Making the Right Stuff?

The Dow's daily pattern is 'making' all the right stuff for a potential diagonal, especially if that is a 78% wave ((ii)). 

It is, of course, way too soon to call it such. In fact, we don't 'know' that wave ((iii)) is done to the upside. And, then, of course, a fourth wave, ((iv)), would need to be confirmed.

But this is a way to work slightly higher into the New Year, and to keep the whippy guessing-game going. So, I just thought I'd bring it to your attention. In this case, since wave ((iii)) has, indeed, made a higher high, it is not required - although it is typical - for wave ((v)) to make a higher high. In other words, the last wave in an ending contracting diagonal can fail.

Here is the progress made on the ES futures count: which is the same as I've counted in SPY cash.

ES Futures - 2 Hr - Probability of a Top

Yes, there is a high probability of a top. Still, a retrace that does not go over today's all-time-high is required. Also, this up wave may only be part of a diagonal in the S&P500.

Have a great rest of the day.

TraderJoe

B Wave ?

Perhaps a "B" wave resolves the differences between the ES and NQ futures, as per the previous post. 

ES Futures - 1 Wk - Divergence Continues

There is no immediate conclusion that further progress in the (Z) wave can't occur. The waves at the top do appear to be impulsive. And until we see a completion pattern, we must err on the side of further highs. Daily price is still above the 18-day SMA and so the bias is still up. Price is not yet near the upper daily Bollinger Band, but the daily slow stochastic is still over-bought and is not embedded.

However, sometimes the Z wave of a triple zigzag does fail as a sign of the weakness of the pattern. And making wave below the recent Minor B wave would be of significant concern.

Have a very nice Holiday to all readers and contributors.

TraderJoe

Some Confusion

The stock market is now showing confusing signs. In the daily chart of the NQ futures (left pane), prices are showing a lower daily low, and not a new daily high.

NQ vs ES Futures - 1 Day - Mixed Messages

And in the chart on the right, the daily ES futures are showing a higher daily high, and no lower daily low. Further, neither chart is showing typical triangle measurements. At approximate 50% retracement levels, neither is near the more typical 62 - 78% retrace levels of the prior up leg to suggest a triangle from that bottom.

It is difficult to reconcile these patterns at the moment. I don't want to guess at this time as further study is needed.

The market over the last three days up can be counted as most of all of an impulse wave as we showed in this chart of the cash SPY.

There is still more room for wave (v) if it wants it as it is not as long as wave (iii), but wave (iii) is shorter than extended wave (i) in the above count.

Have a good start to the evening.

TraderJoe

Chop City

The choppy price action since the March 2020 weekly low is still best explained by this wave labeling. An alternate is shown below the price bars, but the alternate has a problem - which makes it the alternate at this time.

The problem with the alternate is that if wave x(1) is the extended wave in price - because the retrace is so shallow, then - usually, most-often - wave (3) is shorter in time as well as price. We are showing it because wave (3) is shorter in price, but it is not shorter in time. That is a conflict which makes it the alternate.

Whereas IFF price comes back down to the parallel in December/January, it might be doing so in an expanded flat wave (overall) which would alternate well in both price & time with the prior Intermediate (X) wave zigzag correction. At present the chart shows (Y) = (W) and that is a 'typical' relationship for corrective waves. 

Another reason for counting this way: where is that unbelievably strong wave 3 of (3) gap up on the weekly chart? Like Sherlock Holmes in The Hounds of Baskerville, we have to at least ask the question: "why didn't the dogs bark?", or - in this case - "why don't we see a huge recognition gap?" Further, we must recognize that the ES futures made a higher high this week. Those who just plot the cash indexes might not be recognizing such at this time.

Lastly, readers of this blog should have the interest and curiosity to plot the FTSE 100, and the DOW/Gold to determine 1) are all stock indexes world-wide making economically driven new highs in indexes at the same time? 2) is DOW/Gold saying that stock indexes are at all-time-highs in terms of real money? or 3) is this wave being driven more by a) free money provided by the government precisely because the economy is not doing well, b) mindless speculation at all-time fever pitch levels, and c) excessively low interest rates allowing an explosion in margin debt balances, and record stock buy-backs by corporations?

You should decide how you see it. You can see the way I am leaning even though I am patient, calm and flexible in what I count day-to-day.

Have an excellent rest of the weekend.

TraderJoe

Expect Whippy Price Action

The VIX is currently at 18, not at 9. For this reason, one might expect more whippy price action than normal. The ES futures made a marginal new all-time-high today. The SPY and the SPX cash did not. The ES 4-hr futures chart is shown below, along with the potential for further volatile price movement.

It is entirely possible that a barrier triangle is being formed near the highs, but it is way too early to call it such. In one such count, the December low is the minute ((a)) wave of such a triangle and today's high would be the minute ((b)) wave of such a triangle.

In today's intraday price movement there appeared to be five waves down from the high. This might be an 'a' wave of the minute ((c)) leg down of the triangle. We don't know for sure, confirmatory price action will be needed. Certainly, there was MACD divergence again at the high.

Have an excellent start to your evening.

TraderJoe

Flexible, Patient and Open-Minded

Yesterday, well before the FED meeting blog contributor Greywaver and I were having a discussion about the potential of the expanding triangle fourth wave scenario. As Gw pointed out, Neely said he has not typically seen them in fourth wave positions. Further, we both understood that the wave (v) from an expanded triangle should try to approach the wave (iii) in height, even if it did fail. And, still, it should measure at least 0.618 the length of wave (d). As Gw pointed out, it didn't. Therefore, the high of that wave provided as a warning in a down count. Further, this alternate was quickly developed and clearly presented.

As noted at about 1:06 PM, wave (v) could have already occurred with wave (v) on the 8th. That would leave the remaining structure as an expanded flat wave with the low at the 'typical maximum' for an expanded flat of c = 2.618 x a.

That measurement held today. Then, before the FED meeting at 12:05 pm, we further showed an internal measurement, much lower than the failure of the expanding triangle at SPY 461.72 and said to watch that level closely because it would likely mean the down wave in progress would likely be ending. That level was beaten twice: once shortly before the FED report, and once after. 

The reaction to the FED's intended actions caused an initial up wave, and then a 1.618 wave following it - all totaling 100+ S&P points from 6,602 to 6,706 in two hours' time. With this, the daily bias shifted to upward, and the daily slow stochastic is still currently over-bought.

The market is especially volatile in both directions. It requires flexibility, patience and an open-minded attitude to count waves under these conditions. What makes me happy, is that we could engage in a real discussion of wave characteristics. We did not get an expanding triangle fourth wave. And this is a good review for all, that under the right conditions an expanded flat can mimic most of the characteristics of an expanding triangle as an alternate.

Can new highs be made in the ES futures? Yes, it is possible, and even probable. We will continue to count waves as best we can as we see recognizable structures. What do I mean by that? I mean specifically that major tops are typically accompanied by either a triangle before the last wave-set or the fifth wave forms a diagonal. We have our antennas up for both, but at this time (if new all-time-highs are indeed made) it is too early to see anything of this type on the daily chart.

Have a good rest of the evening.

TraderJoe

Bias Shifts to Down

Yesterday was an outside day down for the ES futures. Today was a follow-through day and the close is likely to be under the 18-day SMA.

ES Futures - Daily - Follow Through

The daily slow stochastic is in over-bought territory and tomorrow is the FED report day.

Have a good evening.

TraderJoe

Test ?

For those who are into the details of wave counting, we may be about to test this Glenn Neely observation.

The observation (Rule #7, Page 5-31) is that the thrust wave out of an expanding triangle is not necessarily the same as the thrust out of a contracting triangle. Neely suggests that very often, the thrust wave of an expanding triangle falls short of the widest width of the triangle (the e wave), and this may result in a failure.

If the potential expanding triangle we've been monitoring over the last few days plays out, then we may get a chance to see a live test of this hypothesis.

Have an excellent start to the evening.

TraderJoe

Waiting for Answers - 3

While we wait, I think this chart is the simplest explanation I can find. It doesn't mean we've necessarily topped. But, there is something very interesting in the measurement.

NQ Futures - Weekly - Nearing 100%

 

The Fibonacci next likely relationship would be quite a ways away - which is why I mention it now.

Separately, you should have a look at a DOW chart, and confirm that the last leg down was longer than the previous one. I'm note sure what this means yet. Is it a sign of a triangle or a diagonal in the Dow? It is way too early to tell yet.

Have an excellent rest of the weekend.

TraderJoe

Waiting For Answers - 2

Using The Eight Fold Path Method for Counting an Impulse (see the Featured Post in the Upper Right Hand Corner of the main blog page), it is entirely possible to count a completed impulse, upward, which includes a truncation in the ES, and no truncation in the SPY. Here is the ES 30-minute futures chart with 150 candles.

The Elliott Wave Oscillator (EWO) indicates the peak for the third wave (it is possible to locate (iii) one or two shoulders to the right, also). And the wave is traveling within a parallel. We know that wave (iii) exceeded the 1.618 extension level, and wave (iv) is longer in time than wave (ii) by quite a bit. The EWO for wave (iv) travels below the zero line, and yet maintains the guidelines of +10% to -40% of the peak reading. Then, there are a clear five-waves-up for the ES to a potential truncation high before the parallel is broken substantially and further downward movement begins. Next, the EMA-34 indicates good form & balance with a significant numbered wave on each side of the moving average.

Yes, it is possible that this is all of the deep retrace of the potential expanding diagonal downward from the all-time-high, and the potential flat wave that followed it.

Still, while we confirmed today that a triangle count no longer works in the ES for a fourth wave, it is also possible, albeit with lower odds, to see a fourth wave anywhere down to the 50% Fibonacci retrace level. Price is nowhere near close, yet. But, the odds are beginning to decrease on that scenario because a parallel has been broken fairly substantially already.

So, keep your eyes on the Elliott Wave Oscillator to see if it starts making lows below -40% of peak. If peak EWO is 51, then (-.4 x 51 = -20.4) below -21 would be a cause for concern. For now, the weekly count remains as it is in the 30 November post.

Have an excellent start to the evening.

TraderJoe

Waiting For Answers

If you are a decent Elliott Wave analyst, then there are just sometimes when one needs to wait for their answers. Today is such a time. Based on the down count in the previous post (a 'possible' expanding diagonal, followed by a 'possible' flat wave), we were indeed expecting 'five-waves-up' off of the low. Most of that five-waves-up is complete, as charted below.

ES Futures - 1 Hr - Flat Wave or Not

Over on the left, in the tan box, you can see what might be the ((a)) wave up, and the ((b)) wave down to a marginal new low of what might be a flat wave. From that sequence, we were expecting five-waves-up, and you can see that labeled inside of the upward blue parallel.

The up wave has exceeded a 1.618 external retrace on the potential ((b)) wave of the potential flat. That does lower the odds a bit that what we are seeing is a flat.

IFF the all-time-high holds, then it is possible there is a diagonal down and a flat wave up to a deep retrace of the potential diagonal. IFF the all-time-high does not hold, then the down pattern is some sort of strange double-bottom which is difficult to fit into any count although somehow it might be a weird triple zigzag second wave or possible wave of a triangle from the all-time high.

Arguing against the flat wave are 1) momentum - there has been little retrace thus far, 2) bias - price is above the 18-day SMA and 3) stochastic - while over-bought it has not curled down yet.

So, these are the factors to consider. A good analyst does with it little bias or concern for the outcome. Why even consider the diagonal and the deep retrace? Why would someone take the time and effort to write about it in their Elliott Wave book (The Elliott Wave Principle by Frost and Prechter) if such outcomes were not at all realistic? And, why write about a potential flat where the ((c)) wave may be pushing on 2.0 x ((b))? Because why then would an author write about extended flats in his Elliott Wave book (Mastering Elliott Wave by Glenn Neely), if such outcomes were also not realistic?

For our part, we will watch and learn and count. Have an excellent evening.

TraderJoe

Higher Daily High

The higher daily high - after an outside reversal day down - might constitute a trap for the bears. There isn't a good way to tell, and price is not yet over the 18-day SMA, the 'line in the sand'. That being the case in terms of the Elliott Wave Count, this one comes closest to meeting the rules and guidelines. I need to emphasize, I do not know that this count is correct. It 'is' suspect.

IFF we've made an expanding diagonal downward, then it is being followed by a flat wave. Again, to emphasize, this count BEST fits 1) the expanding trend lines, 2) the EMA-34, with numbered waves on every side of the average, and 3) the Elliott Wave Oscillator shown below, and also mimicking the expanding pattern.

And, IFF the pattern is correct then the only way I can think of that it might work is that the net distance traveled by the b wave of wave (v) is less than the total length of wave (iv).

This is a key reason that I do not know if this count is correct. I have not run into degree labeling situations of this type before in the past, so it will be a learning experience for me as well.

Have a good start to the evening.

TraderJoe

Outside Reversal Day Down

Yesterday, it was clearly stated that we didn't know the short term direction of the market - especially in the face of the Payroll Employment Report. We said there were ways to count higher, and ways to count lower. Appropriately, today did both. After an initial rally on the payroll report, when the cash market opened, prices began to sell off and the selling continued throughout the day until about an hour from the close when prices got very choppy, and then headed up a bit to finish the day.

As you can see from the chart, prices reversed from up to down right about the level of the 9-day SMA (or the half-cycle), and then headed lower to make a new daily low. In the process, price traced out a 114 pt range! A volatile market.

The new lower daily low keeps the swing-line down, and under the 18-day SMA, so the current trend remains down, and the bias remains down, but the daily slow stochastic is also over-sold. 

Price couldn't quite tag the 100-day SMA and while the futures have not closed as of this writing, price is flirting with closing near the lower daily Bollinger Band.

In terms of the Elliott Wave count we presented an idea for a contracting diagonal downward in the comments for the prior post. You might like to read them if you have not. But, please remember, these are lower probability patterns that must form correctly in every detail. We're simply not there yet.

Have a good start to the evening and the weekend.

TraderJoe

Inside Day

There are just some times when the count is murky, and it is best to say so. This is one of those times. For now lets just refer to some measurements on the daily chart.

ES Futures - Daily - Inside Day

That today was an inside day is not in dispute. After making a 1.618 external retrace, upward, on the September down wave, prices rolled over and overlapped the prior September high, making a 50% retrace on the up wave. Those facts are not in dispute. Further, after closing two consecutive days outside of the lower daily Bollinger Band, prices had 'roughly' only a 3%  chance of closing outside of the bands again today - especially with an over-sold daily slow stochastic. So, prices closed inside of the lower band and reset the number of consecutive closes. 

Tomorrow is the Payroll Employment report. It is hard to know if the news-reading algo's will try to tag the 18-day SMA ('the line in the sand') or not.

Being in the middle of a range like this with numerous overlaps on the way down is what I call 'no man's land'. There are ways to count lower, and there are ways to count higher. Any lower count requires taking out yesterday's low. Any higher count should at least exceed the 4,700 level - even if it is to make a truncation.

This is a good time to make local counts and see how they work or fail to work. Today's up wave for example seemed to invalidate a nested second wave within a third wave count. A good option remains an expanding diagonal, downward. In that option, then likely price would still come up and tag the 18-day SMA. Another good option - because of the downward overlap on September's high - is a triangle, but there is currently insufficient downward movement yet for that to be fully in play yet.

So, we'll have to try to see where the so-called Smart Money is going with this one and count as best as possible when we recognize what we see.

For now, the daily bias is down, the swing-line is down, and the daily slow stochastic is still over-sold.

Have a good start to the evening.

TraderJoe

Failure and Acceleration Noted

In an interesting change of circumstance, after the usual 'first-of-the-month-money' flooded the market, both a failure swing and downward acceleration were noted today. The SPY 30-min chart, below continues to document the count.

The failure swing is a double-combination w-x-y failure. This wave is not a triangle, and this indicates that downward movement can continue.

In general 'C' waves opposite the direction of the trend should not show acceleration. If the trend was up and the latter wave down was a "C" wave in an overall (a), (b), (c) down count then the last wave should not have shown such acceleration. This tends to indicate that the wave being formed downward is a third wave. It can continue if it likes, and it might make a 1.618 or greater wave downward (subject to the usual backing and filling).

Similarly, a second wave of the third wave should not be longer in time than all of (ii), and neither should it exceed the maximum price travel of wave (ii), as well. 

Have a good start to your evening.

TraderJoe