Plausible Count and Prediction in TNX

The yield on the 10-year Treasury Note is at an interesting location. With about 102 candles on the 2-day chart, slightly lower than the recommended 120 candles for The Eight Fold Path Method for Counting an Impulse, we see that the Elliott Wave Oscillator is nearing the zero line again.

TNX - 2-Day - Running Triangle?

In this count, we note that wave Minor 2 is much less than 38.2% retrace. This often means that wave one is the extended wave in the sequence and wave three should therefore be shorter than 1. In this chart it is, assuming the higher EWO is helping us find the wave three location.  If wave 2 is a short sharp, then wave Minor 4 could potentially be a 'longer-in-time" running triangle with bullish implications. One of the purposes of the triangle is to equalize the net distance traveled between waves 4 and 2.

If the triangle is correct, as the EWO seems to suggest, it could be over already as it as already formed a legal running triangle by crossing back over the high of wave Minor 3. But, it could have one more spike lower and still be within the realm of the proper look. Further, if the triangle is correct, then wave Minor 5 should be shorter in price than wave Minor 3, since wave Minor 3 is shorter than wave Minor 1.  However, such a wave would allow interest rates to near or tag the 2.0% level before a significant retrace wave sets in.

Why count this way? I contend that one of the most common mistakes is to place the wave 1 all the on the left in August, and assume everything else, upward is part of wave 3. If you do that you will find that wave 3 is necessarily longer than 4.23 x wave 1! And then, minute ((i)) of Minor 3 would be much longer than Minor 1 in price length, and several other degree violations would occur.

Again, we note how difficult it is with proper degree labeling to exceed 2.618 as a wave extension. I mean you can count this way if you wish, but notice the difference in these two predictions:

1.  Counting with degree labeling says wave 5 will be shorter than wave 3.
2.  Counting without degree labeling says wave 5 can be any length, even longer than 3!

This is one of the benefits of counting properly with Elliott Wave: it leads to a definable prediction about future waves. And, it also provides a clear make-or-break point. If wave 5 is even one-tick longer than wave 3, it means the count must necessarily be reassessed. This is objectively different than dealing with other styles of technical analysis. It is even objectively different than counting incorrectly with Elliott Wave. Look at the difference in prediction: if wave 5 can even be longer than wave 3, then where is the make-or-break point??!!

That being said, since the entire up wave is longer than 1, if you include the segments in the triangle, and since some triangles break down instead of up, then the second bit of information from this chart would be that maybe wave 4 can hold a Flat style wave instead. That is possible but less likely because then time of the down wave and internal price lengths of the down waves really stretch their similarity to wave 2. And if downward overlap occurs instead of even a Flat, then we must conclude there was only ever an A,B,C up.

I have tried to stress repeatedly just how much information one can get from a properly constructed Elliott Wave chart. I know some people simply do not like this. They do not like "one procedure, and one procedure only", even if it is well mathematically based. They like it their way. That is just human nature. Yes, there is still uncertainty in the conclusions drawn on the above chart, but the benefit is it is uncertainty within defined limits. Maybe this clear example provides the lucid rationale.

This is the second of two posts this weekend, and if you have not seen the first one, you might like too.

Here's hoping this helps, and have an excellent rest of the weekend and/or holiday!

TraderJoe

Windows Dressed

In the comments today, we reminded readers that - today being the last day of the month - could see some sloppiness, as portfolio managers juggled their positions around for the new month. It was a fairly sloppy day, drifting after an initial pop higher. Similarly, Tuesday is the first trading day of the new month for cash equities, and the typical inflows from usual sources is 'often' seen. Further, we showed this plausible up count on the ES 2-Hr chart. And here is what was written ...

ES Futures - 2 Hr - Up Wave in a Wedge

Looking at the up wave from 4,029: there are 138 candles on the chart. The wave is diverging all the way up on the Elliott Wave Oscillator. The wave is in a wedge. And, very importantly, the wave has reached the 90% level.

This doesn't necessarily mean the wave is over. But, also very importantly, in order to adhere to degree labeling, the first subwave of y 'has to be' shorter than all of w, which it is in this format (and only in this format I think). Further, there is one level of overlap to contend with.

So, this can still be the (b) wave of a barrier triangle or a flat (or expanded flat over the high).

Next, I added that given the size of the initial 'x' wave, I would not be opposed to an 'x' wave which was longer in downward price. In other words, the light blue dashed line is the current lower wedge line. It is shown as dashed because it might be necessary to modify it slightly for a longer wave 'x'. So, that modified line is shown as dashed purple.

In addition we said there is a way to count a smaller degree potential triangle on the ES 30-min chart. But, it is only a potential and could easily devolve into a larger flat wave in the overnight session(s). And, by the end of the session, there was an additional level of overlap to contend with. Still it looks like this up wave should be wrapped up within a couple of days.

Let's see how it goes, and have a nice weekend & holiday if you are celebrating it.

TraderJoe

Fourth Wave Conundrum Again

At this point in time, there are potentials for several waves possibilities. A triangle is still plausible, although at this point a barrier triangle with (b), and (d) roughly equal in height to wave ((iii)) must be included (and maybe later an expanding triangle will need to be). But, so is a diagonal. Oh yes, but so is a Flat wave, or an expanded flat. And so is a pure fifth wave higher - assuming wave ((iv)) was made at the 4,029 low. Here is the ES 4-Hr chart. 

ES Futures - 4 Hr - Flexibility

 

All we really have at this point are some very tentative potential trend lines, assuming market momentum continues higher for a bit, and a pretty clear line of horizontal support and resistance. This condition is what I have written about earlier as The Fourth Wave Conundrum (one such post was back in 2017 at this LINK). You are seeing it here at a minuet degree of trend. It happens at all degrees of trend. Because there are over 8 different styles of waves that can occur as typical fourth waves, one has less than a 15% chance of getting the pattern correct by random chance. 

The market knows that. It makes for pretty slim odds. The other thing we know is that the bias remains up, as price remains over the 18-day SMA. 

So, all-in-all, it calls for maximum flexibility until the character of further waves is shown. As I said in the article in the link, anyone who feigns certainty might have another product - like snake oil - to sell.

Have an excellent start to the evening.

TraderJoe

Summer Doldrums

Looking at the SPY, price compression, lower volume, and a nearly flat MACD continue to suggest the possibility of a triangle.

SPY - 30 Min - Narrow

There is nothing definitive yet, lower lows are needed, but are certainly possible. For how these waves might fit in with the daily picture, see the chart at this LINK. Memorial Day weekend is coming up in just a couple of days, so it may be responsible for diverting attention from the market.

Have a good start to the evening.

Fell Out of Parallel

Shorter term on the ES futures 4-Hr chart, below, prices fell out of the most recent upwardly slanting parallel.

 

We don't know a triangle is forming until we get better confirmation of overlaps, but it looks like a good start. Triangles can be whippy, make unexpected moves, and be difficult to trade. That is why they usually occur on shrinking volume. Who wants to be unwitting victim to just a market algorithm, right?

Besides the shrinking volume, triangles are characterized by sideways movement of the EMA-34, and indicators like the MACD. Triangle waves can also show a lot of 'compression' intraday until one of the waves decides to just cut loose.

All we know today is  that the up wave lost some momentum. Besides a triangle, other three-wave interpretations are possible. Like IFF the next wave go over the top instead of below the EMA-34, then perhaps a contracting diagonal is possible. But, we're not there yet, so we'll go with what things looks like at the moment.

Have a good start to the evening.

TraderJoe

From the (W) Wave

Today made a higher high than Friday, and at least got to the 78.6% retrace level of the all-time-high, and a little more. That was hoped for in a triangle, so the proportions might turn out reasonable. Towards the end of the daily prices tailed off a bit. Here is as much detail as I can include on an ES 2-day chart from the (W) wave to the (Y) wave.

I have looked the degree labels over several times, and where they are, they make sense with no degree violations.

Now, of course, triangles can be tricky. All we have here is the suggestion of a potential triangle. Its waves would have to form correctly in every detail. This one certainly could get longer in time.

Keep an eye on the possibility, and have a good start to the evening.

TraderJoe

Hammer Plus - 2

Today's prices made a higher over the previous local highs. Then prices fell back to the 18-day SMA the line in the sand.

While better triangle proportions were made today, with the up wave now at 75% of the down wave, a triangle is not a sure thing.  As we have said, it could fail. 

The swing-line turned up today, but prices settled below the 18-day SMA which means an up trend is not in force either.  For the shorter term, we indicated that on the ES 30-min chart, a continuation of the channel count can not be ruled out yet.

ES Futures - 30 min - Channel

A fourth wave of the channel count can not be ruled out yet because, with about 106 candles on the chart, and following The Eight-Fold Path Method for Counting an Impulse, the EWO is still well within fourth wave parameters. Further, the retrace of the entire third wave is very shallow at only 23.6%. We have indicated the alternate the high might have been seen this morning, but there is nothing definitive. We remain patient, calm and flexible to see if anything is resolved in the overnight session Sunday or on Monday.

Have an excellent start to the weekend.

TraderJoe

Hammer Plus

Yesterday's weak (red body) hammer was confirmed today with a higher closing high. We said, daily prices could get back to the 18-day SMA - the 'line in the sand' - and they did. The daily chart is below.

ES Futures - Daily - Hammer Confirmation

It looks fairly clear there is a battle going on for the 'line-in-the-sand'. The potential triangle that might come before the last wave set up is sketched in. It would be great if the pattern formed with the more usual and typical 78% retraces.

The daily slow stochastic has turned upward, but is not in over-bought territory yet.  We are waiting to see if price will close above the 18-day SMA which would turn the bias positive again.

Is the triangle the only pattern under consideration? It is not. When triangles fail , they often fail as a series of nested 1-2-i, ii lower. Here is the current chart showing what the pattern would look like if the triangle fails instead.

ES Futures - 4 Hr - Alternate

 

In this alternate, wave (ii) would now be 'longer in time' than wave (i). And, we recall from counting down the wave from May high that it can be interpreted as a five-wave sequence in the futures. For the present, though, it looks like the up wave wants to finish a five-wave sequence upward, so we will allow time for that, and keep the alternate in the chart drawer for now. The point is since we can see both very realistic possibilities, neither will surprise us. We just watch and count as best we can.

Have an excellent start to the evening.

TraderJoe

Trying to Hammer

The equity market as measured by the ES E-mini S&P500 futures, dropped early in the day, crossing below the lower daily Bollinger Band, as in the daily chart, below. To paraphrase Ira Epstein (see my article on his guidelines for trading at this IRA link), "this is not such a good place to add new shorts." It wasn't and prices rebounded as we counted five-wave-up, then a higher high with possibly more to come.

ES Futures - Daily - Weak Hammer

In the process, by the settle, the daily pattern made a weak hammer candle, with still a red body. None the less, you can see that there is a tentative trend line up from the lows. It is still possible we will make a triangle-shaped wave. We don't have to, but there is a good probability of doing so before a major top.

The Bollinger Bands are pretty much sideways, and the daily slow stochastic is not in over-bought territory, so going back to the 18-day SMA can not be ruled out.

In interesting news, CNBC reported that Ford was to halt production of F-150, Bronco Sport and other vehicles due to chip shortage (link to story HERE). But beyond that, for the crypto buffs, I hope they paid attention to THIS story that the block chain has lost billions due to being hacked. Hey! The block chain was supposed to be non-hackable, and criminals were supposed to have complete anonymity as a result. It was one of the supposed selling points for the crypto's. Oh well. Throw in another loss of a few billion .. (a few billion here, a few billion there ...) and before you know it ... you know how the story ends.

Meanwhile, have a very good start to your evening.

TraderJoe

NQ 100 - Interim Report

I have not done too much wave counting on the NASDAQ 100 index for a couple of reasons: 1) it has a much different birth date than the Dow Jones Industrial Average. 2) It used to represent a 'fairly' narrow segment of the economy, with the dot-com's and high-tech names. In some ways, however, that sector has become more a prominent one, particularly during the pandemic. Therefore, I had another look at this chart from a fresh perspective.

For this index, and this one only, I would not argue if one wanted to count the rise as follows.

NQ Futures - 2 Day Close Only - Possible Diagonal

 

This count suggests that a diagonal is in progress. The overlaps in this index, unlike those in other indexes allow such a count. The count suggests that a fifth wave up, to a marginal higher high, or a fifth wave up as a slight truncation would complete such a count.

The zigzags in this count are actually supportive of the zigzags being counted in the S&P500, although the end meaning may be much different. The EMA-34 also seems to support the count, with each significant numbered wave on either side of it. The MACD - as well - with it's continual divergent highs is also supportive.

The fact that a new high is possible, or a near new-high is possible, is also supportive of trying to end the Intermediate (Y) wave in the S&P500 index, as well.

P.S. I have not seen this count anywhere else. I don't subscribe to any EW publications, and there are few, if any, EW sites I trust. As far as I know, this count was developed entirely independently.

Have an excellent day.

TraderJoe

Primary Week

Almost a year ago, on June 6th, 2020, in a post called Trillions (available at this LINK), I said it was highly likely that because of the lengths of various wave structures, we were now in a Primary ((B)) wave higher. I said, it was likely that we could go over the high. We did. And, when questioned, I said it was very possible for this Primary ((B)) wave up to also consume more time than the prior Intermediate (B) wave up to the high in 2020. This is Primary week. This week we have wave equality in time with that prior upward Intermediate (B) wave. See the weekly ES chart, below.

ES Futures - 1 Wk - Wave Equality in Time

As of this week, there is no clear sign of a top. Last week's low would need to be exceeded first. And there are still at least three good ways for this up trend to continue.

Why is recognition of Primary Week important? Unlike many professional and casual Elliott Analysts, and even several money managers, recognition of how long Primary ((B)) could last has prevented me from prematurely calling for the big crash. I was looking for corrections only, and they have been real stinkers at that! Yet, others have called at many turns for the crash! So, what are the three ways the trend could continue?

1. We can be in the fifth wave, minute ((v)) of Minor C of Intermediate (Y), now. Such a wave could truncate near the high.
   
2. We can still be in the minute ((iv)) wave - such as in a larger triangle - of Minor C of Intermediate (Y). Such a triangle could run for days, yet.
3. We can have finished Intermediate (Y), higher, and can be starting another Intermediate (X) wave. But, for this last option, we need to take out last week's low, first.

In last week's decline, some of the sentiment indicators backed off from being a tad over-heated. This week, we are traveling somewhat sideways. Recently, the NYSE advance-decline line made a new high. So there are still indications they can push this wave farther in time. Few analysts pay attention to time and what it might mean in the wave count. We hope this documented demonstration shows some of the value of doing so.

We are still taking it slowly. We are being flexible and patient and counting waves until we see the set of circumstances that looks like it spells trouble. Stay tuned.

Have a good start to the evening.

TraderJoe

Green volume?

Here is the SPY 15-minute chart. As is pretty evident, 'if the wave stopped here', there would only be three-waves up.

SPY - 15 Min - Three Up 'So Far'

Green volume was very, very light on Friday - mid-day - and red volume came alive in the last few bars. 'Often', not always, the middle of the third wave of an impulse shows 'higher' volume, not lower.

Right now (c) = 1.272 x (a), meaning it is inside a 1.618 extension. Some (c) waves do, in fact, stop here. The alternate is shown in red. 

IF a new low below 4,020 is made first, before a new high, it may answer the 'five-wave-down', 'three-wave-down' conundrum. Perhaps, then, futures are making a 5-3-5-3-5 diagonal, and cash making a 3-3-3-3-3 diagonal lower. First, that new low would be needed. At the moment, price is in "no-ones-land" from a wave-counting viewpoint, and some further definition is awaited. Breaking the up-channel shown lower, back-testing it, and failing would provide more confidence that a lower low might follow. Barring that, we must allow that the up trend continues per yesterday's post.

Have an excellent rest of the weekend. 

TraderJoe

Can't Blame a Market for Trying

As many of you longer-term blog readers know, I have been counting this wave up as a double-zigzag at Primary degree, made up of Intermediate (W), (X) and (Y). Further, students of Elliott Wave know that 'often', not always, the relationship between (Y) and (W) is equality: (Y) = (W). It definitely doesn't have to happen that way, but many times it does. With that in mind: here is the ES weekly chart.

ES Futures - Weekly - Rebound off 0.618

 

The market put in a significant down wave this week, but also rebounded off the (Y) = 0.618 x (W) Fib relationship shown above. In doing so, it regained the weekly trend line again. I asked readers not to get too excited about an ambiguous down wave in the futures - one that can be counted as a 'three' or a 'five'. There are many, many wave structures that can account for this move. We covered several of them in yesterday's comments. They include a larger fourth wave, and an (X) wave triangle, among others. In the ES, there has been no downward overlap of consequence, and only one significant swing low has been exceeded. So, as I have repeated often, new highs are possible. Let me say that again so that you don't think I am drinking the prune juice: new highs are certainly possible, maybe even more likely. But they are not for sure. With that in mind, it is conceivable that stocks try for that 0.786 Fib shown above. For example, one need only consider this daily chart.

ES Futures - 1 D - Longer C Wave?

It should be clear from a chart like this that higher highs are possible. There are other permutations of this count. For example, Minor A could be located where minute ((b)), up, currently is shown. But, they amount to roughly the same thing at this point. Readers of this blog can and should draw such a chart, and verify that the daily EMA-13 has not even crossed below the EMA-34 at this point. So again, we will be flexible, patient, and calm. And no, I am not drinking the cool-aid. Yes, a truncated fifth wave is possible too.

And while it seems somewhat difficult to have options, one thing has become more clear: it will be hard to start a true down trend without taking out that 4,030 low, marked as wave minute ((iv)), first.

Note: Over the weekend, I received numerous messages from the blog operator (Google) that a number of pages were subject to deletion for malware. Then, a roughly equal number of messages were received stating that the pages were reinstated after review. The situation looks OK at the moment, and this is one of the reasons I do not operate a paid site. The blog owner is responsible for malware protection.

Have a good start to your weekend.

TraderJoe

Temporarily Ambiguous - 20% Odds

The ES Hourly futures this morning made a lower low. They can legitimately be counted as 'five-down' with the extension in the first wave. BUT, they can also legitimately be counted as just 'three-down' with a triangle in the middle as in the second of the two ES hourly charts, below, with two roughly equal segments.

ES Futures - 1 Hr - Ambiguous

 

As a result, the five-count could be an 'a' wave down, or the bullish falling wedge that ends a fourth wave of an impulse (in the ES nothing was overlapped). 

Similarly, the three-count could end the (X) wave, just start a double-zigzag downward, or it can be part of a triangle (X) wave.

There are five possibilities here, one of which involves making a new high in some short order. So, the odds of getting this right (by random chance) are about 20%. These are not great odds. What will help is to see how long the up wave takes, and what pattern begins to form. 

Looking at today's up wave is equally ambiguous. It can be interpreted as one wave up, and a flat correction in progress, or it can be interpreted as a potential diagonal in progress, although the retraces are shallow. More waves are needed.

One needs to be flexible, patient and calm and look for some clues. Wave counting does this from time to time. When it does, one just recognizes that battleships don't turn on a time. The jumbled count is likely due to the conflict created by the money being pumped into the system by Central Banks, versus the perceived value it is providing. It would have been more telling if the five-waves-down took out an important low. They did not.

Have a good start to the evening.

TraderJoe

Breech of Up Trend Line

As prices continued lower today, we noted during the day that price was down to the daily closing up trend line. As the daily closing chart, below, shows, price pierced it lower.

Assuming the Intermediate (Y) wave is completed, then it ended on a double-divergence with the MACD on the (W) wave. 

 

ES Futures - 30 Min Close - Three waves down

During the day, wave counting downward continued. So far, to today's settle there appear to be only three waves down: a/i, b/ii, c/iii. These waves are to be counted completely equivalently until or unless there is a reason not too. The two biggest reasons not to count them equivalently would be 1) if there was a clear non-overlapping fourth wave up and fifth wave down, or 2) there was upward overlap which would indicate either the end of the down move, or a possible diagonal lower. (At this point in time there is completely insufficient evidence for any diagonal lower.)

So, we will see how these waves develop in the near term. It will be important to know if they form a five-wave or a three-wave sequence lower.

Have a good start to the evening.

TraderJoe

Simplest of the Counts - 3

During the day, I said I would have a look after the close to see whether there was anything that rules out this down wave as being a (c) rule of minute ((iv)). Have a look at the chart below, and I'll explain why degree labeling tends to but does not completely rule out a longer minute fourth wave in time.

ES Futures - 8 Hr - 'Probably' Completed

If you look at the length in time of the minute ((i)) wave on the right, you see it is 28 bars (8 hrs per candle). So, on the right, giving the up wave a longer in time (a) to (b) wave as the longest (a), and the shortest (b) wave possible, then you see that sequence is longer in time to minuet (b) than all of minute ((i)) took to form. This would tend to rule out the longer minute ((iv)) wave based on degree labeling. The new wave (b) location and minute ((i)) are in the same direction, so to preserve the definition of the degrees, then minuet (b) should not become longer than a minute wave in the same direction.

The only caveat is that the immediately preceding minute ((iii)) wave is a lot longer in price and time. Yet, if one would allow a (b) wave to become as long in time as a minute ((iii)) wave, then that would seem to grossly distort the common wave shape and not provide a wave with the right look.

The result is likely that it rules out the new wave ((iv)) location at today's low with about 80% or greater probability. There isn't much data developed yet on comparing expanded flat (b) waves to their first or third waves, however, this line of reasoning seems valid. We won't know for sure unless or until there is a retrace wave that does not go over the top again. But, based on this reasoning, there is a good shot at it.

Have a good start to your evening.

TraderJoe

Simplest of the Counts - 2

Today's down wave at the end of the day was quite strong. We were on the look-out for wave completion or a fourth wave with a final fifth wave to follow. It appears to be the former.

ES Futures - 8 Hr - Possible Completion of (Y)

The time frame for this wave is a longer and more difficult one at 8-Hr, but it is what it is. It is not yet for certain that the up wave is over. Wave minute ((v)) could subdivide. In other words, today's drop could only be wave (ii) of minute ((v)). But, it can not do so if price drops below the 4,120 level that we noted yesterday. IF the wave has completed, it has finished the Intermediate (Y) label, upwards. 

Keep in mind that another alternate can be that since the wave hasn't contacted the lower boundary, yet, it could be a much larger in time wave minute ((iv)). As of this point, I can see nothing that absolutely rules that out.

So, we possibly have a completed wave count, but we do not have confirmation. Better confirmation would come from trading well below the lower parallel, then back-testing it and failing. That could be a ways off yet.

This chart was added after the beginning of the evening session. I think if you clear away some of the clutter, the proportions are looking pretty good, and the wedge shape remains in tact.

ES Futures - 2 Day - Close Only Wedge

 

Have a good start to the evening,

TraderJoe

Simplest of the Counts

This is the simplest of the Minor C waves to the Intermediate (Y) wave, upward. It only requires completion of the minute wave ((v)).

ES Futures - 8 Hr - Simplest Count

 

It must be freely admitted that the exact location of minute ((iv)) wave could be disputed. It 'may be' an awkward triangle. And, in that event, the up wave may even be simpler. In either case, the completion of the up wave would likely best be confirmed by trading below the 4,120 level.

Have an excellent rest of the weekend.

TJ

Playing Out?

As noted in prior posts, there was a lot of 'whip and foam' in this market. It was entirely possible that a downward minute ((iv)) wave was playing out as a diagonal. It appears to be a diagonal of the expanding variety as shown in the ES 2-Hr chart, below.

Yesterday's downward wave was greater than a 1.618 wave, and is likely a third wave. Today is likely wave iv, and has already overlapped wave i, upward. It has also taken enough time to be longer in time than wave ii, but it could take more to meet the trend line if it wants, but does not have too. It has already satisfied the requirements, but can go further to make a larger zigzag. Then, there should be a fifth wave down that is longer in price and time than the third wave.

Have an excellent rest of the day.

TraderJoe

Odds a Little Better Yet

Just like on Friday, where we expected sloppiness due to the end-of-month so-called 'window-dressing', today we alerted readers to watch for 'first of the month money' resulting from the inflows seen from pension funds, 401k's, company bonus plans, dividend reinvestment schemes and the like. That money did come in the overnight futures as they 'front-ran' these likely automatically required purchases and, then, into the cash open. But, today's pop was not enough to send prices over the prior high. In the after hours tonight, the ES daily futures appear to be losing the slow stochastic as per the chart below.

Prices sold off a bit towards the end of yesterday's session, and are continuing a bit tonight. If they continue lower, the 18-day SMA (or line-in-the-sand) may be the first target, with the lower daily Bollinger Band the second target.

Intraday, we showed a way to count the money inflow. So, it remains to be seen if a lower low day will result sending the swing-line lower, and whether there will be a close below the 18-day SMA to suggest a trend lower on the swing line.

Have a good start to the evening.

TraderJoe