Keep it Simple

Below is the 2-hr chart of the ES futures. We have been counting the first segment down as a-b-c, and the second segment up also as a-b-c, where c = 2.618 x a.

 

We have said if there is more downward movement to come, it will likely come as a diagonal. The chart above shows that the 'current' length of the latest down wave - after (ii) - is shorter than wave (i). For a contracting diagonal, such a wave must remain shorter than wave (i) and stay above 3,664.75 using these quotes. Conversely, if the down wave is to become an expanding diagonal, then that level must be exceeded as wave (iii) must become longer than wave (i). Simple. One simple number divides the counts.

Now, here is a shorter term 15-minute chart.

With the upwards overlap at the end of the day on Friday it is possible to have a fourth wave of an expanding diagonal for the next c wave. This would have the alternation pattern of an impulse and a diagonal if it occurs.

Similarly, wave ((2)) on the up side may not be exceeded for a downward count to play out at this point. If that occurs, it is possible the b wave may become longer in time. So far, all of the sequences count correctively.

Have an excellent rest of the weekend.

TraderJoe

NYAD v McOsc

I first became aware of the McClellan Oscillator on the New York Stock Exchange many years ago when Sherm McCleallan was presenting it himself on the FNN channel (Financial News Network). I followed it for a very long time, and tried to see if it could assist in predicting market turns. For those who are interested the McClellan Oscillator (or $NYMO on Stockcharts.com) is essentially a momentum oscillator on the New York Stock Exchange advance-decline line. It's calculation can be found at this LINK. Here is the recent chart of the daily $NYMO.

$NYMO - Daily - Divergences

Essentially, this indicator is "like" a MACD of the advance-decline line (or $NYAD). The issue is how well does it work? Well, we know as recently as this week stocks as measured by the ES futures made an all-time high. Yet, the $NYMO shows a series of declining peaks. Now let's look at the $NYAD raw data in cumulative format.

$NYAD - Daily - Curling Over

Last week, we showed the $NYAD and said that its most recent up moves were very, very hesitant and it showed signs it might curl over. As the solid line above shows, the raw $NYAD has indeed curled over in its largest down move since November.

At this point, a simple visual comparison shows what might be called a "negative bias" in the McClellan Oscillator. In other words, the Oscillator points lower in several spots when the raw data recovers and makes a new high - and, in this case, the market index along with it. It is really necessary to recognize this aspect of this tool used by many to help with market timing. Yes, it might help one if it is used as a 'divergence' indicator.

But one should also recognize for how long it can be incorrect. The most significant divergence (June to December) was fully two months early in its timing. While this may be important information, one must certainly be judicious in its eventual application.

If you are not familiar with this technical tool, it has a companion indicator called the Summation Index, shown below. What it does is sum the daily $NYMO values over time. If the $NYMO is negative at the time, it adds the negative number, meaning values below zero are definitely possible.

NYSE Summation Index ($NYSI) - Daily - Range

This index has a distinct personality of traveling between +1,200 and -1,200 which also means there are numerous times when it will "return to zero". Sometimes, not always, the return to zero is a relatively quick trip representing a downward impulse-like move in the markets. Other times, the index takes a much more meandering trip to the zero line. This was the case in the Intermediate (B) wave to the 2020 high, and lower low in the Intermediate (C) wave down in March.

Yes, this index can be used as a divergence indicator as well - seemingly better at tops. Some of the bottoms are "spike" bottoms with a V recovery, so caution is needed in looking for divergence at the lows. Not even the 2009 bottom shows divergence at the lows. However, there is an excellent example of divergence at the lows in the Summation Index at the 2002 - 2003 lows. But, rather than 'spoon-feed' readers of this blog, I'll let the interested reader plot this last example using Stockcharts.com - which is free - to find this example and make sure they are familiar with these helpful tools.

Ultimately, one needs to be cautious using most market indicators - including this one - in surveying for market turns. While such indicators may be screaming that a turn is due, sometimes is takes a very long time to see that turn materialize.

For a wave-counting site, if we can not find a count completion that works simply and naturally while the indicators are in warning mode, we generally assume that the indicator is a little pre-mature: giving a good warning, but maybe there is more to go.

We hope this reality review of the way things have actually worked versus the way they are supposed to work has been helpful. Have an excellent start to the weekend. And, a brief reminder, this was the second post this weekend if you have not seen the first one.

TraderJoe

Two Views

As we have discussed in several previous posts, it is possible to see the end of the Minor B wave upwards in the ES daily futures. Below are two views relevant to this daily structure. First is the Bollinger Band view.

ES Futures - Daily - Bollinger Bands

As can be seen, prices have traversed from the upper band through the "line in the sand" to the lower band, with lots of whipping in the middle. We have attempted to describe the hourly count in a previous post. Being at the lower band is 'often' (not always) a place where the smart money takes some profits off the table. And, the slow stochastic is already in over-sold territory.

Further, Monday is the first trading day of a new month and 'often' (not always) see the inflows from pension funds, 401k's, company bonus plans and dividend reinvestment schemes. So, a lot of backing-and-filling between the bands is possible. But, so is a gap lower on Sunday night.

Next, we'll look at one market view I prefer for the longer term analysis: the fractal view.

In this view, one can see that price is below the Alligator indicator for the first time since November of 2020. During the course of this week, price has beaten the two most-recent down fractals back in time. There are two more fractals which are roughly at the 3,650 and the 3,600 level which are the next most important. Why? This is because price would likely be entirely below the indicator at the time of such breaks: something which was not entirely true of the two most-recent breaks. 

One can also see that the daily Elliott Wave Oscillator both had a divergence at the high, and is red and declining at the moment. If these third & fourth fractals back are broken and the EWO also goes below the zero line, it would not be a good short term sign for market upside.

At this time, a Minor C wave down is still expected.

Have a good start to the evening.

TraderJoe

Proportions

It's time to look at some measurements. The best downward count I can muster on the ES hourly futures is a c = a, without violating typical degree labeling. The way the wave started down off of the top was, and is, troublesome from the perspective of an impulse. We suggested that if the wave was going downward, it would be by diagonal. There does appear to be a small contracting diagonal off of the top, but it does not make for a very good parallel channel. Then, to make five waves down as an impulse, cash and futures should have made a new low. They did not. And - for a larger down wave at the onset of a move - it does not make good sense to include a truncation. So, we simply will not force a five-count.

Then, with the up move this morning, there is a 2.618 relationship of the third wave to the first, so far, also as a c = a. Those types of proportions typically take place predominately in triangles and diagonals. So, if we are going downwards in a Minor C wave, it might be by expanding diagonal. I would have preferred not, but the futures just don't show a good impulse at this point, and the retrace wave is almost 78.6% at this time.

So far, since the latest b wave, there have been ten hourly candles up, with no red candles. The last candle shown is a doji. So, to begin a down move, we must see some sort of reversal candle - even if it is only a follow-though down to the doji. That hasn't happened, yet.

If we are not going down, then the primary other way I see to go up further is with a triangle. But, I think that is a bit less likely at this time, so I will only address it if and when needed. So, we remain flexible. patient, and calm as approporiate.

Have an excellent start to the evening,

TraderJoe

Past the Point of No Return

As far as the rules for Elliott Wave apply for counting a contracting diagonal, this morning's price movement downward has passed the point of no return for a contracting diagonal. As you can see from the ES 4-hr chart, below, the downward wave is longer-in-price than wave ii, and that means that any longer or further extension of the diagonal is not allowed as it would break the rules. This measurement works in both cash and futures.

Such a diagonal is valid in every aspect. We said yesterday it could be completed; we were just waiting for the breakdown or further break-out upwards. The breakdown is plainly what occurred. While other chart services were egging you on with projections of 3,900 - or even the round number 4,000 - we ignored the noise and just kept counting; quietly, unemotionally and with flexibility. So, if we were going to those numbers, it wasn't without going down past 3,800 first.

As with all contracting diagonals, there is no guarantee that this one is not a leading diagonal. But, from a probability perspective that prospect seems extremely unlikely given that we are at an all-time market high - as of yesterday.

As of this writing, price is in a retrace stage with five smaller degree waves up. The next steps in downward confirmation are 1) trading below the low of wave ii, and 2) trading below the start of the pattern.

If, and ONLY if, full confirmation of the diagonal is obtained, then the typical targets for a Flat wave are as follows.

ES Futures - 1 Day - Flat Targets

Best wishes to all.

TraderJoe

Final Wedge in the Larger Wedge? - 3

Following on from yesterday's larger 2-hr wave count, we are trying to count the wave from the level of wave iv. There is a way to consider today as the high, but the down wave so far has not followed through. See the ES 30-minute chart below, from the end of wave iv.

ES Futures - 30 Min - Trying to count v

Last night, we suggested that following the A wave up we counted, a "B" wave could occur as a flat or expanded flat wave in the overnight. That appears to be what occurred - followed by five-waves-up to a "C" wave. Right now, the wave labels in italics (A,B,C) are provisional. The down count, so far, looks corrective.

The higher high for the "C" wave means that the diagonal did not fail. What is required now is either a break-up, or a break-down in the price structure. There are some rare reports that one of the legs of a diagonal - on rare occasion - may extend to become a double zigzag. We saw such a thing in the daily Eur/USD a few years ago. Barring that, and with the FED meeting tomorrow, we also wonder if there wouldn't be a way for the "B" wave to become a longer in time triangle.

Right now, there is not much point in detailed analysis as price is just being whipped around, double-topped and double-bottomed. A detailed look at the chart shows that after five exact touches of the 3,840 level, prices made a marginal new local high when Starbucks and Microsoft reported earnings after the bell.

If prices can not make a higher all-time high, and we are giving a lot of time for this to happen, then perhaps then price might start downward via a diagonal. The multiple double-bottoms and double-tops do not make for ready analysis.

So, as always, we remain flexible, patient and calm as the market decides the next course of action.

Have a good start to the evening.

TraderJoe

Final Wedge in the Larger Wedge? - 2

This count on the ES 2-hr futures still makes sense until it doesn't. And I am still counting upwards with the trend until that is no longer possible. The ES futures were higher by about +15 points overnight. But, about 45 minutes after the cash market opened, they turned lower along with the cash market.

Cash sold down from roughly 3,860 to roughly 3,800 - a quick sixty points in about one hour. Then, after 11 AM, the retrace began. At this point, it looks like the up wave is a very speedy micro ((A)) wave, up, and the ((B)) wave does not look well developed yet. However, we now have the likely parameters for a diagonal wave: a) on the down side the level of 3,776 should not be exceeded lower or wave iv would risk becoming longer than wave ii in price. And, on the up side, wave v should not become longer than wave iii in price.

Wave v, up, should also make another divergence with the Elliott Wave Oscillator. Note that wave iv made about a 50% retrace also on wave iii, and so the wave does have some nice proportions about it.

We are not trying to force a diagonal here. We are trying to count an overlapping wave structure according to the rules. The diagonal is potential only until it's wave structure should hold. If, and only if, a diagonal forms properly, then the low of the structure should be taken out in less time than it took to build.

Have an excellent start to the evening.

TraderJoe

Final Wedge in the Larger Wedge?

On this chart, which is of the ES futures on the 2-hr time frame, there are about 167 candles, so far. And the pattern is even further wedging in the larger 4-hour wedge as shown by the dotted brown lines.

ES Futures - 2 Hr - A Wedge in a Wedge

More importantly, the Elliott Wave Oscillator is on a divergence from wave iii to wave i. Also, there are both second wave and fourth wave signatures on the EWO - most recently with the fourth wave below the zero line. Wave iii is shorter in price and takes 'less time' than wave i. And wave iv is shorter in price and takes 'less time' than wave ii. And, there is a clear overlap between wave iv and wave i. Wave ii is a 50% retrace. Wave iv would have occurred within a 160 candles guideline.

The pattern of a diagonal would indicate prices 'have come too far, too fast". It may end the Minor B wave, up.

Perhaps the pattern indicates that prices will rally into Mon/Tues with a reversal on 'turn-around' Tuesday. That is a hypothesis to be tested. Again, we are still looking primarily for a correction, as a Minor C wave down to follow.

The technical posture of the market is also of interest at this point in time. First is the put-call ratio.

CBOE Put-Call Ratio & Moving Averages

As the chart shows, both the 10-day and 50-day moving averages are at new lows for several years. They are both deep in the 'Zone of Speculation'. This suggests market risks are more to the down side then they are to the up side.

Next is the NYSE advance-decline line. We know this internal market measure is at a new all-time high recently. This is what suggests that any coming down move is likely a correction only.

 

However, recent moves up in this measure have been very hesitant, and there is some suggestion a recent trend line is breaking. Again, this could indicate a correction is nearing.

Please keep in mind, that while it is perfectly reasonable to expect the potential diagonal, above, to complete properly, it is also possible since the potential diagonal is a possible minuet (c) wave of a minute ((y)) wave of Minor B, that the diagonal fails to complete properly. We have absolutely no evidence of that yet. It is something to be aware of the possibility of.

This chart was added on Sunday, after review of the weekly. The measurement is certainly of interest.

ES Futures  - Weekly - At 1.382

The up move is now a 1.382 external retrace of the down move into March, 2020.

Have an excellent rest of the weekend.

TraderJoe

Cash Wedge

The S&P500 cash index on the two-hour scale is still showing a significant wedging shape with further divergences on the higher highs with the MACD.

SP500 Cash Index - 2 Hr - Wedge

It is difficult to say when the wedge might break. The market has wedged before, then busted it up slightly, and has formed a new wedge. The wedge lines are now "three-touch" trend lines which are a tad more accurate. Price is getting toward the extreme end of the wedge, and it is getting close to decision-time for the market. This wedge can still be counted as a Minor B wave, but the lower trend line must be broken and back-tested with a subsequent failure  before a downside count is again initiated.

Have a good start to the evening,

TraderJoe

Transition Day Rally

Our count from yesterday had us counting most recently in the upward direction, possibly looking for a wave iv, up. For a downward count, we highlighted that the prior wave ii high would have to hold. It did not. So, shorter-term we were headed in the right direction; a little longer-term, the market went farther than a key wave marker we outlined as we clearly said that our posture was flexible.

From the opening, it was pretty clear that the Presidential Election Cycle was kicking in. The so-called Smart Money (or possibly PPT, on this day) was not about to allow anything less than an all-time new high on this day of importance. Retail may have joined in on the further prospect of more stimulus, and the good news of a peaceful transition. Perhaps today will be near a top - or be one. Perhaps not. At the moment, there is not a good clear sign of it.

At the highs, the ES ran into the upper daily Bollinger Band with the daily slow stochastic in only an overbought condition - not embedded. Then, it backed off a tad. Meanwhile, the daily NQ futures closed over their upper daily Bollinger Band - also with the daily slow stochastic only in an over-bought condition.

From the closer-in the viewpoint, the ES futures on a 30-min time-scale appear to have three waves up from the recent low with 125 candles on the chart.

That's about all we can say at the moment except for some measurements. In the NQ, the up wave iii/c is more than 1.618 x wave i/a. As you can see above in the ES, the wave is shorter. Regardless, for a continued impulse wave there should be a fourth wave that tries to attack the lower channel line at some point. (Some of it might happen in the overnight).

Further, the EWO is not showing a fourth wave signature just yet. So, patience, caution and flexibility remains the strategy. 

Have an excellent start to the evening.

TraderJoe

Longer in Price, Waiting on Time

The new up wave in the ES 4-hr chart is now longer in price than the potential wave ii. Price is shown by the Fibonacci ruler as exceeding 100% x ii in the chart below.

Both waves (ii and iv) have ten (10) candles up, so we are waiting to see if the pattern becomes longer in time, as well. If so, then the question becomes, "will the pattern hold the high of wave ii?"

And that is truly a difficult question to answer. There are those who will say the downward pattern is corrective - and to a large extent they are correct. It is made up of three-wave sequences. But, this is why we say diagonals (and their cousins - triangles) are patterns which 'must' prove themselves in every detail.

If price take out the high of Minor B by only a "smidge", then perhaps Minor B is extending just a bit to become a triple zigzag instead of a double. Because there are readily available alternates, we remain flexible, patient and calm. However, if the high of wave ii does indeed hold, then it is possible a fifth wave, v, might make a 1.27 - 1.62 x wave iii in the downward direction.

Let's see how it goes. Have a good start to the evening.

TraderJoe

Rationale for 'Daily' Count

Below is a two-day chart of the ES E-Mini S&P futures. Why would anyone say that they are providing rationale for the 'daily' chart and yet show a two-day time-frame? If you have not read the featured post in this blog (entitled, "The Eight Fold Path Method for Counting an Impulse" at this LINK), then you should do so now. The first step in that method is to "Chose the time frame that allows 120 - 160 bars on the chart.") You select the number of candles first; the time-frame is what results. That is done below. Using a one-day chart would provide 244 candles, and that is way too many.

 

ES Futures - 2 Day - Intermediate (W), (X)

I have used MotiveWave for this count to verify the accuracy of the placement of the wave labels and lengths of the waves, and to provide the accurate degree symbols. Other programs make this very difficult. This provides additional confidence in its correctness. Now for the rationale, recognizing that last weekend I provided rationale for the larger Primary ((B)) wave, upwards.

1. With between 120 - 160 candles on the chart, the Elliott Wave Oscillator is plotted next. What can be seen is that there is no higher high third-wave peak on the EWO. This likely means that the up wave - to this point in time, and on this time-scale - is not impulsing.
2. Next, when the daily chart is considered, the minute ((iii)) waves (or circle-iii waves) are in the only locations where a 0 - ((ii)) trend line does not cut off a portion of a third wave. If you are unsure of this count, are a new reader, or just have Elliott Wave qualms, in general, you really should take a daily chart, and try drawing what you see are 0 - ((ii)) trend lines, and see whether they cut off any portion of what you think are your third waves. This is the only way I can find to do it.
   
3. The highest wave on a divergence is the Minor C wave of Intermediate (W). Assume for a moment that Intermediate (W) is "all one wave". As such, it has not yet been retraced 50 - 62% for what would otherwise be a normal second wave retracement. So, we think one will happen, but the FED's early recognition of the need for lower rates, and stimulus efforts from Congress have stalled that decline.
4. Next we placed a Fibonacci ruler at the only location we can find for the current up wave. It is exactly a 1.618 external retrace on the Minor A wave down into the end of October, 2020. The market does seem to be reacting here.
5. Finally, we have degrees to consider. And at this location - as an 'up' wave - minor B is shorter in price and time than it's larger degree up wave, Intermediate (W). Yet, it is "on the order" of the Minor A wave up of (W), and the Minor C wave up of (W), likely confirming that the degrees are similar.

So, that is the major rationale for this count. As a next exercise, we draw a tentative up trend line (dotted blue) through the extremes of the chart. First, we see it is very nearly at a 45 degree angle, and next we see it has really only two touch-points at this location. This trend line becomes important. Initially, price may come down to touch it, and then bounce off of it. However, if price goes down through it, and then back-tests and fails, then it would suggest the expanded flat for wave (X) is underway. That would be accompanied by a significant break of the round-number 3,600.

In last weekend's post (LINK here), in addition to providing the rationale for the Primary ((B)) count, and the daily count, I highlighted that I don't think this Intermediate (X) wave would likely be a triangle because the middle wave of the Intermediate (B) wave of the Primary ((A)) wave down was a triangle, and this would seem like bad alternation. Again, I could be wrong, but this is what alternation suggests.

In Elliott Wave work, a good analysis also indicates where a wave count is incorrect. In this case it is relatively simple. Any higher high above Minor B would likely suggest this scenario doesn't work. Why? Because 1.618 is about the maximum measurement allowed for the "B" wave of any expanded flat. Beyond that, and the wave is likely to fail. This is one of the key benefits of Elliott Wave work. Knowing where one is not correct helps one to be flexible, patient, and calm.

 

Notice I said in Item 1, above, that The Eight Fold Path Method is also indicating where this wave is NOT impulsing - at least at the moment.  That is also one of the benefits of the method, and it's why I rely on it for counting waves.

 

In terms of alternates, the best suggestion would be to replace the Minor A wave at the end if October with the Intermediate (X) wave. The problem with that count is that at this point in time there is no good Fibonacci relationship with this new (Y) wave and the (W) wave. I've tried. I've looked for numerous other counts. This is the simplest I can find. 

If you think you have another count, great! Then show it in the comments via a link and show how you have counted those third waves as not breaking any part of a line through wave 0 - ((ii)). This is the second post this weekend, and if you have not read the first one, you may wish to view it now.

Otherwise and else-wise, have an excellent rest of the weekend.

TraderJoe

Three Waves Each Way - 3

Today, price traveled low enough to contact the 18-day SMA (on the daily chart, of course). The slow stochastic, as of the settle, did lose it's embedded status, with a value of 70 - well below that 80 level. Daily price did settle just above the 18-day SMA keeping the bias up, but weakly so.

On the ES 4-hr chart, below, the green EMA13 did cross below the blue EMA34, in a temporarily negative sign.

ES Futures - 4 Hr - Below Support

 

Price is currently trading below the former Support/Resistance line. Wave iii is currently longer in price than wave i of a potential expanding diagonal, but it is not yet longer in time.  If wave iii makes lower low all it does is move wave ((B)) to the top of the last candle as an expanded flat wave.

Yes, at the moment, there are only two downward zigzags - which still can be seen as corrective. Still an upward count can not resume until wave ii is exceeded higher. This is not impossible. But it - the whole structure in either direction - just requires calm, patience and flexibility.

Have a good start to your evening.

TraderJoe

Three Waves Each Way - 2

Overnight the futures made a slight higher high, in more overlapping waves. Then, in back-and-forth overlapping waves, the futures made a pattern which initially suggested a potential triangle. But our commentary was, "possible triangle or (it might devolve into a..) Flat wave". The triangle possibility hung on most of the day, but eventually, the overnight low was exceeded invalidating the triangle, and a larger downward wave broke several fractals lower. Here is the ES 4-hour chart.

By considering the possible triangle, we did everything we we could to count upwards with the larger trend. Today, the market would not let us, but we had a back-up plan as per the comments.

So, there are still three-waves-down and three-waves-up. Towards the end of the day, price pierced the lower parallel trend line of the recent up channel as it contacted the EMA-34 on this time frame. The EMA-13 is also sketched in for reference. If the EMA-13 should cross below the EMA-34 on this time frame, that would be a considerable negative sign. Right now, we are nowhere near there, so this serves as information only.

On the four-hour time-frame a triangle is still possible, but sentiment remains extremely stretched and there will not be a resumption of an upward count unless price closes above the EMA-13 again. Similarly, price needs to exceed the ((C)) wave low to start a larger diagonal or other wave downward.

In case you did not see this news story from the comments, it is included here again. This new rule might really throw a money-wrench into bank procedures. And anything that bothers the banks can adversely affect markets (here is the LINK to the story).

"The Office of the Comptroller of the Currency finalized a rule on Thursday that Wall Street’s largest banks have strongly opposed since its proposal in November. The OCC’s Fair Access to Financial Services rule was finalized a day after current OCC head Brian Brooks announced his resignation. The rule seeks to require banks to provide quantitative metrics proving the risks that lead them to deny services to potential clients."

Have an excellent start to the evening.

I added the current chart of the put-call ratio when the figures became available after the close. 

Put-Call Ratio - Daily - New recent lows

 

Even after today's downward movement, the put-call ratio barely budged.

TraderJoe

Three Waves Each Way

As far as I can tell at the moment, there are only three waves in each direction, as per the ES hourly chart, below.

ES Futures - 1 Hr - Three Down and Up

These three waves in each direction could be part of a downward diagonal, or part of a triangle that points upward. It is very difficult to say, and the overall point change is minimal. One negative for an upward pointing triangle is the a-b-c of the larger (a) wave of a triangle is usually quite dramatic. This one is quite long, drawn out, and boring.

Further, at the middle of the day today, I asked readers to watch for a potential diagonal due to overlaps in the upward count of the ((C)) wave. That diagonal did play out, and is counted below.

ES Futures - 5 min - Diagonal

 

In the above count, wave (v) is less in price and time than wave (iii), which is less in price and time than wave (i). Wave (iv) is less in price and time than wave (ii), and overlaps wave (i). Note the wave degree markers in this chart are for illustration and chart clarity only.

We can't know for sure if the diagonal is leading or it is ending. A clue will be if the high is exceeded before the low. However, there is a fair probability the diagonal is ending, so another clue will be the speed of any decline.

Have an excellent start to the evening.

TraderJoe

Lower Highs, Lower Lows

After making very overlapping waves in the overnight, the ES futures this morning made a lower daily low. Cash followed suit. Both cash and futures overlapped the wave (i) location. The hourly ES futures are shown below.

ES Futures - 1 Hr - Lower Low

So, the issue now becomes whether or not there is a triangle at the lower left. If there is, there are ways to count downward. Diagonal and impulse possibilities are available. Neither would be correct if price exceeded the current wave (v) high, though.

If, however, the 4 Jan low is the low of the pattern, there might be a way to add in 'an additional wave', meaning this long drawn out choppy wave could be a fourth wave with a further higher high to come. It can't be ruled out at this point as there are insufficient downward overlaps.

Further lower lows - before a higher daily high - would tend to rule in the impulse or diagonal downward.

Have a good start to the evening,

TraderJoe

Lower Highs

In the Minor B wave scenario we posted over the weekend, leading to a potential Intermediate (X) wave, down, it is possible to see the Minor B wave as having ended at Friday's high. Today, there were lower highs (at the purple arrows). But, convincing lower lows are needed. In the SPX 30-min chart, below, the wave degrees have been downgraded one degree, reflecting the Minor B scenario.

During the day, there were five half-hourly bars that closed below the lower channel boundary. But, a convincing close below wave (iv) and overlap of wave (i) would still provide better confirmation of a larger down wave. There has been no downward overlap to this point.

I have seen some waves in cash where an upwards ending-diagonal fights its way along a lower trend channel boundary, so that would seem to be the best upward alternate at this time. Still, such a diagonal wave would have to stay inside the 3,852.2 level. 

If the market only begrudgingly makes lower lows, then perhaps it is trying to make a downward diagonal. So far, the downward waves have been slow and choppy.

If there is a gap direction tomorrow, it could help provide some clarity. Meanwhile, this is a good time to remain calm, patient and flexible.

Have an excellent start to the evening.

TraderJoe

Weekly Degrees

In a prior post (see the post entitled Trillions, June 6th 2020, at this LINK), and subsequent ones, I have contended that we are in a Primary ((B)) wave higher. Since that time, many EW Professionals, pundits and YouTube videos have all but promised stocks would crash. I did not. The most I could see were corrections along the way. For a new over-view of the larger labels in the same context (with daily Elliott Wave labels removed for a moment) let's look at the weekly chart,

ES Futures - Weekly - Degrees

The chart shows that after the Intermediate (B) wave high in February 2020, the decline that proceeded was to a Primary degree ((A)) wave. Why? ..because the decline is too large in price and the whole structure from 2018 is 'too long in time' compared to prior Intermediate waves to be anything less than the higher degree. And now, the chart shows that we are nearing the 1.382 external retracement of the Primary ((A)) wave down.  There are possibly other external retracement levels this wave could eventually make - such as 1.50, or 1.62. The Primary ((B)) wave is marked with a right-arrow (>) to show that the wave is still in progress.

There are two features of this chart to note. The first is the largest correction in Time in the up move since 23 March is marked on the chart, but it is still exceptionally short in time compared to the number weeks of prior up-trending waves.

The second thing to note is that we just had an "outside week up" at the higher end of the chart, and close to external retrace levels. I will only paraphrase Ira Epstein here, "if the low of an outside week up is exceeded in the next two trading weeks, then it constitutes a trap for the bulls". This bar is also over a former weekly wedge line, so it must at least raise an eyebrow.  If price over-throws a wedge, and then trades back within the wedge, it is often a sign the wedge will break in the opposite direction. Just keep that in mind: there is no signal from price, yet, that it has turned.

Before we go to the daily chart, we know that Thursday's put-call ratio reading was again a very low 0.38, indicating very bullish sentiment from an actual market-based measure. It did back off a bit on Friday. Next, let's look at the recent AAII Sentiment Survey.

 

And, we see this measure is approaching local highs as well. My own proprietary sentiment measure shows overall bullishness from professionals, newsletter writers and the public at the highest level since the 23 March decline. It is at 59% bullish, versus 28% then.

With that in mind, and assuming we have prior wave labels correct, it begs the question of whether we will get a larger-in-price (X) wave down on the daily chart. First, here is the four-hour chart of the Dow Jones Industrial Average. A count like this has been unseen on this scale. It is a mess!

DJIA - 4 Hr - Minor B ?

It is currently being counted as a diagonal minute ((a)) wave up, followed by a complex flat, or triangle minute ((b)) wave downward, followed by an impulse minute ((c)) wave upward to a Minor B wave. Within a zigzag wave, the diagonal and the impulse alternate as they should. This may be inside of yet a smaller wedge - as shown. If this count is nearly correct, then, the overall pattern being made on the daily chart could be this one.

Schematic - Primary ((B)) Wave

The purpose of this pattern would be for the Intermediate (X) wave to become longer in time than the Intermediate (W) wave, and provide more correction to it. Right now, Minor B, up, is shorter in price and time than all of Intermediate (W), so this still fits proper degree labeling. Also, if the Minor C wave down occurs as part of an expanded flat, since it will be longer than the minute waves downward (shown as just a,b,c for clarity) this will fit with degree labeling as well.

You'll note the current pattern of variation of the corrections shown: first, the running flat for the B wave. Second the zigzag for the A wave. So, why is an expanded flat being seen as the possibility here? Because if you remember back to the Intermediate (B) wave, up of Primary ((A)), down, there was most-likely a triangle in the middle of that structure. So, it seems unlikely that there would be a triangle in the middle of this structure. I could be wrong, but that's what alternation suggests.

Further, the Expanded Flat and some downward price length, gives the Intermediate (Y) wave up more time to progress further without necessarily making a lot more price progress. For example, maybe a channel would fit around the entire correction instead of a wedge.

Those are some thoughts. Clearly, for any downward wave to begin, breaking of the current 30-minute up channel - explained in yesterday's post - and larger four hour wedge (as shown above) are needed, as are back-tests that fail at the lower channel/wedge lines.

This is the second post this weekend. If you haven't seen the first one, yet, you may wish to view it now.

Have an excellent rest of the weekend.

TraderJoe

Gap Location

Yesterday, we showed the daily chart of the Dow with the Intermediate (W)-(X)-(Y) count inside of the Primary ((B)) wave. In prior comments, we suggested that there may be a triangle in the (Y) wave. If so, it is likely a triangle for the Minor B wave, given its size and some overlap considerations. Below is the cash S&P500 Index showing the same count including the triangle.

S&P500 Cash Index - 30 Min - Up Channel

Assuming the gap is in a wave three location, and if alternation is considered, then that seems to put an upper limit on the minute wave ((v)) of the Minor C wave. If the alternation is that wave minute ((ii)) is a 'sharp' or zigzag wave, then wave minute ((iv)) is a longer-in-time expanded flat - which makes excellent alternation. And so, if that is the case, then wave minute ((iii)) is shorter than wave minute ((i)), and so wave minute ((v)) would remain shorter than minute ((iii)). To do this, it should stay below the 3,852.2 level shown.

The alternate would have to be that (x) is actually minute ((i)), and the current minute ((iv)) is all of minute ((ii)). In either event, no downward wave count starts until price is below the channel and the current wave minute ((i)) location is overlapped. Today, that overlap missed in the cash market by less than 1 S&P point. In some markets (like the Dow) that location has been overlapped.

I would keep an eye out for the put-call ratio statistics when they come out later tonight or tomorrow. Yesterday, they were back down to 0.38 and it will be interesting to see what they are today.

Have an excellent start to the weekend.

TraderJoe

 

Dow (YM) Trend Lines

The Dow Futures (YM) remains accurately on their wedge trend line with the count as it has been progressing. The exact position of Intermediate wave (Y) remains undetermined at the moment.

YM Futures - 1 Day - Wedge

A retrace to the lower trend line is still being looked for at this point. The up wave keeps losing and gaining momentum in a frustrating way as money keeps being created to keep the up trend alive. Parts of the up waves are impulsive, other parts of them are corrective. Further portions of the up waves are corrective waves that look impulsive because of their point gains.

Have an excellent start to the evening.

TraderJoe

Turmoil

Stocks were higher on election turmoil today. This is likely in response to the lower U.S. Dollar. Dollar futures made a new low before  stabilizing a bit. On the daily time frame, the proximity to the 1.382 external Fibonacci retrace, still argues for a count like this. 

ES Futures - Daily - Minor B?

There is nothing that says the up wave is over just yet. We said yesterday that a wave (ii) would have to hold the high. It did not. This could be by plan (perhaps the Federal Reserve or President's Working Group (PPT) is trying to stabilize prices until there is a new administration in place). As with most "B" waves the count is very difficult. The wave structure does not count much like a diagonal as there are many flat waves internally. Earlier in the day we posted a triangle nearer the high. That contracting variety triangle is possible, but so is a barrier variety if this B-3 wave wishes to drag on in time.

At this point, breaking & back-testing the lower wedge line, and breaking below 3,600 would be informative. Be peaceful, calm and flexible.

Have a very good start to your evening,

TraderJoe

Back-testing Channel

Nothing has changed. The channel back-test we referred to yesterday got underway today. It will either count as a-b-c or w-x-y of (ii) - provided the high is not broken.

Trading below the original (solid, black) up channel indicates a loss of momentum. The smaller up wave channel (dotted, purple) has taken more time than wave (i) down, and put a tail on 62% retrace level. Keep one eye on the Georgia election results overnight.

Have a good start to your evening.

TraderJoe

Pre-Certification Jitters and Profit-Taking

Overnight the ES futures (2 hr) ran up to the 1.382 external retracement and hit it with precision in a quite rare triple zigzag - all of which we said was possible or even likely. In the updated chart, below, from the prior post, the Minute ((b)) wave of Minor B appeared to complete at that level.

ES Futures - 2 Hr - Minute ((b)) Complete

The downward wave quickly broke the lower channel boundary, the (e) wave of the triangle, and the 3,714 level which was Confirmation Level 1 (L1) of a likely downturn. The downward wave is longer in price than any of the downward corrections within the channel, and, thus, the degree of wave has likely turned.

In a real treat for those of you who are learning degree labeling, note how the minuet (i) wave stopped just short of 100% the length of the larger degree minute ((a)) wave down - on the left. I have not shown this measurement, you are encouraged to perform it for yourself. This is as it should be to remain a smaller degree wave in the same direction as ((a)), down.

What is shown is the second level of confirmation (L2) which would be below the (x1) wave. As stated before, the final level of confirmation is exceeding the minute ((a)) wave low. Wave minuet (ii), up, is likely in progress. It 'might' back-test the channel, but it should stay lower than the all-time-high (ATH).

Have an excellent start to the evening.

TraderJoe

The Stimulus II Count

Back on December 28th we wrote, that a triple zigzag for the minute ((b)) wave up was possible ...

"From a wave-counting perspective, building on yesterday's post, we said that the minute ((b)) wave of a Minor B wave as an expanded flat, reached the needed 105% level of the prior high in order to qualify for an expanded flat. It appears to have done so as a complex w-x-y wave. So, it has met a 'typical' expectation. But, we can see no reason why - if the market chooses - that the minute ((b)) wave couldn't become longer in time and price as a triple zigzag, perhaps if the larger stimulus is passed. But, let's be clear, it does not have to."

Here is a view of this wave, which is proceeding upwards in a channel currently and is not yet at the 138% external retracement level. The ES 2-Hr chart is below.

ES Futures - 2 Hr - Minute ((b)) Wave Up

 

From the Minor A wave up, there are three-waves down to the minute ((a)) wave. From there, there is a (y) = (w) wave upward, and the red Fibonacci ruler shows how precisely this fits. Following this (y) wave is an (x) wave - likely in the form of a triangle that we also mentioned - which is labeled (x2) for clarity. Thursday's new high confirms the upward movement has not ended yet. The makings of an 'a' wave of the (z) wave are in place, but it could go higher over the weekend.

At present the 'a' wave has found resistance at the mid-channel line sketched in. The most important item to note is that a larger downward move for minute ((c)) does not start until the 3,714 level - or (x2) - is exceeded lower. Again, Monday is the first trading day of the New Year, and Institutions may have to deploy directed cash as required. At some point, jitters over the attempt by Congress to hijack the election, or other moves by the current administration to block progress on a transition, may spark a 'b' wave pull-back, and this may be followed by an Inauguration Relief rally. It's hard to say, but it seems like a plausible scenario.

The minute ((c)) wave down might occur as the new administration gets organized, and therefore stalls, temporarily, and people lock in capital gains profits if the rates are seen to be changed. Minor B is shown as a 'placeholder only'. If this wave is an expanded flat, if can drop much lower than equality with Minor A (going to 1.62 or 2.62 x A, when added to ((b))).

But all of that is in the future: this is just how ((b)) waves work. First is to see if a triple zigzag completes properly. And on that score keep in mind that the 'c' wave of a (z) wave can sometimes truncate.

Thus, the steps in confirming a downward wave in progress for the minute ((c)) wave are, 1) trading below 3,714 to break the triangle lower, 2) trading below the (x1) wave, and 3) trading below minute ((a)). Until then, we remain highly flexible in market opinion.

P.S. This is the second post this weekend, and if you have not seen the first one yet, you may wish to review it now.

Have an excellent start to the New Year.

TraderJoe