Friday, May 29, 2020

Not Drinking the Cool-Ade Yet

Bottom Line: Three Waves Down Only

(Yes, I know how it is spelled). Today was a whippy day. The market as measured by the ES futures made a new daily low of 2,992. It had little reaction to chair Powell's remarks, but was turned around upwards when the president made his remarks against China but failed to put any teeth into them.

What we did today.
  1. We examined the overnight market and found a way we could count a five-wave sequence downward, and then a three-wave sequence upward.
  2. We labeled the fifteen minute overnight chart with those sequences, ((1)) - ((5)), lower and then ((A)) - ((C)) upward. They are shown in light blue from left-to-right on the chart below.
  3. We also added the day's pivots, as R1, PP, S1, and S2 (classic calculation).
  4. Because of the clear five-wave sequence lower, we expected a lower wave. It occurred. Price found support at the S2 pivot.
  5. Measuring that wave, downward it was longer than either (x) wave in the two hour chart. That meant a "turn-of-degree" is potentially possible - see explanation below.
  6. When the first up wave exceeded the length in price of the first three-wave sequence upward that we had counted, the ((A)) - ((C)) upward, we said the down count could only be a three-wave sequence a-b-c, although it might start a diagonal. 
  7. During the course of the upswing, in the after-hours prices approached the R1 pivot.
Here is the ES fifteen minute chart as of the daily 17:00 PM ET, close.

ES Futures - 15 Minutes - Three Down Five Up

At the end of the day, with both a likely degree change and possibly five-waves up, it turns attention to this count on the daily chart. Yes, this is a slightly different count, but still in a Minor B wave. Remember, at the outset I said the B wave could take almost any three-wave form, including a zigzag, multiple zigzag,  flat, or triangle.

ES Futures - Daily - Triangle B?

I have not categorically ruled out the flat wave, but a large move up Monday/Tuesday would do that as the up wave would become more like a 1.618 wave upward. So, the market would have to prove the flat wave by taking out the minute ((a)) wave, low, and so far it has not done that yet.

Please remember that price is still over the 18-day SMA, and therefore still has a positive bias, and further the daily slow stochastic remains embedded above the 80 level.

But, with the daily Bollinger Bands overhead, I say I am not drinking the cool-ade yet. That's because a further high on Sunday / Monday - remember Monday is the first new trading day of the month - would put us over the upper Bollinger Band, and price has a low probability of staying there - only about 5% of the time.

And a triangle in this position would make it harder for most analysts to follow, make it much harder for traders to profit, and yet still be in keeping with the usually lighter summer trading volumes.

Have a good start to your evening - and maybe a glass of wine, instead.


  1. ET, why do you not think B ended at little a and we are already well into C? I think this would be more likely, especially if you also consider djta, which is really not looking like a B wave at all. Did I miss the explanation before? Thanks

  2. I will have a glass of nicely chilled Riesling, Thank You!
    Enjoy your week-end all!

  3. FWIW - Tradingview's SP500 stocks above their 50 day ma data began in Dec '06. At no time (bull market nor bear mkt rally) had the 95% level been reached... until yesterday/today. Just something to reflect on (assuming their data is accurate).

    1. Correction - just yesterday. (Closing basis).

  4. Perhaps if look at with cash it may help with the overall view. Would you say cash made 5 waves down this timen around. So futures may make a high on sunday but come monday it has to cater to the cash count. Thks

  5. In the S&P500 cash market, that red circle Irregular b-wave (second chart) has already hit the 1.618 extension (came within 2 points of it). So I'd suspect any further upside may be limited to the futures market early overnight. In summary, would hazard a guess and say the interim top is in for a month or so; i.e. a 'June Swoon'.

    1. In addition to fundamental and technical metrics, the market is currently being powerfully affected by relentless liquidity injections. It really amazes me how folk keep doing the same thing over and over again while expecting different outcomes. Clearly fundamental and technical considerations are important, but if you ignore how, when, and where central banks add liquidity ( as some EW analysts do, erroneously imho) you will be wrong more often than right when it comes to market direction.

    2. There's a limit to how much influence central banks can add - you can't keep forcing people to buy at market values when fundamentals are degrading.

    3. @Tachyon,

      I think it was Luke Gromen on Twitter's feed where I read that the liquidity will be sucked out in June, because UST issuance is hundreds of billions in excess of Fed QE, so FedGov will suck up the cash, somehow. The most common way they create the demand for the USTs of course, is to crash the market a bit.

      Horse, cart, who knows which leads which, but the liquidity boost is effectively reversed for a few weeks now.

      No reisling for me, but a nice salted caramel ice-cream is a rare treat!

      I am curious TJ, why you went with cool-ade?

      Good weekend all, watch that gap down at low 2500s.

    4. Joe can you show a break down of a larger degree at the primary wave level? May be we can see some correlation between the end of the Fed stimulus and a downward move

    5. This comment has been removed by the author.

    6. Mobes I agree completely. I am of the opinion that the higher degree waves (Primary and above) are likely not affected by CB intervention. I spent a lot of time looking at price action since the March 2009 bottom and it is nothing short of astonishing how often impulsive looking
      three wave declines morphed into corrective structures. I really admire EW analysts who strictly apply the rules to the interpretation of the developing waves, but remain convinced that the claim by some that EW is predictive is fallacious. A,B,C as we have frequently heard, is initially indistinguishable from 1,2,3, undermining any such notion, thus requiring hindsight to determine the structure that adheres to all the rules.
      I have lost more capital than I care to admit because, as a young an gullible trader, I initially bought into that specious claim.

  6. Watchman, the with-holding of liquidity might indeed be in the works. I do think the current information we have about the economy (fundamentals) will increasingly over-whelm attempts to keep the bubble inflated, liquidity or not. The die, imho, is already cast....

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

  8. I asked this before but didn't get a response. You say "...the market would have to prove the flat wave by taking out the minute ((a)) wave, low, and so far it has not done that yet."

    As the minute ((b)) of a potential FLAT went 'over the top' then why would the minute ((c)) need to take out the minute ((a)) low? Surely the FLAT can finish above the minute ((a)) low.