the index.

Dow (YM) Futures - 15-minutes - Completed Impulse

The chart above simply carries on from yesterday's "five waves up". We think if it is not counted this way, then several degree violations result. The strength of the count in the ES was that wave (iii) came out precisely at 0.618 x wave (i) which is very, very often what one sees when the first wave is the extended wave. Wave (v) is less than (iii) which is less  than (i), and no rules are broken.

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

TraderJoe

No Resemblance

U.S. Debt Clock: $22.82 Trillion; prev $22.81
ES Daily Candle: Higher High, Lower Low, Higher Close: Outside Candle Up
Market Posture: Neutral and Probing
Daily Swing Line: Neutral (Higher High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

If you followed the ES futures market overnight, you know that the suggestion we have been making for days came true last night. There was a lower low which did not exceed the 2,855 level, lower. And then prices headed higher to exceed the high of yesterday's candle and close higher. The daily chart is below.

ES Futures - Daily - Outside Candle

The difficult thing, of course, is that the cash market bears almost no resemblance to the futures market. The 40+ point over-night dip in the futures? Non-existent in cash. Notice the missing tails of the cash market in the comparison chart, below.

ES Futures 4-hr vs Cash 1-Hr

Also notice that in the after-hours tonight, the futures are putting on a "fifth wave up" today which the cash S&P500 market can not because it is closed. Perhaps SPY can. Regardless, more and more invisible waves to deal with.

Now back to the first chart, the usual first target is the 18-day SMA at approximately 2,960. There may be some resistance there. If a higher overall high in the futures is made then we'd need to see a pull-back that holds the lows to continue a third wave or larger C wave count, upward.

Oh, and here is the hourly chart, again. I doubt anyone can document that they called this sequence as we did.

ES Futures - Hourly - New Local Low as Projected for Wave c

Remember that our rationale for this count was that the correction downward probably needed to become longer in time than the impulse upward. We said that would likely happen with last night's over-night waves. It did. If you are curious, the b wave may have been some type of triangle. We're just showing its 'highest high'.

Have a good start to the evening.

TraderJoe

Some Pretty Precise Calls

U.S. Debt Clock: $22.81 Trillion; prev $22.81
ES Daily Candle: Lower High, Lower Low, Higher Close: Yin-Yang Candle
Market Posture: Neutral and Probing
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

With some fairly precise timing for a daily blog, yesterday we showed you the ES hourly futures with five waves down in a channel and we asked you to watch for a breach of that channel to the upside. If you followed the markets overnight, you know that the upper limit of the trend channel was in fact exceeded, and prices returned to a 62% retracement level, as below.

ES Futures - 1 Hr - b Wave?

So now it is entirely possible the b wave up is over and completed. It is also possible for the b wave to take on other shapes. The trade talks have been in the news again, and a tweet can jerk the market this way or that. If the b wave is over, then a c wave down could begin in earnest. Again, if the downward pattern is to remain corrective to the upward one, then the low of 2,855 should not be broken. 

Sharp readers will note that - as of this time - the downward wave is not yet longer in time than the upward wave. It only needs a few hours (probably in the overnight) to become so.

Also with some fairly precise timing, on the S&P500 cash market, we showed this five-minute chart in the day's comments.

SP500 Cash Index - 5 min - b Wave?

We showed the pattern when it was at ((3)) or y and said it could be part of a diagonal or its twin cousin the contracting triple zigzag. Before the end of the session, longer red bars appeared, and the degree of the wave likely changed. Because the timing within an actual diagonal is questionable, there is no reason why this upward contracting wave could not fit perfectly well as the b wave of the correction in the cash market rather than the futures.

We show you this wave to plainly illustrate that not all contracting structures of this type are true ending diagonals. In particular, you will note that waves ((1)) and ((3)) are not above the high of their previous highest wave (orange line), and therefore do not express the typical motive character that is seen in these waves in a true ending diagonal. Further, wave z is somewhat longer in time than wave y, and therefore, this also brings into question a true diagonal structure. It's hard to say about wave w because of the gap that is involved.

Similarly, this being an overall b wave, it is possible but very much less likely that the above structure is a leading diagonal within the b wave. We only mention this for completeness and do assess its probability to be very much lower at this time.

So, keep these criteria in mind as the numerous web-sites and other amateur analysts scream that the weekly chart must be an ending diagonal wave. We think not. It is likely just Intermediate (B) wave, higher, in a somewhat contracting shape. And we have been saying the same thing for months.

Have a good start to your evening.

TraderJoe

Correction - So Far

U.S. Debt Clock: $22.81 Trillion; prev $22.81
ES Daily Candle: Lower High, Lower Low, Lower Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

After showing five-waves up yesterday (see left side of chart below), overnight the hourly ES futures were up about 16 points before turning lower. The cash market opened with a gap and traded much lower.

ES Futures - 1 Hr - Five Waves Up & Down

As per the chart above, we were able to count a non-overlapping 'five-waves-down' in the futures market by the cash close. There is the possibility this is the a wave of a correction, as the low of 3 October has not been exceeded lower, yet.

If so, an upward b wave should break above the upper channel boundary to slow things down a bit, and then there should be a c wave lower. As it was, prices hit the 62% retracement level and exceeded it somewhat. 

For any continued up trend, it would be best to see prices hold above the 2,855 low - even if this correction should travel a bit further lower.  At this point in time, the corrective downward movement has not taken as much time as the upward movement. It may just be that the market is trying to elongate the correction so it takes more time.

Can price movement just break lower, tomorrow, and keep on going? Yes, that is a risk to a corrective wave count at this point. But, until or unless we see evidence of that happening, then we will use the count as it seems at present. But, the $VIX now being often above 20, it should appear to most that things are quite a bit different then they had been when the $VIX would trade for days and weeks between 8 - 15.

Have a very good start to your evening.

TraderJoe

Higher High

U.S. Debt Clock: $22.81 Trillion; prev $22.78
ES Daily Candle: Higher High, Higher Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

ES futures initially gapped lower over night by about -22 points: not very much considering the recent gains. After the cash session opened, we noted that the 0 - 2 trend line had, in fact, been broken in the futures, and that a fourth wave lower was likely in the market. Two marginal higher highs resulted over the noon hour and early afternoon, and we concluded that this was likely the fifth wave up of an impulse.

A chart of the ES futures - showing this count - as it was called in near real time is shown below.

ES Futures - 30 Minutes - Five Waves Up

We noted that the fifth wave up occurred on a divergence with the Elliott Wave Oscillator, and then a weak close followed the fifth wave up. The futures settled lower by about -14 points.

It is just about impossible to tell if the "five waves up" represents a "1" wave or an "A" wave. Regardless, as five-waves-up, it should be respected until or unless it's low of 2,855 breaks. Any kind of three-wave correction could follow this wave (zigzag, flat or triangle) except a triangle - alone - may not follow a "1" wave.

This really does make wave counting testy, at best, at this point. So have a lot of patience. Be flexible and expect a lot of whipping around as the algorithms just try to knock traders out of the market. Best wishes to you.

Have a good start to the evening.

TraderJoe

Second White Soldier

U.S. Debt Clock: $22.78 Trillion; prev $22.77
ES Daily Candle: Higher High, Lower Low, Higher Close: Trend Candle
Market Posture: Neutral and Probing
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

ES futures prices were slightly lower in the overnight creating a flat wave for a small correction that was not very deep. When, the Payroll Employment Report came out lackluster this morning, the market rose immediately as the reasoning is that it will not cause the FED to back off from its accommodating stance. This created a candle known as a second "bullish white soldier" for the day.

ES Futures - Daily - Second White Soldier

Price traveled up to the higher of the two orange-dashed support and resistance lines and stalled there. Should prices move higher, the 18-day SMA could be the first target - perhaps with the third bullish white soldier. Even at this point, there is some overlap on the charts. The daily slow stochastic is turning up from an over-sold condition with prices recently below the daily Bollinger Bands.

The degree labeling on the above chart remains correct. There is only one downward alternate I can see at this time, and that is a fourth wave triangle, but it is lower probability at this time. It would require a lower low than today's candle, so it will not be discussed unless today's low is exceeded lower. Please stopping writing in about ending diagonals for this Intermediate (B) wave, and posting charts about it from other services. Wave ((a)) at the beginning of August in the futures is longer in price than X1, and that invalidates any such claim of a diagonal.

Perhaps there will be more over the weekend.

Have a good start to the evening.

TraderJoe

Trend Line Breach and Recovery

U.S. Debt Clock: $22.77 Trillion; prev $22.71
ES Daily Candle: Lower High, Lower Low, Higher Close: Yin-Yang Candle
Market Posture: Examining for a Fourth Wave
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

ES futures prices were steady overnight, then fell off sharply on the ISM - Non-Manufacturing report which showed a decline. The drop was initially still part of some type of third wave. Prices broke the trend line from minute ((a)) through X2 and stopped at a 78.6% retracement of Wave X2. (Keep in mind that many daily ((b)) waves are 78.6% affairs, as shown in the current alternate below). Then prices recovered the trend line and continued to close right on the lower daily Bollinger Band.

ES Futures - Daily - Nearing S/R

The real question now is, "Is a C wave or a wave 3"? The extent of recovery today was a bit greater than 38.2% of the third wave down. For a fourth wave, it is likely that the lower dashed orange line which was prior support should hold as resistance along with the 100-day SMA.  If it doesn't and the diagonal downward is overlapped upward, then it is possible that all of the waves since X1 are part of a sideways triangle. We shall see. A new low below today's low is needed to call a fifth wave downward.

Here is the hourly chart of the Dow, again, with today's price movement. We can not assume a fourth wave will be made properly. But, it is possible. Since, the second wave in the ES is definitely a flat, then more than likely a fourth wave will be a sharp or triangle. Today has a good start on that.

DJIA Cash Index - Hourly - Channel for a Fourth?

Today's fifth wave low was, in fact, divergent on the EWO as per The Eight Fold Path Method. And the EWO does have the signature of starting to work on an upward wave, like a fourth wave. But, this one could be a beast, and the Payroll Employment Report is tomorrow morning.

Have a good start to the evening.
TraderJoe

The Hole is Getting Deeper

U.S. Debt Clock: $22.71 Trillion; prev $22.64
ES Daily Candle: Lower High, Lower Low, Lower Close: Trend Candle
Market Posture: Examining for a Fourth Wave
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

Yesterday, we noted the case for extreme flexibility in counting these waves. We said we would not begin an upward count until the high of yesterday's candle was exceeded. With the overnight gap, lower, and subsequent follow-through, yesterday's high was cemented for the time being. Several of the better wave counters here noted the proximity to be able to make a 1.618 wave downward, and the market did that and slightly more. That being the case, this upward count, as a concluding wave possibility was published.

ES Futures - 4 Hr - End of Intermediate (B)

If the market has topped, and that seems more and more likely, then this is the best count to the Z wave of the Intermediate (B) wave. If you're concerned about the degree labeling, you can also make the case that iii is actually ((a)) in an expanded diagonal - as we showed in the Dow - and the triangle is minute ((b)) with a subsequent failure ((c)) wave. Either way, the effect is the same.

Have we, in fact, topped?

We know that price has overlapped the minute ((a)) wave up, in the downward direction, and that certainly is not good for any upward count. In the next days, we will be looking for a fourth wave as in the hourly chart below. IF the fourth wave forms properly and then makes a fifth wave down, then it is likely we will have topped. The only other alternate I see is three waves of a larger triangle, downward.

DJIA Cash Index - 1 Hr - Fourth to Follow?

Recall that the trick in the bull market was that the bulls never allowed fourth and fifth waves in the downward direction to form properly. So caution is still by-word until we see an impulse wave truly form on at least the hourly time frame. Also, note, with the overnight trading (Europe, Japan, etc.), there is no guarantee that the third wave has completed just yet. Certainly, the Elliott Wave Oscillator looks like a third wave.

Today in exquisite detail we counted out an ending diagonal - which ended a wave, and which was then exceeded upward by a three wave sequence on the 1-minute chart. You are encourage to review yesterday's notes.

Have an excellent start to your Wednesday evening, and remember that Friday morning is the payroll employment report.

TraderJoe

Reality Sets In

U.S. Debt Clock: $22.64 Trillion
ES Daily Candle: Higher High, Lower Low, Lower Close: Outside Candle
Market Posture: Neutral-to-negative and Probing Waves
Daily Swing Line: Lower (Lower High, Lower Low)
Daily Bias: Down (Settle Below 18-day SMA)

After we counted "five waves up", yesterday, we noted today was likely to see inflows from the usual sources (see yesterday's post). The first half hour brought in those inflows which was noted, and that created "one too many waves" for an impulse, i.e. a "c" wave up, as in the first chart below. Then at 10 AM, it was reported that the ISM - Manufacturing dropped significantly - to 47.8, the worst in 10-years per CNBC. The market reversed, and the Dow and the ES futures, in the after hours, made five-waves down, although the S&P cash did not yet. Here is the Dow cash.

DJIA Cash Index - 5 Min - Five Waves Down from High of Day

The move down was very choppy after the news announcement. And the move did not channel well. I do not have concerns about the degree labeling because wave ((1)) could have ended a couple of bars before the exact low. Hard to say.

Today "could be" near the end of the minute ((b)), downward, to the 38% retracement level, and to find support at the horizontal tops across the August highs. One should note that price has contacted the lower daily Bollinger Band (where the "Smart Money" sometimes takes some off the table), and the daily slow stochastic is in over-sold territory (a condition which, never-the-less, can persist).

However, we will again not be counting up waves on the daily chart until or unless today's high - the high of an outside day down is exceeded. At this point, we will try to count a retracement wave upward. Here is the daily chart.

ES Futures - Daily - Last Chance for Minute ((b))

Extreme flexibility and patience is still required. In theory, "B" waves can do almost anything they want. In this case, the minute ((b)) wave may not become longer in time than the X2 wave, as was noted yesterday.

Have a good start to the evening.

TraderJoe