Saturday, April 10, 2021

Elliott Not Being Followed?

Some people say that Central Banks are running rough-shod over the Elliott Wave theory - destroying patterns and making wave counts obsolete. What part of Elliott Wave theory is not being followed here? Below is the SPY 2-Hr chart.

SPY - 2 Hr - Channel

Starting on the lower left, there are two approximately equal lows. Moving up the chart, there were some pull-backs, but - after what we think is a truncation low - then there nothing on the order of 50-62%. We thought we had detected a diagonal as part of that wave. But, we noted that the beginning of the diagonal would have to be exceeded lower in less time than it took the diagonal to form in order to be an ending diagonal. It was not. Hence, the risk is that the wave is a Leading Diagonal, and not an ending one. It looks like it was. That is almost always the risk with diagonals.

Leading Diagonals are usually "A" waves. If the usual and typical is the case here, then the up wave can be a minute ((a)) wave, and the down wave is a minute ((b)) wave. As the Fibonacci ruler shows, the minute ((b)) wave retraces exactly between 50 - 62%, as is also typical of a larger retracing wave.

Next, following the minute ((b)) wave, we likely have an impulsive minute ((c)) wave, higher. There are a pretty clear five movements, with a large gap likely in wave iii of (iii), and wave (iii) occurs on a high of the Elliott Wave Oscillator (EWO). The next high occurs on a divergence with the EWO.

Cash prices - right now - are still in a channel, as is typical of a zigzag wave, and price has met a typical zigzag target of ((c)) = ((a)), shown by the second Fibonacci ruler. Volume, as we have noted several times this week, is, well, weak. Further, the pattern of alternation right now is a diagonal for ((a)), and an impulse for ((c)). And that is good form.

So, we must ask, "What part of Elliott Wave theory is not being followed here?". Yes, must concede that if price keeps powering higher so that the up wave reaches 1.618, then an impulse might form. BUT, we must do this on nearly every single zigzag made - every time. It is part of the uncertainty in Elliott Wave theory that allows a market to be a market, and not a preordained pattern. Still, at this point in time, we have what we have.

In particular, we showed weeks ago, the likely Fibonacci confluence area on this chart - shown as it was published back on 28 March.

ES Futures - 1 Week - Prior Price Projections

Futures on Friday got up into the 4,120 zone - or well into the "Zone of Confluence" shown on the chart, this after finding support on the 1.382 Fibonacci level. So again, from a price projection point of view, "What part of Elliott Wave theory is not being followed here?".

Can price go higher? Yes, it is possible. Some zigzags reach 1.27 x ((a)). That would occur at 4,160, and should that level be exceeded higher, then it would suggest a more impulsive wave is at play. That's the interesting thing about Elliott Wave theory. It provides actionable parameters like no other. Further, from a time stand-point, I would even suggest that if a significant retrace is not in play by Wednesday morning, the idea of a zigzag begins to lose more credibility.

People often wonder, what makes me more confident of being in a Primary ((B)) wave, higher, rather than an elusive 5th wave, up, that just won't seem to impulse properly? To answer that question, I will leave you with this last chart of the monthly Dow/GOLD ratio.


As you can see, this chart topped in October of 2018, the wave that in mid-2020 I identified as the top of SuperCycle (III). The next down wave - which I also identified as the Primary ((A)) wave down -  made a low sufficient to undercut the prior 2016 low. The Elliott Wave Oscillator (EWO) measures "too deep" to likely be another fourth wave, and we have since been headed upward in this ratio. I suspect there is more to go, and the EWO has not crossed the zero line yet. It could.

But, a new high in this ratio has not been made yet, although we know it has been in price alone. And, as with any "B" wave, going over the top is a possibility, but not a certainty. So, all-in-all, in terms of "real money", the Dow just does not show impulsive behavior yet. And there are some real social anomalies showing up as well. We know about the virus, and the lack of action by the former administration, blunting overall growth and actually showing a large contraction in GDP.

This has forced the free-money printing which hasn't even resulted in a new high for this measure. But - even with the free money - it has resulted in an insurrection at the seat of government, a period of sustained social protest over racial equality and immigration policy, and the odd phenomenon of offering jobs to workers who will not take them. See this recent article from 30 Mar 2021, an excerpt is below (LINK).

Today, 500,000 manufacturing jobs across the U.S. remain unfilled, open to anyone with the right skills. And wherever possible, manufacturers are also helping upskill workers or provide on-the-job training. 

How the FED and Central Banks will rectify such a situation by printing money and allowing large corporations to incessantly buy-back their own stocks and pay no income taxes in some cases causes one to scratch their head. But, I think it is very reflective of a Primary ((B)) wave, up. It is literally built on the back of printed money and financial engineering - like no other - and it is having a difficult time making economic or social impact,

Have an excellent rest of the weekend.

P.S. The chart below was added on Sunday. It is of my proprietary Bullish Sentiment Index.

Bullish % - Weekly - Nearing Highs
 

I have been keeping this chart up meticulously since 2005 when the data I was looking for first became easily available. The weekly chart above starts with panic lows near the 23 Mar 2020 low, and it tracks the increase in sentiment each week since. There are a couple of weeks missing because with them the chart is too crowded to see the detail, but they in no way detracted from the trend. 

The chart shows that all classes of investors, from professionals to mom-and-pop, are nearing some of the highest levels of bullishness seen. These levels begin to rival the levels at the 2007 top, the 2015 top, and the 2018 top. I am looking for a pull-back around here, at least, and perhaps not yet a major top. The sentiment data would seem to be ripe for that.

An interesting thing happened with CBOE put-call data on Friday. As the market rose, puts became a little more popular. That was interesting, too!

TraderJoe


57 comments:

  1. Thks! Some further observations on the DJI/Gold chart -

    https://funkyimg.com/i/3bMVw.png

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  2. 4hr, fib clustering -

    https://funkyimg.com/i/3bMVA.png

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    1. Nicely done! And now we know for certain with this likely minute ((c)) wave, up, longer - just barely - than the ((a)) wave, that the whole structure you show can not be a contracting diagonal (stated earlier based on cash, but this is definitive).

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  3. I don't think observers are contending that CB activity obviates the application of EW analysis to the price action as clearly any post-mortem price analysis can issue in a legitimate EW count. In fact you nailed the issue in your comment, namely the inability to conclude with any certitude, until certain price points are achieved, whether a currentvwave is impulsive or correCtive!

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    1. lol .. can you state with 'certitude' any individual, in particular, won't have a heart-attack tomorrow? See my long-ago post, entitled, "Snake Oil or Not?", regarding the issue of certitude in Elliott Wave.

      http://studyofcycles.blogspot.com/2015/09/snake-oil-or-not.html

      TJ

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    2. One of the reasons I respect your analysis is that you have never claimed that EW was "predictive" as some others have. My point is simply that much of the frustrattion some express with the methodlogy is that they erroneously assume that it is...I for one never have as it is clearly not!

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    3. Please don't put words in my mouth. As the previous link to the article suggested, Elliott Wave Theory can be 'somewhat' predictive. Sometimes remarkably so, sometimes less so. However, there is much more to the story than that. Stay tuned.

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    4. My mistake. If you do think EW is predictive, notwithstanding your qualifying "somewhat" I stand corrected. I have yet to see any EW analyst back such a claim.

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  4. Futures were not around when EW was conceived. With that being said, I am a lay person, where in the world are we? I am buying July tech bear calls. TECS and I am thinking about UVXY OTM long dates...probably June/July as well.

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    1. If by being a 'lay' person, you mean you haven't read The Elliott Wave Principle for as complete an understanding as you can, then this blog may not be for you. This blog is about wave counting, first and foremost, and little time is spent on individuals trades or recommendations. If I misunderstand you, my apologies in advance, but in this post - and several previous ones - I have laid out a pretty clear idea of where I 'think' we are. For example, the very first chart above, shows an a-b-c pattern up, with the a-b-c in circles, to indicate minute-sized waves of a Minor degree correction. So, within a few days, the next move after a correction is 'often' an impulse lower.

      Beyond that, I will not regurgitate all of Elliott Wave theory here. Read the book if you have not.

      TJ

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    2. I read that impulse waves are in the direction of the underlying trend.

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    3. Sometimes correct..incorrect zzz. Read the book.

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  5. IWM (daily), a much different look -

    https://funkyimg.com/i/3bMY3.png

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  6. Recall a quite similar patttern in NDX has been recently negated by that index. A bullish engulfing candle in NDX on Friday is suggesting the break-out above resistance will hold. Both bearish and bullish patterns of late are demonstrating their denoument is by no means a fore-gone conclusion. An SPX Monday close above 4100 suggests to me a new NDX ATH, as unlikely as that might have seemed a scant week ago.

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    1. To whom is this comment directed? If replying to GreyWaver, please use the "Reply" link, so we can follow the threads. Same if intended for me.

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  7. HYG (daily) - observations

    https://funkyimg.com/i/3bN5L.png

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  8. TJ - I agree with most of what you said and your B wave count has me cautious. The global central bankers won’t be taking away the punch bowl any time soon and the fed doesn’t scare me until they invert the yield curve again. It’s just plain hard to bet against liquidity, but that doesn’t prevent a correction.

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  9. DJI (wkly) - 4 for 4 ?

    https://funkyimg.com/i/3bN7F.png

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    1. Exactly right about the continuation patterns! The display of any market weakness, which can be candlestic patterns, MA impending crosses , negative divergences etc. is met by a flood of liquidity thus preserving the upward trend. Of course this sort of unending bid issues in a constant re-working of EW counts and attempts to identify market tops an exercise in futility. Clearly the upward trend will ultimately end. It is also quite clear to me that will only happen when some event triggers sufficient market fear to over-come the liquidity flood.

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    2. Nice catch on 1.382 extensions. Although I’m bullish and probably think we are in 3 of (iii) higher on SPX, the risk out weigh the reward right now. If TJ’s count is correct we should reverse soon. Things that concern me - VIX at lower BB. - stocks above 50 & 200 ma. diverging - margin debt at ATH - the % above 200 dma. Is to high. - some technicals are diverging. None of it matters until it does, what will be the catalyst?

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    3. I think it will likely be geo-political. Markets have been divorced from economic realities for quite some time and news like earnings, employment, national debt etc have proven to be irrelevant to market price.

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    4. BTW, if anyone has not seen the data and trajectory of top and bottom line revenues and labor participation rate for the last 60 months it is eye-opening!

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  10. An additional chart and some commentary was added to the main post on Sunday.

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    1. Nice chart TJ - I also noticed that CPCE was up with SPX up, very interesting. Sentiment is definitely to bullish. A pullback would be healthy for this bull market. What are the figures on the left side of your chart?

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    2. They are the maximum and minimum bullish % levels are the prior market highs and lows.

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  11. TJ, Thanks for all the work! Went back and read "B wave personalities" (EWP P.81) and sure seems to fit.

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  12. I've seen a number of sentiment oriented data, and all looks just like yours! Highest levels in ......

    Quick peek at stocks above their 50 -

    https://funkyimg.com/i/3bNnP.png

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    1. This comment has been removed by the author.

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    2. Is sentiment data necessarily always probative? Seems to me it would have to assume market price is being driven primarily by retail buying, and that assumption, in my humble opinion, is very much open to debate!

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  13. Courtesy of the boys at EWI - (from free email)

    https://funkyimg.com/i/3bNoM.png

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    1. Hard for me to grasp why Prechter and company think that chart has any relevance in an era of unprecedented share buybacks and central bank purchases in the hundreds of billions!

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  14. Courtesy of Kimble Charting - Couldn't pass this up! :o)

    https://funkyimg.com/i/3bNpA.png

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    1. Remarkable watching people almost mindlessly doing this...! Reminds me of insanity's definition. I will continue to use only consecutive closes above round numbers to decide short term market direction. I have simply not seen a more reliable metric. We could get a gap down past 4100 in ES but I suspect cash will close above it.

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  15. Putin probably is short the market and it looks like he's about to enter ukraine

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  16. ZB (daily) coming into the week -

    https://funkyimg.com/i/3bNtj.png

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    1. Spot Gold (daily) - similar look

      https://funkyimg.com/i/3bNtx.png

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  17. A random gold stock (daily) -

    https://funkyimg.com/i/3bNvo.png

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  18. Money flow is everything and they are CLEARLY defending 4100 in ES. As long as they remain successful the dip-buyers will once again live to tell the tale...

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  19. Good morning all. Here is the ES 30-min intraday wave-counting-chart updated with daily pivot point (classic calculation), and local fractals.

    https://www.tradingview.com/x/YU0qfR69/

    And, for now, we'll say a 2-hr trend line up from the lows is still in tact but growing weaker with previous breaks.

    https://invst.ly/ufvh1

    TJ

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  20. FWIW - I’ve seen some Fibonacci time sequence work that has a turning point of 4-23 thru 4-28. I don’t trust it with earnings going to be great and I never short new money coming.

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  21. 30min look -

    https://funkyimg.com/i/3bNP4.png

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    1. Interesting count. I for one do not expect the turn off the top to be this halting. I expect it to be violent and failure to seriously challenge 4100 I think places odds in favor of a bit higher move imho...

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  22. Q’s - appear close to finishing a B wave.

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  23. Looks to me like we have yet another triangle of some sort unfolding. It could be a fourth wave just ahead of one final push higher. I am expecting 4200, at a minimum no in play before we're done...we shall see...!

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  24. 30min update -

    https://funkyimg.com/i/3bNST.png

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  25. Just today? Look at profile last few years! Lol!

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  26. Another meaningless doji in SPX today, as on the 6th?

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    1. "meaningless" = undefined; "violent" = undefined.

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    2. Happy to clarify T.J.
      Dojis at the end of an uptrend generally viewed as signaling a possible trend change. By "meaningless" what is implied is that this is an unlikely outcome.
      By "violent", I meant to convey the idea that we would see price move sharply below MULTIPLE support/resistance shelves, namely 4100, and 4000.

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  27. ES 30-min; intraday chart updated for some new fractals formed.

    https://www.tradingview.com/x/9rbvWYW8/

    TJ

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    1. ..first fractal back has broken lower.

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    2. ES 30-min; first green (up) fractal back exceeded high. Down fractal marginal break known as a "trap fractal".

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