End of Month, Beginning of Month

After seven-out-of-Fibnnoacci-eight straight up days, eight of which had higher low candles, and three of which closed outside of the upper daily Bollinger Band, price today settled inside of the upper daily band, thereby at least resetting the number of consecutive closes. In the process a "spinning top" candle was formed.

ES Futures - Daily - Spinning Top Candle

It was not the greatest of moves downward, but it is occurring at or near a reasonable location. The internal count can still go two ways (we could have topped or still be in a larger triangle or diagonal). A significant new lower low day was not made. That's one reason why a spinning top requires a solid lower close candle after it to confirm it.

Today was the end of the month. As we have noted before, this is often a "window-dressing" day with considerable sloppiness. Tomorrow is the first of the month and might see the typical inflows from pension plans, 401k's, company bonuses, dividend reinvestment plans and the like.

The daily slow stochastic is still embedded. Therefore, patience and flexibility are still required until there is adequate evidence of something different. Tomorrow being Tuesday, it could be a reversal day. For example, even with the spinning top, there could be a higher high, followed by a bearish engulfing candle, but it certainly does not have to occur that way. Tomorrow is also the first of the month of September, and sometimes September is a weaker month.

Yesterday, we showed a four-hour chart of the NQ futures, and pointed out the "double 1.618 extensions". Today, the NQ futures settled right on that second 1.618 extension, putting a tail on it. We'll see if that remains significant tomorrow.

Have a great start to your evening.

P.S. This chart tries to help clarify this short term portion of the NDX count. It is rare that the reader will get to see the true form of an expanded triangle (the so-called megaphone pattern), so I thought it important that all see this outstanding example.

The pattern on the left is the true expanding triangle. Notice how every one of it's alternate legs expands in both time and price. ((D)) has more bars than ((B)), ((E)) has more bars than ((C)), and ((C)) has more bars than ((A)). Notice too, that true to an accurate triangle wave ((E)) does not end on the ((A))-to ((C)) trend line. Now, price appears to be in another channel up.

TraderJoe

Massive, Nasty Triangle Coming in the NDX?

Let's get right to it. Let's have a look at the NASDAQ 100 (NDX) Index from a degree labeling perspective. The NDX is a much younger index than the Dow Jones Industrial Average, and it is composed of very much a different set of stocks. Therefore, you should get your head in the mind-set that it simply will count slightly differently than other indexes.

NDX Index - Monthly - Intermediate (B)

This first chart shows the most plausible count I can develop on this index that syncs with the Dow and the S&P500, even given the differences it will show. Where I believe the S&P500 has made a Primary ((A)) wave down, the NDX, being younger, has only made an Intermediate (A) wave down, and is now in the Intermediate (B) wave up. Let's go through the rationale on the weekly chart using FIbonacci levels.

Starting on the left-hand-side of the chart, we see the up wave from December 2019 to February 2020 exceeded the 1.618 external retracement on the minute wave ((w)), downward. Everyone wondered how this could happen if it was part of a flat wave. It wasn't. It was finishing its impulse up with a complex wave, including a triangle in the middle. In the NDX only (not the S&P500 as far as I can tell), it made the Minor 5th wave up, of Intermediate (5). Then, we see in this index, that the down move failed to make a new low, indicating strength. Other indexes as you may know made new lows. However, the down move counts like only a three-wave sequence in this index, instead of the five-wave downward ending diagonal in the S&P500. (For the long term count in the S&P500 Index, see this June 6th post, Trillions).

The recent up move from the March low has also exceeded the 1.618 external retrace on the down wave into 23 March 2020, shown for this index as Intermediate (A). This usually only happens in the (B) waves of triangles or in impulses, upward. Either way, the size of the move suggests the downward wave would again fail to make a new low in this index (other indexes might make a new low).

When a wave exceeds 1.618, it is suggested to look for a "running triangle" in a bull market. They are quite common, but we may not have seen one at this degree of trend, yet. This up wave has currently attained almost precisely 1.382 x the up wave from waves ((w)) -> 5. This is sometimes a level from which failed breakouts occur. So, if this is one Fibonacci level to take heed of, the next one comes from degree analysis of the daily NDX chart.

 

NDX - Daily - Nearing Equality

This chart shows, if counted correctly, the up move in the NDX is very, very near C = A. This count would synch with the ES Futures count in the prior post of "Simplify, Simplify", and is something to watch closely.  In the SP500 this would be part of a Primary ((B)) wave upward. In the NDX, it would be Intermediate (B).

Without a count like this it is hard to justify the extremely small pull-backs in the indexes. In this daily chart, the Minor B wave is even smaller than 23.6% in net retrace. But, beyond that, wave iv of C is one of the largest corrections in terms of time and price consumption. The only reasons to allow it in this degree count are that it consumes less total time than Minor B, and it consumes less price than the total wave travel within wave Minor B. In other words, the minute b wave up in Minor B consumes more price than wave iv does, so that might be acceptable. If not, it is very difficult to ponder how that wave is so large.

 

Next, notice the Relative Strength Index (RSI) on roughly two equal peaks. Interesting! Further, we are now very near two explainable Fibonacci levels C = A, and (B) = 1.382 x 5. It would be interesting if a turn resulted in the next day or two.

 

You won't see this chart analysis anywhere else that I know of. In any case, the large triangle portion and how the waves fit together was wholly and independently derived by me. This is the second post this weekend, and, if you have not seen it, you might like to see Friday's post in addition.

This additional chart and commentary was added after the overnight open of the futures, with a gap up.

ES Futures - 15 Minutes - Potential Diagonal

Remember that the (C) wave of ((1)) was 'almost entirely' an overnight wave, and we now see a gap up to a marginal higher high which has nothing to do with the cash market. These gaps in the futures are 'often' (not always) filled more quickly than the ones in cash. The potential diagonal structure gives very clean invalidation levels and that's why it is sketched out. Wave ((3)) should not become longer in price - and hopefully not time either - than wave ((1)). If a wave ((4)) occurs, it may not become longer in price than wave ((2)) or trade below the end of wave ((2)). It would be great if it was shorter in time than wave ((2)), also. Wave ((4)) should overlap wave ((1)), and it would be great if it was either a 50% or 62% wave since wave ((2)) was a 62% wave.

 

The trend lines are tentative, particularly in the case of the alternate, below. And yes, if the diagonal is at the end of a Minor C wave, it's fifth wave can fail.

The alternate for this count is that wave iv ended as a triangle - similar to the cash market at the 3,486 level on Friday. The reason it is the alternate is I want to give the market all the time it wants to trade on Monday / Tuesday.

Finally, the NQ 100 Futures 4-Hr chart on the open. Now approaching double 1.618 extensions. It is probably an extended fifth wave.

NQ Futures - 4 Hr - Double 1.618 Extensions

Have a good rest of the weekend.

TraderJoe

Simplify, Simplify

The words of Henry David Thoreau seem apt on this day of confusion in Elliott-Wave land. So, we will 1) simplify, 2) compare, and 3) project. Here is a close-only chart of the daily ES futures.

ES Futures - Daily Close - Simplified

By simplifying, we see a second way to count the up wave from March to June. Further, it becomes glaringly obvious that the June-July correction simply can not be an Intermediate wave. In no way does it compare in price or time to the down wave from February to March. And the wave is simply so shallow that it can not be a second wave. It did not retrace 38%.

Next we compare the pattern to the simplest, lowly Elliott Wave zigzag. And, we note that wave C in an upward zigzag should have the least momentum if the pull of the market is eventually downward. And, the real C wave does. Its upward angle is shallower than that of the A wave.

Then, we project Fibonacci levels. Shown are the 50% and 62% extensions. Either or both are likely candidates. The 50% level is very close.

Conclusion? We have not seen the Intermediate (B) wave downward yet. When we do, it has some 'room to move'.

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

TraderJoe

Promises, Promises - 2

When a person is using Elliott Wave to analyze the markets, some things occur which are odd to say the least. In mid-afternoon, today, we counted 'five-waves-up' to a near new top. The ES five minute chart is below. See the up channel in the middle of the day.

ES Futures - 5 Minutes - Five Waves In A channel

We showed  this chart and said it was very likely five-waves-up: like it or not. Far from being "too bearish", we gave every ample opportunity for the market to make the slight new high. We cycled through the possibilities of "impulse, diagonal, triangle, flat, and 'overlap watch'". It was 'overlap' that won out. The question is this. Wave ((5)) is not as long as wave ((3)). It could have been. It wasn't. Why not? Why didn't the wave go over the top?

Yes, we see the clear triangle for wave ((4)), which could indicate 'the last wave up dead-ahead'. 

Let me say it again, that wave ((5)) could have gone over the top. It didn't .. at least not today. So, is it me suggesting that this high needs to be monitored for a failure, or it the market? And why did it stop short of the top? Could it be that - as I indicated yesterday - price was up and over the upper daily Bollinger Band, and the so-called 'Smart Money' might be taking some off of the table? Could it be that the put-call ratio I clearly highlighted yesterday at 0.39 was saying that short-term sentiment was over-done? Could it be the $VIX divergence I pointed out yesterday is actually playing out?

We don't know for sure yet. Are further highs possible with the construction you see above? Yes. But, the market has set the parameters for the move. Over today's high, or under today's low. You have to have some darn good market metrics to otherwise figure that out, probably something like actual order-flow, or broker account balances. Those are likely available to the market-makers' algorithms. They are not available to me.

I just count waves.

Have a very good start to your evening.

TraderJoe

Promises, Promises

Over the next 48 hours, you are going to hear promises from the convention, and from Central Bankers around the world on how they are going to make your life better. The printing of the free money is sure to pump up something. Right now it is assets, like stocks & homes & Gold. That's all good, as long as they stay up there. That always lasts forever, right? They won't advertise the negatives when they inevitably come (like proposals to cut back on Social Security, etc.).

Readers of this blog know that when the ES E-Mini futures closes up over the daily Bollinger Band price is getting ahead of itself. It did that today, and while there can be several consecutive closes over the band, one broker we know, Ira, says the one thing he 'never' recommends doing is buying over a daily band. Well, here we are.

The wave count can remain the same with two modifications. Oh, I am counting the same two zigzags upward that I have been, but I am changing the overall labels to reflect Intermediate (W), (X) and (Y).  The change reflects  the character of today's acceleration - whether it reverses here or not.

ES Futures - Daily - Still Two Zigzags Upward

I am also looking at the second Minor A wave, up, of (Y), as a contracting leading diagonal that started this grinding wave upward.

We need to see solid reversal candles, and overlap of wave minute ((i)), downward, as the first step in confirmation that a retracement wave is occurring. As of today's future's close, there is no such reversal candle. Sentiment is getting a bit stretched with the CNN Fear-and-Greed model more heavily into the greed zone. We still need to see what the daily put-call ratio is, but yesterday it was 0.42, and may be lower today. Interestingly, the $VIX did not make a new low today.

Have a good start to your evening,

TraderJoe

Still Counting - 2

There is still no good reason to change the count. There were marginal new highs in the NQ futures (at the settle), not the ES as of yet. The advance-decline line is mixed, and the Dow lower on an otherwise up day.

With the new highs, it's possible that diagonals in the fifth wave of minute ((c)) are under construction. We'll see. As a reminder, they have to form properly. There are otherwise hard to explain downward overlaps.

Have a good start to the evening.

TraderJoe

Still Counting

The ES futures daily count remains this one. There is nothing yet to suggest any different. In fact, the EMA-34 is added to this chart to show that a fourth wave has not, as yet, come back down to cross the moving average.

ES Futures - Daily - Count

 

In fact, today's advance-decline line was better than 2.5:1 in favor of advances, so this still seems to indicate a third wave. The half-hourly chart can show a near completed wave at the high. Completed if it truncates slightly.

 

ES Futures - 30 Minute - Thrust from Triangle

Since wave iii is shorter than wave i, then wave v should remain shorter than wave iii. But, we are not there yet. Yes, it is not lost on us the advertising value of having stocks at an all time high (perhaps manipulated there by the FED and it's subservient banks) when you are about to take the stage as a national candidate for President.

Have an excellent start to your evening.

TraderJoe

Pop Over the Top, But ..Interim Update

In the prior post, we said that "there were ways this (v)th wave could extend", and we could easily see a "pop over the top" of a potential diagonal to provide a better look. We provided the clear invalidation point of 3,420.25 for a potential diagonal in progress. And, we stated, diagonals are patterns that must be proven by meeting all of the measuring requirements. As of 07:00 am this morning, a potential diagonal pattern did invalidate. Therefore, we expect the next best pattern that explains the enormous number of overlaps is this running triangle, shown below on the 4-Hr chart of the ES E-Mini Futures.

Es Futures - 4 Hr - Running Triangle

We have also written before that "diagonals and triangles are cousin patterns because their three-wave components can sometimes be used to explain either". That appears to be the case this time. We have a hard time seeing this amount of overlap and time consumption from wave (iii) being anything other than a triangle. This morning's move, then, is likely the "thrust" from the triangle. 

Traveling under 3,340 or the prior 'c' wave would be the first step in confirmation that a downward wave is more likely under way.

Update as of 08:45 EDT. For those interested in the thrust out of the triangle on the shorter term, here is the ES 30-min futures. A countable top is still not in place. However, based on the 0 - ii trend line, then wave iii should not become longer than wave i, as its retrace is much less than 38.2%.

ES Futures - 30 Min - Still counting (v)

 

Most likely, wave iv will try to break the 0 - ii trend line.

Have a good start to the day and the week.

TraderJoe

Narrow - 5

There are 'sufficient' waves to be able to say that the minimum possible wave Minor 3 is "in" the market. But there are ways this (v)th wave up could extend. Here is the intraday 4-Hr chart of the ES E-mini futures again. 

 

ES Futures - 4 Hr - Potential Diagonal

 

Since wave (v) has already made a new high, the clear invalidation to focus on now is the invalidation for wave (v), up. Since wave (v) in a contracting diagonal must remain shorter than wave (iii), then the upper invalidation limit for wave (v) is 3,420.25. Remember, the diagonal remains a potential until all of it's waves are proven. Often times, for the "right look" there is a 'pop-over-the-top'. We haven't quite seen that yet, so patience is necessary.

Once again, with some of the major indexes higher, there are more declining stocks on the day than advancing stocks.

The divergence on the 4-Hr MACD remains in tact, and all of the relevant waves of the diagonal crisscrossed over the EMA-34 showing good form and proportion. Of note, by the settle, the ES futures had not crossed up over their former February all-time high - within points, however, of doing so.

Daily price remains over the 18-day SMA, so the bias is up, and the daily slow stochastic remains embedded. There is also not a clear reversal candle, yet.

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

TraderJoe

Narrow - 4

Some major cash averages closed higher today. Among them were the Dow, the NADAQ, and the S&P500. The Russell and the NY Composite closed lower. The 4-Hr chart of the ES futures is updated below. The potential diagonal remains in tact.

Note that internally it was - preliminarily - more declines than advances again today - on supposedly an up day. Then too, the MACD divergence grew worse, as well. Some internal counts were shown in yesterday's comments. The market - as measured by the SPY - made five waves up today. So, an a wave is shown above. By the futures settle, the market did not determine if the a wave was done yet or not. Only downward overlap on 3,374 will do that. So, the a wave can extend some if it wants to.

We will note how many bars are are included in waves (i), and (iii). While we expect wave (v) to be shorter in time than (iii), these are four-hour bars, and so it may still be a while. And it may be whippy.

The  up wave in the futures exceeded 78.6% of the down wave. This most likely means the fifth wave up, (v), is confirmed. Therefore, invalidation for wave (v) moves up to the wave (iv) low in the futures.

After the close I added this updated chart on GOLD, to go along with the long term presented a few days ago.

Gold Futures - 4 Hr - Channel Broke

 

The upward parallel containing the ((W))-((X))-((Y)) wave broke lower. The next thing to watch for is to see if a full five-wave down move is made coming out of the channel. It hasn't happened yet.

Have a good start to your evening.

TraderJoe

Narrow - 3

ES futures made a slight higher high today, as we suggested might happen in yesterday's post. Then, prices fell off and the advance-decline ratio turned negative on the day. Likely, today represents the last chance fourth wave (iv) within the minute ((c)) wave up of Minor 3. Depending on which contract rollover method you use for a continuous contract, ES prices did not get over the prior all-time-high like cash did. Maybe they will try that in minuet wave (v).

The four-hour chart is shown just for clarity - to put the waves in their current context.

 

Finally, we have a clear invalidation point for a wave. Using the quotes from this service, price can not go under 3,336 - without having made wave (v), first - or wave (iv) would become longer than wave (ii) in points and that would be against the rules.

The above count meets with degree labeling requirements as best I can tell, and the time signature within the diagonal is acceptable, with the waves contracting in time.

And note that divergence on the 4-Hr MACD. Again, this is really arduous wave counting. It really tests the patience, and eats up personal energy. To top it off, if wave Minor 3 completes as expected, then Minor 4 would likely only be a relatively swift, short zigzag to go back down and overlap Minor 1.

As of this morning, there was still room to allow that overlap and be shorter than Minor 2. That needs to be watched closely if minuet (v) makes the new high.

Have a very good start to your evening.

TraderJoe

Narrow - 2

Two new higher highs in the ES futures were made today on continued divergences with the MACD and RSI. Cash S&P500 made the new all time high, and confirmed that we are likely in the Primary [B] wave higher (see my post of June 6th, called "Trillions" at this LINK). Interestingly, preliminary advance and decline statistics show a reversal on an up day! This means this part of the advance is narrowing even more considerably.

ES Futures - 2 Hr - New Highs on Divergence

Unlike cash, the futures did not make a new all time high today. As I noted earlier, the futures still need about 7 - 10 points to do that from the settle.

From a psychological standpoint, Internet harassment is way up. That often precedes a turn. It's the usual - people want to tell me how great they are as wave counters - and more directly how bad I am - without producing one iota of work, or without posting one chart or one wave count. They want to criticize with no risk. Cowards - each and every one of them. But, more than that, bullish sentiment is taking a turn upward. Last week's reading on my proprietary sentiment model jumped +4 points further into the bullish camp in one week - one of the larger one-week gains, but bullishness is not yet so hot as to anywhere near warrant a major top. The CNN Fear & Greed barometer is at 73 - which is a reading of Greed, but not extreme greed. 

Although nearly everyone is being pushed into risk assets by the FED policy - which makes the extreme complacency historical - locally the recent bullishness may only coincide with wave 3.

Keep in mind that price is over the 18-day SMA, so the bias is currently up, and the daily slow stochastic is still embedded. In that situation we just count until a complete pattern emerges.

Due to the harassment, comments are currently being moderated. It might take a while until yours are posted (depending on eating, sleeping, drinking .. lol).

Have a good start to your evening,

TraderJoe

Narrow

Narrow is as narrow does. A look at today's advancing and declining statistics (see chart below) pretty much tells today's story in equities and the ES futures, except that early on there was a higher high, and tonight again in the after-hours there is a higher high. This is likely indicative of still being a 3rd wave.

ES Futures - Daily - Higher High

 

We said in prior posts and comments, we would need to see price trade below 3,320 as better confirmation of a wave 4, in progress. That confirmation has not occurred yet. Until then, we just count upward - bearing in mind that wave 3 should not get so long that it can't overlap wave 1 with a wave shorter than wave 2. So far, that hasn't happened yet.

This hourly chart may apply to the ES futures.

ES Futures - 1 Hr - Barrier Triangle

 

There are good reasons to see this as a triangle: 1) there are numerous overlaps, 2) there is a clear "barrier" that has been written about & written about in the press, 3) the three wave sequences count clearly, and 4) there has been a pop out of the triangle. The primary criticism of it is that the (e) wave is short. But, it does overlap the prior wave, as required, and it occurs in the correct position with the correct timing.

Gold futures were a little more interesting today, and after the potential (x) wave we pointed out yesterday, they made a higher high - more towards the 62% retracement level.

Gold Futures - 4 Hr - Dzz

 

There are now two zigzags upward to form a wedge. There is nothing yet to suggest an abrupt reversal. Three zigzags upwards either as a correction or a leading diagonal are possible, but 'by the book' that is supposed to be a more rare occurrence. We'll see.

Have a good start to the evening,

TraderJoe

One Fifth - A Report on GOLD

Now that both Peter Schiff and Jim Rickards have officially and recently endorsed $15,000 Gold (see YouTube video at this LINK), its time to look at what longer term and shorter term charts say about this possibility. First, let's look at the long term LOG trend lines in Gold.

Gold - Monthly Close - Long Term LOG Trend Lines

 

As you can see from this chart - which ends in June 2020 - price had not yet hit the upper long term log trend line. This longer term trend line comes in around $2,500 - 3,000, depending on if and/or when price hits it. It doesn't have to hit it in the short run, and I explain that below. But, this price is fully only one-fifth of the Schiff / Rickards prediction, and Schiff is predicting even wildly higher. OK. But, we all know price has, indeed, peaked up over the prior wave III high.

Elliott Wave analysis suggests wave II is a relatively simple zigzag structure. That suggests that wave IV could be a flat wave or, possibly, a triangle. But, we note that the lower trend line has never even been tagged. An expanded flat wave could do that. So could a running triangle, but that could take much more time.

Notice the volume structure of the price chart; see how few people wanted GOLD in 1999, when the FED's intentions for QE were relatively unknown. And now look at how many people want gold now that the actuality of the FED's QE intentions are well known. True the volume has fallen off a bit most recently.

So, if we are in the b wave of a Flat wave for wave IV, how does it count? Degree labeling suggests that the usual wave counts by services and on the internet have it incorrect. Let's look at why.

GOLD Futures - Monthly - Parallel Channel

 

The closer-in monthly charts suggests a parallel trend channel, but depending on which wave you pick for the bottom (2016, 2018 or 2019), the Fibonacci ruler can show over a 2.618 wave. As discussed in the post entitled "Degree Labeling Lesson on Apple", Aug 9th, waves that go over 2.618 are very, very suspicious from a degree labeling standpoint. Since, we know a large Elliott Wave service got their count on Gold completely wrong - a count I wrote and warned them about because of miscounting their downward diagonal - I propose the following degree labeling method and one alternative.

Gold Futures - Monthly - Method1

 

Returning to the original Monthly Parallel, we see that this Method of Labeling solves the degree labeling problem in one manner in that Primary ((W)), ((X)), and ((Y)) can now all be of the same degree label. But, what about that Primary ((X)) wave? Is it really that short in time? Yes, it can be, but that does seem to argue against good form and proportions in waves, doesn't it? And what about that currently wide-open MACD? So, what if we try this in addition or instead?

 

Gold Futures - Monthly - Method2

 

This method still honors the monthly price channel, but it gives the Primary ((X)) wave more time to develop. It might well be five-waves down to wave Intermediate (C) of ((X)), and that would get a lot of bears prematurely looking for the decline to start. A larger ((X)) wave might give the MACD time to cross lower, and to diverge on the next wave up. And the chart has the added bonus of also preserving degree labels, without calling for a nearly impossible series of waves as have been published elsewhere.

So now let's move to weekly.

Gold Futures - Weekly - Local Parallel

 

The key things to note here are the suspiciously short-in-price Minor B wave, the fact that the current down wave is longer than it in price, and that the weekly MACD is still wide-open. Clearly a breach of this downward parallel would bring some new information to the party.

And, now the daily.

Gold Futures - Daily - MACD Cross Lower

 

The daily MACD is the only one to cross lower, so far. From this chart, it's not clear Gold has made five waves down yet. But, it could easily or might have. It could do so as an impulse or as a diagonal, or an impulse which is only part of a diagonal. I do not expect the count downward to a Primary ((X)) wave to be an easy one. So, let's have a last look at the intraday chart.

Gold Futures - 1 Hr - Diagonal and Correction

From this chart, about the only way to see the down move in agreement with degree labeling is as an overlapping expanding diagonal, lower. So maybe the five waves down have indeed been completed. Then there is another channel upward, which will probably tell us a lot if broken lower. As it is, it can be counted as an (x) wave of a double-zigzag. But the other potential is to make a flat wave, with a near equal low to wave minute ((v)) as a ((b)) wave, followed by a five-wave up move to extend the correction in price.

So, keep a close eye on things. There are reasons these very smart men are out now making their extreme predictions. You don't think they want you to buy for some reason, do you?

P.S. This is the second post this weekend. If you have not seen the first one, you may wish to view it as well.

Have an excellent rest of the weekend.

TraderJoe

Even-Steven

Yesterday Doji, today Doji. Tomorrow? It's a good question. (No, it's Saturday, lol. Have a day or two off!) Here is the daily chart. Note that the advances and declines were roughly even on the day.

ES Futures - Daily - Double Doji

The narrow trading range is probably appropriate for the summer with little in the way of news regarding the stimulus talks, or solid information on a vaccine.

Today on an intraday basis, we first counted five waves up with alternation and a 1.618 third wave; then three-waves down, then a potential diagonal upward that may have failed. We did this in real time. The 'cleaned-up' version of that chart is below.

ES Futures - 5 Min - Break Down from Channel

If there was actually a diagonal failure, then Monday might see lower lows yet to come. In the mid-afternoon, there were five waves down, starting with a small contracting diagonal. This lower local low meant that the start of the larger upward diagonal (if it really is one) was exceeded lower in less time than the diagonal took to build. We tended to temporarily rule out a (b) wave flat, because the (b) wave sub-wave upward would have taken more time than the entire a wave up, and that would seem like a degree violation.

At the end of the day, price did a perfect back test on the underside of the channel, and then dropped off after the cash market closed.

The extent of the downward movement is not quite significant yet, although the S&P500 cash index made a lower low than t he start of it's wave, today. The futures - as you can see above - did not.

On an ES 2-hr chart (below) you can see prices have again closed below the rising trend line shown.

ES Futures - 2 Hr - Break, Back-Test and Close Below Trend Line

Queue the Rod Serling Twilight Zone music. And have a good start to the weekend.

TraderJoe

Sixty-Eighty

I said in yesterday's post, that if the 3,365 level was broken in the ES futures, whether in the after-hours or not, then it was possible to see the up wave as done! And that a full-or-partial retracement of the wave should occur. Breaking of that level did occur in the overnight session. Prices traded a bit lower in the afterhours, and, when the cash market opened, prices initially started trading higher. The ES 30-min futures chart is shown below for reference. 

ES Futures - 30 Min - Up Wave and Lower Lows

 

Interestingly, prices got within two ticks of the prior high, but they did not surpass it. At mid-morning the market was decidedly mixed, not only in terms of the price averages but also by the relative numbers of advancing and declining stocks.

Shortly after noon, prices became begrudgingly more impulsive to the downside. They tagged the 38% retracement level of the wave, and rebounded a bit. That we are in a full-or-partial  retrace of the wave, can also be seen now by 'time' considerations, as well. The current sideways looking wave is as long in time as the prior upward wave labeled i - v. This should mean the two waves are at least of the same degree (or the wave after the five-count is of a higher degree).

The job now becomes somewhat more straight-forward. The first thing to do is to see if the potential second green (up) fractal actually becomes a fractal by completing a second lower high bar. (By the futures close, it had). Then, breaks of the fractals should be monitored to help inform on the local direction of the wave.

Right now, we are just trading sideways between 3,360 and 3,380. A clear break either way is needed to end the sideways pattern.

A break of the prior up wave low - below 3,320 is likely needed as a first step in confirmation that wave Minor 4 has started. Pending that, we are likely still in Minor 3.

Have a good start to your evening,

TraderJoe

One (1) or Done!

Yesterday, the ES daily futures made an outside key reversal day down. I gave some pretty clear criteria, such as the retrace had to hold the high. It did not - in what the paraphrase of Ira Epstein's Guidelines calls, "a trap for the bears". Prices made four waves up that we could count overnight and today, and one we have a question about, and that is the very last wave, as shown below.

 

ES Futures - 5 Min - One (1) or Done!

Because there was a very long mid-afternoon triangle wave, the upward wave 'may' count best as A, B, C to sub-micro wave (1). We showed a count of five waves up in the previous post's comments - which you can review at this LINK. Completion of the up wave may be needed before a significant downward retracement starts.

Right now a 'potential' diagonal is only that. Price needs to go up again through the high tomorrow, and then downwardly overlap wave (1). Readers of this blog should know the drill by now. Of note, the last downward zigzag attained a level of >78%, which seems about right for a diagonal, but, of course we simply do not know the downward wave is over, nor do we know that a new high will be made tomorrow, although one is more likely than not. The bias of the market is up, as price is over the 18-day SMA.

However, if wave ((4)), above, is exceeded lower at any time, it is likely a partial or full retracement of today's upward wave would be underway.

With today's higher high, it likely that the daily count is in the 3rd Minor wave as I have mentioned in previous posts.

Have a good start to the evening.

TraderJoe

It's Tuesday

The market as measured by the ES E-Mini S&P futures made an outside key reversal day down, as of the futures settlement. The NQ futures closed lower, too, settling just about dead on its 18-day SMA.

Earlier in the day, this chart was published of the cash Dow Jones Industrial Average. Please consider the (a) and (b) as minute degree waves .. I was working quickly on several markets.

DJIA Cash Index - 4 Hr - Pretty Clear

Regardless of what a few tech stocks are doing, this chart seems pretty clear and unambiguous. Price appears to have made a zigzag in a channel upward since late June. Thus, the options for wave labels also seem clear. The entire sequence from March 23 counts as W-X-Y, the double zigzag, OR it counts as the first three legs 1-2-3 of the upward diagonal wave, with wave 3 as the higher high. Just like a triangle, you can't call a diagonal until all five legs are "in".

One of the reasons I am focused on the Dow at the moment is that the ES and the NQ have already made their 90% retrace levels. The Dow has not. Neither has the Russell. Will these be the only two indexes not to confirm a compound flat in progress for the Primary ((B)) wave, higher, written about earlier? That would seem odd.

Yesterday, I suggested in the ES futures, there might be a way to move the label 3 to what is now today's high. That still seems be possible. One reason for thinking such is that the advances and declines were only just-about-even today, and the advance-decline line made fresh new all-time highs this week. That data doesn't immediately suggest the start of a crash.

Bottom line: Today was a key reversal day. We've been here before; we need to confirm any retracement wave holds lower than the high. Further, while it's 'possible' an Intermediate (A) ended with today's wave, it also could also just be the end of a Minor 3 wave, with 4 & 5 to follow. Clearly, any price movement in the Dow below 24,800 before making a 4th and 5th wave higher would invalidate that scenario. And, for the diagonal, wave 4 must overlap wave 1. That has not occurred yet.

(Please note at some point in the future, I may consider upgrading the Minor labels to Intermediate. It depends a lot on the post-pattern behavior from the double zigzag or the first three legs of the diagonal.)

Have a good start to the evening.

TraderJoe

Above But Not Below

The cash S&P500 Index and the SPY ETF have filled all but one gap to the upside, and it is certainly possible that the gap gets filled. The chart below shows the gap on the S&P500 Index at the upper left.

 

S&P500 Cash Index - Daily - Gaps

A reasonable person might ask, "Why is it so important to fill that gap?". I mean look below, and see all of the unfilled gaps at the arrows. Why aren't a lot of those getting filled along the way? Yes, a very few of them have. Faced with the evidence, a reasonable person might conclude that filling that gap and making it over the high would mean that the market place and, hence, the entire world had confidence in the policies of Federal Reserve and the 'Smart Money' firms that do the FED's banking. Some of those firms are, of course, market-makers. They operate the exchanges and the market-making trading algorithms that cross & match the orders and clear the futures.

So, now let's suppose something for a minute. Let's suppose you have a goal-oriented A-I program. Goal-oriented just means you tell it the function you want to accomplish and the program or neural network takes in information (specifically information on your brokerage balance, on your number of positions, the time of day you typically trade - from the order time stamps - and the type of order you typically enter, such as market, limit, options straddle, etc.) and the A-I program works out the solution to attain the goal. Goal attainment is paramount.

This program can literally blow-up Peter's position to have enough money to pay Paul's position along with Anne's position since they are smaller, or vice-versa, etc, etc. The program can also work to solve the problem of who is in the market at particular times - such as U.S. institutions during the day, versus European institutions - to determine based on readily available information such as volume flows what trading pattern to use to insure that the day looks like it is starting off lower and ending higher.

Such a program would need a fair amount of computing power. The question is whether in the short run a human could compete against it? And that's it - just a supposition and a resulting question. What's odd is that - if you know much about statistics - is that, since the March 23rd low, never once was the pattern allowed to make more than a 50% retracement, and that was the second wave off the bottom. It was very close to 50%. None others. So, it is hard to say there is any component of randomness here, or any semblance of "return to the mean".

We all know the FED is making massive funds available. Some will say, well it's a pattern of group think: a self-fulfilling prophecy. We all expect the market to go up when the FED is behind it, so it will. My question recognizes that but also is not so benign. Are we being purposefully A-I'd in the market in a "devil-may-care" about the actual market function so that a particular goal - a goal of a powerful organization or group of organizations can be attained? In other words, when an organization says, "we still have tools in the toolkit", even though they are technically broke, are they using one tool - massive computational power - to the short-term advantage of the organizations in power over the remaining market participants? Is that why there is always a crash, because the short run is not sustainable?

The Elliott Wave count on the daily chart remains unchanged. Because the DOW made a new high today I have added the option that we are in wave 3 of the potential diagonal.

ES Futures - Daily - Potential Diagonal

Have a good start to your evening.

TraderJoe

Degree Labeling Lesson on AAPL

If you scour the internet for your Elliott wave counts, and even if you pay and subscribe to some services, you are going to find many, many people who will show you a daily wave count that looks like this for the stock of AAPL. They don't know what else to do.

AAPL - Daily - Questionable Degree Labels

 

These degree labels should be viewed with a very high degree of suspicion. They are questionable, at best, and plain incorrect at worst. Why? Well, starting from the lower left, the Minor degree 1 is smaller in both price and time, than minute (i) or minuet i.  Stated another way, the minute waves and the minuet waves - which are supposed to be smaller degree waves - are larger than the supposed larger degree Minor 1.

I know, you will find the analysts that say, "Wave 3 started out with a gap. That's proof it's a wave three". And then, they will add, "Wave 4 of one larger degree comes right back to the wave (iv) of wave 3 - just as it should! You don't get a better wave count than that."

How can an analyst dispute such claims? First, one might look with suspicion on that wave iii of (iii) of 3: this is supposed to be the most powerful wave segment, but instead, it has a big loopy turn in the middle and looks more like a 'three-wave-sequence'. That's not right, is it? Also, look at minuet i. Is it not longer in price and time than minute (i)? Doesn't this defeat the whole purpose of talking about wave degrees as being larger or smaller than another degree?

Second, what is the Fibonacci relationship of 3 to 1? Why it's greater than 2.618 x 1. That should be a tip-off. It is mathematically very, very difficult for an impulse wave to have greater than a 2.618 times relationship and have smaller internal waves than the first wave. That's because if the first wave is "1" unit - and not one the wave label - then three smaller-or-equal internal waves for the next wave would calculate to less than 3 x 1 = 3 units, which is very, very close to 2.618 and one has to yet subtract the retracement waves - which brings it down to 2.6 or less.

Still not convinced?

Then I say, go back one level and look at the weekly chart. That chart is presented below.

AAPL - Weekly - Expanding Diagonal

 

The trend lines on this chart suggest that the market is in an expanding diagonal. There is overlap with waves (4) and (1). And, clearly the stock is now up over the upper expanding diagonal trend line. This chart represents one of the few ways that the stock could have made the trend line pattern without violating degree labeling definitions, and without violating overlap definitions. Knowing, then, that expanding diagonals are most-often three-wave patterns allows for the following wave label count back on the daily chart.

AAPL - Daily - Better Degree Labels

 

Notice how the label definitions just flow much more readily here? The minute labels (i) - (v) are smaller than the Minor label A. The Minor B wave comes back to just barely overlap the Minor A wave, but it does, and then there is an explosive wave of a totally different character than the grinding up Minor A wave.

Both charts allow the casual observer to claim the stock is in a blow-off-wave. But the second daily chart allows the Elliott analyst to preserve the definition and meaning of the term degree. And both charts can allow for some additional upward movement.

Oh! And what about that Fibonacci ratio business? What is the relationship of C to A at the moment? It is a nearly precise C = 0.618 x A. That is a common relationship in a zigzag, not an uncommon relationship in an impulse like greater than 2.618.

This is the third post this weekend, if you have not read the first two, you are encouraged to.

Have an excellent rest of the weekend.

TraderJoe

No Blinders On

Regular readers of this blog know that in order to have flexibility and patience, it helps to have a Plan B. If one is operating a business, one does not assume Plan A is infallible and has no chance to fail. Therefore, a Plan B - or in Elliott Wave work - the most reasonable alternate is looked for and developed.

BEST INTERNAL ALTERNATE... (working chart)

From the 15 June low, the best internal alternate I can find for all the overlapping waves is a Leading Contracting Diagonal, followed by a triangle, followed by an impulse wave upward. The sequence counts as minute ((a)), minute ((b)) and minute ((c)), and is shown below.

 

ES Futures - 4 Hr - Internal Alternate

 

The reason this count is the alternate is three-fold. First, it is highly unusual - but not against any strict Elliott Wave rule - to have a triangle follow a diagonal. The second reason is that looked at in this form it initially looks like wave (i) of minute ((a)) is the shortest wave in time within the diagonal. It turns out that there is a way to rectify this as there is another series of overlapping waves on 13 Jul than can make the current location of (iii) be (i), and then (iii) is moved over to 12 Jul and (iv) is a brief overlap on 13 Jul with (v) as the higher high. But, that pattern does not have a good 'look' to it, even if technically correct. And third, wave (i) 'can' be counted as a "three" or as a "five". This was noted at the time.

In any event, the minuet (e) wave of the triangle minute ((b)) wave has the needed overlap with minute ((a)) wave, and this eliminates a potential degree violation in the minute ((c)) wave up. Further, this count eliminates the problem with a potential ending diagonal to wave (b) of the triangle, which did not perform as an 'ending diagonal' in that its beginning was not exceeded lower in less time than the diagonal took to form. This internal count suggests that (b) wave is the simple triple zigzag alternate for a diagonal.

AND IT'S IMPLICATION FOR THE DAILY CHART ...

So, if there is a simple three wave sequence upward internally, then a very good alternate for the current daily count is this one - just upgrade the minute labels in the 'working chart', above, to Minor Labels.

 

ES Futures - Daily - Corrective

 

Again, almost regardless of the Elliott Wave count is the fact that the trend lines the market has drawn - as below - still indicate the "squeeze play" in progress. And, if, in fact, there is a legitimate triangle for a Minor B wave, it might signal that the last wave in the sequence is the one we are in now.

 

ES Futures - Daily - Squeeze-Play Trend Lines

I need to be very clear about one thing. Other counts that you might try do not allow the overlap of the triangle's (e) wave with the minute ((a)) wave - as required by the rule. I have tried many others. Maybe you will find one that doesn't violate other overlap criteria and publish it.

 

This is the second post for the weekend, and if you have not seen it, you may want to read Friday's post, first.

Have a great rest of the weekend,

TraderJoe

Little Doubt of a Fifth Wave Up - 2

Here is the daily chart of the ES Futures. One of the benefits of following a wave count closely is that clear invalidation points can be expressed.

ES Futures - Daily - Five Waves Higher

In this case there are two of them: First, in a diagonal wave 5 may not become longer in price than wave 3, and second, at no time may minute waves ((b)) or ((c)) of wave 5 travel below wave Minor 4 at the 3,200 level. So far, so good.

Today, the NASDAQ 100 sold off a little, and may still be in a fourth wave configuration as the losses were relatively small. The DOW cash index has not made a new recovery high, yet. We're still waiting to see if that happens or not. 

As shown in the chart, below, yesterday, the VIX tagged the lower daily Bollinger Band, but did not make a lower low, today.

VIX Cash - Daily - Tag of Lower Band

It will be interesting to see if this divergence persists if the cash S&P500 makes a new high.

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

TraderJoe