Daily Lower Lows and Lower Highs

There are the signs of a down trend. (Please note this chart lags a bit on the day and does not represent the cash close or futures close, yet). Still, the weekly chart notations indicate why the chart is considered as it is right now.

The futures and cash markets are whipping around quite furiously these days. And while volume to the down side has approached or is approaching 1:8 or 1:10, the advance decline ratio on the NYSE is more muted. It would not be out of the realm of the ordinary for price to come down and touch a parallel, in the area of a prior 4th wave.

The alternate for the count remains (1),(2),(3) but, again, there is currently a near equal relationship between (C) and (A) at this time.

Have an excellent start to the evening.

TJ

Impulse or Not?

In the very short term on the SPY 5-min chart, the upward correction to the right appears too complicated to be the simple zigzag of a diagonal. With the current movement upward - and perhaps with even more from the overnight futures - the correction appears to be in the form of ((w))-((x))-((y)) a double zigzag. These are not 'typically' contained within diagonals. See chart below.

Therefore, if the high is not crossed, then the downward wave might be an impulse in a wedge. One could argue there are five movements there, and the fourth wave alternates at least in time with the second wave - if not in extent. If the wedge should be an impulse, it might be followed by five more waves down or more. (There is one way it doesn't have to be if it is a larger c wave of a wave (iv), but that would make really a huge wave (iv) in time, and has lower odds.)

So, it might make some sense to monitor the cash channel shown on the left and see if the channel is broken to the down side after the holiday.

Enjoy the holiday, and have an excellent end to the week.

TraderJoe

62% or Better Retrace

I am only observing that there is now a 62% or better retrace from a possible wave (i) of a diagonal. This means nothing else at this time.

This could be a second wave lower (ii) of a diagonal if additional minor new highs are made. Otherwise (i) is 'the' high. Price also came down to touch and exceed the 18-day SMA as we mentioned was a possibility yesterday.

Have an excellent start to the evening.

TraderJoe

Mixed Equities - 2

Stocks index futures initially started out higher this morning, then wavered. Then they gained again as President Biden renominated Jerome Powell to another term as head of the US Federal Reserve. Then they sold off on the likely prospects that the renomination would likely mean a further continuation of the cut back in asset purchases. Here is the quick survey of financial markets.

The ES, the NQ and RTY (Russell 2000) all sold off. The Dow futures ended the session higher. GOLD sold off in a significant way - and in a way consistent with the potential expanding leading diagonal in the yellow metal. This was likely in-sync with the increase in the 10-year (and other Treasury yields as see in the end block). Crude Oil rose slightly and the VIX revisited the highs.

There are ways to count "five up" in the ES/NQ, but the certainty level is low without further downward overlaps. In the ES, price hit the upper daily Bollinger Band but the reversal caused the daily slow stochastic to lose its embedded status, so a trip back to the 18-day SMA is again possible.

Have an excellent start to the evening.

TraderJoe

Mixed Equities

Some equity markets started off a lot higher on the continued prospect of the passage in the U.S. House of Representatives for the next phase of the stimulus bill. The ES for example was initially up +17 points in the overnight markets, then reversed fully to be down -18 points. The NQ was up all day. Here is a brief survey of markets.

The ES/S&P closed the day lower, the NQ higher, the Dow and Russell futures also closed lower. Both Gold and Crude Oil also had lower low days. The VIX was up slightly and interest rates fell off a bit.

The possibility of an ending contracting diagonal remain in the ES futures. We diagrammed that in the comments for the prior post along with the hourly count. The ES today made the first higher high which might be wave (i), most likely of a diagonal - IFF it forms properly with 62% retraces. If it doesn't we may only be making another 'b' wave. We're not sure yet of anything except all the overlaps.

Have an excellent start to your evening and to your weekend.

TraderJoe

Trillions More?

In a lesser reported - but still important - story House Democrats were poised to vote on the second of the Administration's stimulus bills (see story at this LINK). The market likely got wind of this today, and much of the market headed higher. Like it or not, the market has now created the situation that we must reconcile in terms of degree.

Until three weeks ago, the up leg since November 2020 was shorter in price but yet longer in time than the leg from the March 2020 low to the August 2020 high. But now, the second leg can also be viewed to be longer in price, too. That means the two legs should be of the same degree or the second leg is of a higher degree. But, yet, in price, only a rough measure of equality exists; there is not a 1.618 relationship. Therefore, until and unless there is a clear fourth and fifth wave higher, as per The Eight Fold Path Method, we will label the legs per the Principle of Equivalence - just as I would do on any smaller degree wave.

At this point, one can only talk about probabilities, and the probabilities are only slightly favored for the (A),(B),(C) count because in a (1),(2),(3) count then wave (3) breaks a trend line from (0) to (2). The (A),(B),(C) might still be to a larger Primary ((B)) wave.

Could there be a turn lower soon? There could, but, so far, it is not on the board. The signs of excess abound. Will one man and one woman (Manchin & Sinema) stand between the American people and their trillion or so dollars? It's hard to know.

Meanwhile, back at the chart, the ES daily slow stochastic has embedded again. There is a divergence of the Dow and Russell from the rest of the market. And daily price is not in contact with or over the daily Bollinger Bands. Price is over the 18-day SMA, and any higher all-time-high, like what happened in the NQ futures today, will also turn the swing-line up. Today was an outside-day-up forming a hanging-man candle in the ES. 

As we showed in the comments, it is possible a barrier triangle or diagonal might be forming IFF (if and only if) a new high is made in the ES - like it was in the NQ.

Have an excellent rest of the evening.

TraderJoe

GOLD - Status

It is now possible to see a completed up count in GC (GOLD futures) in the daily time-frame. Yesterday was a pin-bar against the upper daily Bollinger Band. There are no guarantees, of course, but a minute ((b)) wave would be located against the 78.6% retracement level.

Importantly, the up move would have taken more time than the down wave, and it would have also closed the apparent gap left in the middle of wave (iii) on the way down. 

This count is only looking for a minute ((c)) wave down to finish an expanding diagonal larger Minor A wave down within an even larger triangle count.

Obviously, the pattern invalidates over the June high. And, yes, price is still above the 18-day SMA, so the daily bias is still UP, so be careful what you do with this information as any down wave could start out by being very, very, bumpy. In the short term, I would place a wave counting stop above the current high, and reassess as needed at that point if the stop is hit.

Have an excellent rest of the day.

TraderJoe

Not Embedded

Just checking after the evening session resumed, and the daily ES futures remains with a slow stochastic reading that is no longer embedded. This could presage a trip to the 18-day SMA. If, instead, prices  head higher it would take another three days to rebuild an embedded stochastic.

Today's down close was friendly to the possibility of a downward diagonal, but by no means was it definitive.  Here is that potential diagonal on the ES Hourly chart.

Note that wave iv did obtain a level of 78.6%, with 62 - 81% typical of diagonals. Therefore, I would place a wave counting stop above this morning's futures high for this pattern.

Have an excellent start to your evening.

TraderJoe

Devil's Advocate - 2

In the effort to play "Devil's Advocate" the issue that bothered me most was the first move off of the 2020 Covid low. On daily charts, it looks like a 'three'. And it certainly was another one of these 'grinding' waves up. I took a very long hard look at it this morning, and asked the question what could be the error? The only "Elliott compliant" count I could determine is a slightly convoluted Minute extended first wave within an Extended Minor first wave. While I don't care for it much, there are no Elliott Wave rules violations I can find. The ES 12-hr chart is below, not cash, to insure that all price movement and time is accounted for.

Again, I freely admit this count was done after the fact. It is done in an attempt to learn and to see if there any degree violations. As far as I can tell there are not. Wave minute ((ii)) is the longest correction in price and time, and it is the larger degree wave after minuet (iv).

The wedge shape is clearly outlined. There is a thrust over the wedge which results in a minute fifth wave which is shorter in price and time than minute ((iii)). So, the overall sequence is ((v))<((iii))<x((i)). And that does fit the extended first wave guidelines. There is no overlap between minute ((iv)) and minute x((i)). And, no part of minute ((iv)) travels into wave minute ((ii)) territory.

Next explored is the Neely 0 - 2 trend line. And in this case, the 0 - ((ii)) trend line clearly cuts off a third wave ((iii)).

So, if this count is correct, the conclusion I come to is this: the 0 - 2 trend line works for the case where wave three is the extended wave in the sequence. (This is similar to the situation for The Eight Fold Path Method). But because in the extended first wave case the pattern is expected to form a wedge, then the 0 -2 trend line may not, and likely will not show all of wave 3 above it, and that makes sense from the shape of the pattern about to develop.

It needs to be clear, I do not fault Glenn Neely for making the generalization. Rather, it is highly likely that there were an insufficient number of extended first wave cases to study to recognize how there could be a difference.

P.S. I have shown the above count at the Minor wave 1 level. It could very easily be upgraded to the Intermediate (1) level simply by adjusting all the wave degrees up one level, and so in the lower right it shows or (1).

This is the second post this weekend, and yesterday's post should be read to better understand this one.

Have a good rest of the weekend.

TraderJoe

Devil's Advocate

The chart below is a best attempt to play 'Devil's Advocate' with the up wave since the 2020 Covid-19 low. Below the chart is a discussion of some Pro's and Con's.

The rationale is listed on the chart. Since wave 2 is less than 38% both Prechter and Neely would tend to agree that this should indicate an extended first wave. We know from the futures - that where 3 is located - results in a shorter wave in price than wave x1. The highest point on the MACD might be for wave iii of 3. And since wave 2 was a simple sharp (zigzag), then wave 4 might be a more complex sideways or 'flat' wave. For alternation, it's b wave may have gone over the top. This chart would still indicate that there would be a lower low than the 'a' wave. Then, there would be a fifth wave higher.

Certainly, the overall extent of the rise gives concern to the Primary ((B)) wave scenario.

There ARE still problems with this line of thinking. First, it is extremely difficult to count five waves in x1. It sure 'looks' like three waves. I have looked for leading diagonals - can't find them. I have looked for running waves that allow five-waves-up to x1 and I can't find them either. 

The next problem is pure Elliott - and by that I mean Ralph, himself: that is that a powerful wave 3 never breaks a 0-1-2 base channel to the up side. This is roughly equivalent to Neely saying that the third wave breaks the 0 - 2 trend line.

A further problem is the lack of true 'impulsion' in the third wave. The third wave is currently a 'grinding' wave with lots of overlap. Rather than traveling up & to the left, it bends over and travels more to the right.

Why play devil's advocate? Perhaps none of these analysts have fully analyzed the case when the first wave is the extended wave in the sequence. Or perhaps when Elliott Wave was developed there was no concept of what quantitative easing might do to a market. Yet, in both cases a significant down wave is called for. Yes, there are enough problems here to say that this count does not rule out the Primary ((B)) wave higher. Yet, it is interesting, and still problematic. But, in the spirit of having an open mind, the count is presented.

Have a good start to the day.

TraderJoe

Equivalent and Not

While we are waiting for a more complete description of recent down side price movement in the ES daily futures, I thought I would tackle this issue. (Yes, so far prices have declined as expected).

Logic is necessary for making analytical decisions. And if market analysis is to provide a basis for market decisions, then logic must be used.  A core principle of logic is that two things can not be the same unless they are identical in every way. Let's take as an example, two mechanical springs. IF two springs have the same part number, coil diameter, coil length, wire gauge, and tension when stretched five inches, then we may say "they are the same". IF they do not share all of these properties, then they simply are not said to be the same.

Let me at the outset distinguish, "being the same" from being a member of a set or of a category. Five types of plants as in 1) an oak, 2) a maple, 3) a pine, 4) a birch, and 5) a willow are all clearly not identically the same. Yet, they are a member of the set of trees, or the classification of trees. I am not referring to things which are members of sets or categories here. I am referring to knowing when a pattern is one pattern and NOT another.

Applying this same logic to Elliott Wave analysis, we need to find a way to distinguish clearly these contracting types of patterns.

Elliott Wave Logic - Two Types of Contracting Triple Zigzags

Each of these two patterns can have zigzags for each of the numbered or lettered legs. And yet, they are both contracting patterns - or volatility compression patterns. In practice, how is one to distinguish these patterns? The Elliott Wave Principle by Frost & Prechter sites "guidelines" for the diagonal as having waves ((ii)) and ((iv)) retrace between 62 - 81% of the prior wave.

This analysis is now suggesting that term "guideline" for this measurement is too soft, or too inconclusive to have practical use in decision-making. In the markets we need to make good decisions or it can cost us money. Therefore, I am proposing - based on logic alone - that any triple zigzag compression pattern that does not meet the 62% retrace requirement for the second wave can only be labeled as the triple zigzag - when over the prior wave 3 or A high - and not be labeled as a diagonal. In these cases the pattern would most likely be a B wave or an X wave.

What makes the difference? The measurements - just like the tension measurement when the spring in the above example is stretched the five inches. Hopefully, this can prevent unintended incorrect labeling of waves in the future.

Have a good start to the evening.

TraderJoe

TL Break

Today - amidst a lot of noise - we showed that this ES 4-hr trend line broke to the down side. As soon as the cash market opened, there was an impulse to the down side, and then consolidation the rest of the day.

ES Futures - 4 Hr - Break of Recent Trend

For those who care, we suggested at least noting where the 23.6% and 38.2% Fibonacci retracement levels are located. For those who don't care - oh well. Note the EWO is red and declining.

On a slightly tighter time frame, there may be some benefit of recognizing a crossover in the 1 Hr EMA-13 versus EMA-34 and seeing if prices follow that lower, as below.

ES Futures - 1 Hr - EMA Cross

Currently the count is just viewed as incomplete - like that math class I didn't finish in high school. We may be making a triangle on the ES 5-min chart, but that remains to be seen - subject to all the usual requirements. There certainly is a bunch of overlap in the consolidation, and it has been taking a fair amount of time.

Since the Dow (YM) futures made a high on 8 Nov, it is possible that same bar is the high on the ES.

Have an excellent start to the evening.

TraderJoe

You Failed the Test

Sometimes I draw a chart with a twist or two in it to see who is watching, and who cares about counting waves. Yesterday, I posted a chart with a clear and obvious error in it to see who gives a toot. No one apparently. Everyone wants to draw their own charts - with legal counts or not - or point to their favorite website that tells them that prices are going higher forever. Or they want to show some other way to make a technical indicator work on the market. Apparently, very few people are interested in conversing regarding wave structure. So, no matter who you are - you failed the test. Why bother to read this site, or any other Elliott analyst if you are not going to engage with it? The boredom and complacency are palpable.

Yesterday's chart showed and referenced five "minute waves" symbols ((a)) - ((e)) as a triangle between two clearly marked intermediate waves. That obviously is not correct. It simply does not follow degree structure. The triangle wave should have been labeled at Minor degree as A - E. It is Minor degree waves that make up Intermediate degree waves. Intermediate degree waves are made up of Minor degree waves.

Really. No one - with few exceptions - cares a whit about degree or what it means. No one cares to lob a comment back like ("hey! I know I am right about these degree labels are you are just incorrect, TJ!").

So be it. So today there is no chart. You can read the comments for yesterday if you like.

Weekly Bias - Up
Daily Bias - Up
Intraday Bias - Finished lower.
Daily Slow Stochastic - Still Embedded
Candle Pattern: Inside Day

Have a good start to your evening.

TraderJoe

Best Alternate at this Time

Look over at the "trend line of interest" on the right hand side of the chart. This line has not been broken yet. This suggests that even if the line is broken it might only be a fourth wave yet. So, this is the alternate to the Minor B wave of (X2).

ES Futures - 1 D - Best Alternate

 

On a four-hour chart, if we are counting with the trend, we should allow the market to prove whether this up wave is an impulse or not. It could turn into one if there is a fourth wave down and a fifth wave up.

Further, we know that the wave up to alternate minute ((b)) in the ES futures overlapped like a diagonal but did not function like one. The low of the potential ending diagonal was not taken out in less time than the diagonal took to build. And, in the Dow, it did not even form a proper diagonal, with a higher fifth wave so it may not be a leading diagonal - plain and simple. This would break the rules in the Dow for a contracting leading diagonal.

Others have a suggested a triangle for this internal movement to the end of September, and this was not lost on my eyes. It was just hard to figure how this would enter into the count. With the most recent movement and highs on both the EWO and RSI, it would now appear that IFF this current up wave can impulse, up, then it may not be Minor B of Intermediate (X2), and it may be Minor A of Intermediate (Z) instead.

I do not yet see this up wave as "ending a move" because the internals (A/D line, technical indicators, etc.) are too strong at the moment. So, there could be a Minor B wave lower in this alternate count, and it might overlap the prior high - by a little or by a lot.

Again, this alternate is operable IFF (if and only if) the current up wave can form a proper impulse. It hasn't done so, yet.

Let's see how it goes. Have an excellent rest of the weekend.

TraderJoe

'Typical' B Wave Measurements Met

Weekly Bias - Up
Daily Bias - Up
Intraday Bias - Turned Lower
Daily Slow Stochastic - Embedded

IFF the up wave from the October low is a Minor B wave, then today the 'typical' Fibonacci levels for a B wave have been met. Referring to the daily chart below, the market 'put tails' on the B-3 = 1.5 x A-3 external Fibonacci retracement level - very near the upper daily Bollinger Band.

The futures market hasn't closed as of this writing, but the current situation looks like the tail candle (pin-bar?) will persist. As with all potential reversal candlestick patterns, this one must be confirmed by a significant lower low & low close candle. That hasn't happened yet.

During the day, the intraday bias turned lower, and it is now fighting with the daily and weekly bias. The daily slow stochastic is still embedded. Again, the candle could only be a profit-taking candle so caution, patience and flexibility remain desirable until better confirmation is obtained.

Regardless, as regular readers here know one broker, Ira Epstein, urges in his YouTube & client videos that clients never buy over a daily Bollinger Band, and he is quite emphatic about it - even when the slow stochastic is embedded. Rather, he suggests that is where the so-called Smart Money is often taking at least partial profits. He recommends waiting for a much better pull-back before buying again.

If you have a question about Ira's trading guidance, you can refer to this paraphrase I put together several years ago at this LINK.

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

TraderJoe

Nearing in on B Wave Measurements

The question always with B waves is, "Will They Pan Out?". Price is now approaching the 1.382 Fibonacci external retrace of the down wave. There is more room if the market wants to push it, but the up count is getting quite mature.

ES Futures - 12 Hr - Near 1.382

 

Today, the FED announced its program of tapering which is slightly faster than the last version. Often, the Asia session adds to FED day gains, at least in the overnight. Maybe one of you might comment on why I listed the minute ((b)) up where it is located.

Have an excellent start to the evening.

TraderJoe