Last of Month / First of Month

This is just a reminder that today was the last day of the month and may have seen some sloppiness due to typical month-end 'window-dressing'. And tomorrow is the first of the month which often sees inflows from pension funds, 401k's, company bonus plans and, dividend reinvestment roll-overs, etc.

Today we were trying to count the fourth and fifth waves up of the potential (c) wave from yesterday's daily (8-hr) chart. This is what we have, so far.

ES Futures - 2 Hr - Triangle iv or diagonal (c)

After greater than a 100 point down movement in the ES futures last night, including a significant gap, there was some very skillful manipulation of price (probably by the PPT) to keep it from making a lower low. Price came within 95% of that prior low but did not pierce it - this is all while the cash market was closed. Thus, it was impossible to tell if the first move down was a, and there would be a lower low c wave down. As noted a lower low never happened, and, thus, a truncation was assumed.

After the cash open, prices ground & ground an eventually made a marginal higher high. So, that said, it looks like we either have a barrier triangle or a diagonal going on. It is difficult to tell which. Cash looked to have a Flat wave for wave four, and that chart was posted in the comments for yesterday's post.

The typical rules (for diagonals & triangle) and typical triangle targets apply. A diagonal must not have wave v longer than wave iii. And for the triangle - if this is a typical barrier triangle - then price might fall short of the widest-width of the triangle added to the breakout point.

Have an excellent start to your evening.

TraderJoe

Weekly / Daily ES & Gold in Motivewave

The following charts were produced using Motivewave to check for any obvious errors. The first is the weekly ES, showing the waves as originally counted from the low. The current count is of the triple zigzag for the Primary ((B)), or circle-B, wave higher. Note that the original count has no errors in it according to the software. But the question is what comes next? That is a matter of prediction.

ES Futures - Weekly - Primary ((B)) Count

Any reasonably good Elliot analyst will tell you that - because triple zigzags are somewhat rare - then one should remain open to the possibility of the alternate count in which there is a fourth wave at a location where the down wave ends. We have shown this alternate before in the January 20th post at this LINK. We remain open to it, but certain things would need to happen. So far, they haven't. As things stand there are no errors in the TZZ count. Further, the TZZ count is responsible for the correct timing for the largest decline in price since the March 2020 Covid low. If the high is not exceeded, it would be because the Dow does not intend to go beyond the 1.618 exterior retrace of the (C) wave down to the Covid low.

The next chart is the 8-Hr chart of the ES. This count of the potential expanding diagonal also shows no errors at the present time. As we stressed in the comments, by measurement, the Dow (DJIA) has already qualified for the expanding diagonal. The ES and the NQ have not yet. These markets can still do so if the current up wave we are in is the (c) wave of the minute ((b)), circle-b, wave of wave Minor 5. Because in a 3-3-3-3-3 diagonal wave 5 'must be' a zigzag wave, then this count would invalidate if any portion of the minute ((b)) wave travels over wave Minor 4. That's a long way away, but that is how Elliott Wave logic works. On a practical basis more than one close over the declining trend line from wave 2 to wave 4 would be a very serious warning.

ES Futures - 8 Hr - Potential Diagonal

The next chart is of weekly GOLD. For months, I have been suggesting a triangle of some degree might be in progress. That is still possible. The key thing about this week is that price progress has gotten up to very near the 78.6% retrace level. This is what is typically expected in triangles. And the latest move up can be counted as an expanding diagonal five-wave-sequence.

GOLD Futures (GC) - Weekly - Triangle or Impulse?

The weekly candle formed a large tail, so the upward count may be over or nearly over temporarily. Then the question becomes does a 78.6% wave form downward? Does the larger triangle form or does an upward impulse develop? The diagonal would be wave (1) of such an impulse, and any wave that stays above the wave B low might be wave (2) in the potential impulse count we showed in the previous post at this LINK2. This is the typical situation one finds inside of potential triangles or flat waves. Yes, it is messy. It is also difficult to make predictions. That being the case, we'll look at the Daily chart, below.

GOLD Futures (GC) - Daily - Expanding Diagonal

Here is the expanding diagonal shown 5 > 3 > 1, 4 > 2 in both price and time. The structure of the diagonal appears to be 3-3-3-3-3. And if this is the case, then more often such diagonals are 'ending' rather than 'leading'. We'll see. The issue is that IFF the diagonal is ending, then the origin of the diagonal should be exceeded in less time than diagonal took to form. Whereas if the diagonal is leading, then the (C) wave moves to the Aug 2021 B low, and the diagonal becomes (1), up.

Yes, both of these charts are messy.  It is clear we are not dealing with straight-forward impulses (yet).  The diagonals (and/or triangle) reflect the false confidence built up by the Fed's easy money policies, and the confusion created among both bulls and bears as to whether policy will reverse and by how much.

Have an excellent rest of the weekend.

TraderJoe

It's Best to See it As Probabilities

Here is the weekly chart of the ES futures contract with 100 weekly candles on it. A few notes have been made on the chart.

ES Futures - Weekly - Considerations

Starting on the left, the first move up "looks like" three waves. It might be 'five' but you really have to strain to try to make it so. I have shown a count which gets a (1) at the August 2020 high, but as I noted it was 'counting backward', and not in real time.

Next, moving up and to the right the whole wave sequence is extremely choppy. It is truly difficult to find broad expansive impulse waves up. There are a few small gaps but nothing eye-opening. As we know, the whole wave was built on FED stimulus. Now that the stimulus is slowing down, the wave structure has turned lower. This is significant rationale for the Primary ((B)) wave count. It is false in that it is not economically driven.

The latest downward wave is the largest correction on the board, now in terms of both price & time - even if the wave is considered a flat wave from the September 2021 high. That's not fatal for an upward count but it is a warning sign as the downward portion only ..not considered as a Flat.. is the longest downward wave since the March 2020 Covid low.

Next, on the right-hand-side of the chart is the Fibonacci ruler. We see that if you consider the up wave since Oct/Nov 2022 as a third wave, this down wave is not yet a 38.2% retracement. That is actually a positive for the 'five-waves-up' count, but it is one of the few.

Finally, on the lower left is shown that the Elliott Wave Oscillator has absolutely no sign of a second wave dip. 'Usually' - most often - second waves on the EWO show a dip very near to the zero line when there are 120 - 160 candles on the chart. This is completely absent from the pattern of the EWO shown.

So, those are the factors for-and-against a five-wave-up count versus a Primary ((B)) wave count - besides the condition that a line from 0 - (2) would break a third wave, actually several times. This is a matter of probabilities and circumstance as to which occurs. By circumstance, I mean that the FED could decide it must relent and not raise rates. So far, we have not heard such. As a matter of probability, we must be open to the possibility of a higher wave. IFF a diagonal forms properly (it has in the Dow futures, it has not yet in the ES futures), then it is the post-pattern behavior which will confirm a leading diagonal or clarify that it was only an ending diagonal. This is the only item that matters - not my opinion or your opinion. The market must eventually make the call.

Closer in, the ES two-hourly chart, below, indicates the count that might work to the lows.

Today's rise was sufficient to risk invalidation. From the angle of attack, it looks like last night was the third wave. That leaves a fourth and a fifth wave to complete. One way to form an impulse wave lower is to form a triangle wave iv, followed by a fifth wave lower. Again, we don't know this will occur, but the triangle's ((e)) wave could possibility eliminate overlap with wave ii. The EWO seems to indicate wave iii did occur last night, and the EWO is currently headed back towards the zero line.

In light of the first chart in this post, note how wave ii did have its EWO pull back well-toward the zero line. The thinking reader needs to ask, "why doesn't this happen on the weekly chart?".

Have a good start to your evening.

TraderJoe

Wave Minor 5

Depending on which quotes you believe, the ES E-mini S&P futures either joined the NASDAQ 100 (NQ) futures with a lower low than the January low, or they did not. Regardless, the downward progress is sufficient enough to see wave Minor 5 in progress. (The symbol 5 > means the fifth wave is likely still in progress).

With the lower low today, the daily swing line remains lower. Readers of this blog should plot the 18-day SMA and 18-day Bollinger Bands, and this is the first recent daily close below the lower band. That makes the 'rough' probability of the next close below the band only around 5 - 10%. This is a location where Ira Epstein (broker with the Lind Group) would recommend 'no new shorts' because of the low probability. To paraphrase Ira, "the Smart Money is likely lightening up on at least some of their positions at the lower band."

This is not trading or investment advice - just a paraphrase of what Ira teaches in his public videos, and it is not always the case. Sometimes, price 'latches on' to the lower daily band and 'rides it lower". This second scenario would be more in line with the expanding diagonal scenario, although sharp rebounds are possible at any time.

So, the second price target of the January low was met today. The third target will be 5 > 3. There may be more after that. Stay tuned.

Have a good start to your evening.

TraderJoe

Holiday Electronic Trading - Feb 21

Today was the celebration of President's Day. So, electronic markets traded only a half-session until the 1 PM ET close. Just a couple of notes from the ES futures daily chart, below.

ES Futures - Daily - Lower Low day

Today's bar made a lower low than Friday's. There is no taking that away. and thus, the daily swing line continues lower. The daily bias continues lower. Price hit the lower daily Bollinger band and the daily slow stochastic is currently in over-sold territory.

Keep in mind that today's bar does not 'close' until after Tuesday's session, however. Also, keep in mind that 'none' of this day's bar currently shows up in the cash market.

As far as I can tell, 14 Feb was minute ((a)) wave down, as it has fewer bars (less time) as less price travel than Minor 3, and thus qualifies as the sub-wave.  It is likely that we have started the minute ((c)) wave lower, although, again because today's bar does not show up in cash, we may have to whip around again for a second wave. In other words today 'may have' been a 'b' wave. We don't have to. We 'could' just plunge into a three-of-((c)), but price is at the lower band in an over-sold condition, so we'll have to further observe the overnight conditions.

Have an excellent rest of the day.

TraderJoe

War Premium and x(I) in GOLD?

This week in a rebuke to the potential expanding diagonal downward in GOLD (see chart at this LINK), Gold futures turned upward and headed higher in what appears to be a war premium. Because we did not make a clear five-waves-down as a diagonal in GOLD, but instead headed higher, the longer-term GOLD count has been revisited.

Gold Futures (GC) - 6 Months - x(I) Count

Because we know GOLD has traded below $35 / oz, then looking at a log chart indicates that perhaps that wave x(I) is the extended wave in GOLD. Certainly, wave (III) takes less time than the x(I) wave. And, in percentage terms, the run-up to $850 from $35 is a greater percentage move than the rise from $250 to $1900 in 2011. So, perhaps we are looking at the classic extended first wave scenario even though the nominal rise in USD terms is technically greater than the rise to $850 in the 1970's.

A further issue is this one. On a monthly chart, GOLD seems to be living to this parallel.

GOLD Futures (GC) - Monthly - Still in Parallel

GOLD hammered out a bottom three times at the $1,680-$1,700 level in 2020-21. Further, it has broken one of the key dashed down trend lines that would have defined a diagonal. So, if the diagonal formally invalidates above the 1,966.1 level, then it might just make that Vth wave higher. Gold has been very choppy, difficult to trade and may now be beginning to get directional again.

So, at this time, the larger Flat wave potential is now the alternate for both Cycle IV and SuperCycle (IV), as shown in red. And, yes, there are lots of ways this market can still pull some tricks: like what if Cycle IV becomes a larger triangle, instead of a diagonal for example? Or, what if Cycle IV becomes an expanded flat?

At any rate, the market has chosen the lower up-sloping parallel trend line to rally on, so that is the line to keep an eye on in the future. In terms of measurements, from the current wave IV location, V = I does not get price over the high. So, one might have to look for V = 0.618 x net[I-through-III], again, that is unless wave IV forms a larger triangle.

Have an excellent rest of the weekend.

TraderJoe

Swing Line Turns Lower Again

ES futures prices failed again at the 18-day SMA, and made a lower low day, turning the daily swing line lower again.

ES Futures - Daily - Lower Low Day

The count remains the same. The initial target is the lower daily Bollinger Band, and likely lower than wave Minor 3 in this count. We think we have made the minute ((a)) wave down of Minor 5, down, and likely have finished the minute ((b)) up wave yesterday, unless this minor ((b)) wave turns out to be a flat. But at this time there is no sign of that, we just mention it as the next best short-term alternative possibility.

The daily bias is still down, and the daily slow stochastic is not in over-sold territory making more downward progress that much more likely.

Have an excellent start to the evening.

TraderJoe

Russia Relief Rally

Yesterday's post suggested we look for upside sooner rather than later. There was a possibility of a more developed fifth wave down. That did not occur. What did seem to occur was a very negligible truncation which we also noted in the write-up. Thus, the count on the ES 4-Hr chart remains the same.

ES Futures - 4 Hr - Diagonal Count

The count from wave Minor 4 is that of minute ((a)), down, with the very slight truncation, and now minute ((b)) up. We must wait for the ((b)) wave, up, to burn itself out, and any lower low below minute ((a)) should start the minute ((c)) wave down of Minor 5.

This count gives us clear and crisp invalidation points at the prior Minor 4th wave high. And only good Elliott Wave analysis does that.

Again, Minor 5 only needs to be longer than Minor 3 in price, although it is ideal if it is also longer in time, too. And, here again, Elliott wave analysis provides the projected initial target.

Have a good start to the day.

TraderJoe

At some point expect a significant second wave, up.

ES futures made a new lower low day on the daily chart. That keeps the daily swing-line headed lower. Price remains below the 18-day SMA, and so the bias remains down. Today, on a shorter-term time frame we got very close to confirming five-waves-down, as shown in the ES 30-min chart, below, which now has about 100 candles on it, close to the 120 - 160 recommended.

The current wave is traveling within a parallel channel to a large degree. Today, it looked like a ivth wave running triangle (shown) had formed that met all the usual Elliott Wave rules for a triangle, and also had the right ending point on the Elliott Wave Oscillator (circled). IFF that is the case, then a lower low can be expected but also so can a pretty significant turn-around on this time frame, after lower lows. There are a couple of conditions: 1) we are assuming the wave structure did not truncate at this afternoon's higher low, and 2) technically, as long as price does not overlap wave i, down, then we can still be in fourth wave, iv. Such a wave could be a more complex structure. This is The Fourth Wave Conundrum and it occurs at every degree of trend. 

So, it might be worth watching the overnight to see if the 4,357 low is taken out or not or whether overlap develops. It looks like that wave ((1)), down and ((2)), up of five have formed. If so, a gap down in the over-night for ((3)) down, might later fill during the day on a turn-around Tuesday. There are no guarantees, of course. (None of this is intended as trading or investment advice - just a description of possible wave progress).

There is no way to reduce risk to nothing by wave counting, but the above chart, with 100 candles does suggest that if a fifth wave, v, lower forms it should do so on a divergence with the Elliott Wave Oscillator.

Happy Valentine's,

TraderJoe

The Big Boys are Playing

China is playing at hosting a winter Olympics without natural snow. Russia is threatening to invade the Ukraine without the support of the rest of the world, and the US Federal Reserve is threatening to raise interest rates and scheduled an Expedited Meeting for Valentine's Day (see entry at this LINK if you haven't seen it already.) For its part, the US equity market - as measured by the ES futures - said, "whoa", and headed lower. The daily chart is below.

ES Futures - Daily - Under the Line in the Sand

On the prior day's post, we showed what we think the structure of the down wave might be in two different levels of detail. And, in the prior post is almost a 'play-by-play' of an impulse wave down after three waves up into this morning. For now, we'll say that prices turned the daily swing-line lower, with lower highs and lower lows, and finished with the bias down under the 18-day SMA, "the line in the sand". The upper daily Bollinger Band has been steadily been creeping lower as each day progresses - looking for the point where it can wrap itself around prices. And the daily slow stochastic crossed lower from over-bought conditions.

All well & good. But, note too that there is also downward overlap now on the 24 Jan and 26 Jan up waves, and this seems to categorically rule out an impulsing wave upwards. Rather, it seems like the lower daily Bollinger Band might be a target for a market that has failed at the 100-day SMA and at the 18-day SMA.

We shall see, of course. At risk commodities (especially Crude Oil, and to some extent Gold) are currently moving higher. Yet, things could happen. There could always be an 11th hour deal with Russia. Or the FED might decide to relent on Monday. But, so far, these things have not happened. We're not sure they will. They seems to be signs of everyone in a global community playing their own games in their own silos. And so, the madness might continue while the common folk like us hope for better.

Have a good start to your evening.

TraderJoe

Potential Revision to Diagonal Count

There appear to be enough waves in the count, and still sufficient upward overlap to make this revision to the ES / SPX potential diagonal lower, here shown in the two-hour S&P500 cash index.

 

There is still a long way to go to prove out a count like this - in which the waves must form properly, so we'll take it one step at a time, remaining flexible and open-minded.

This material was added after the new session began. Diagonals can be tricky. I get that. That is why I have decided to 'play this one forward' on the site with the clear caveat that a diagonal must prove itself. IF the diagonal plays out, then the wave 5 'must be' longer than the wave 3. See chart below which is of the ES 4-Hr futures.

ES Futures - 4 Hr - Wave 5 Must Be Longer than 3 in Price

Again, IFF a diagonal is to play out, then wave 5 'must be' longer than wave 3. Thus, this forms a clear Target # 1 in the diagram, above. 'Usually' (most-often) the minute ((a)) wave will take a stab at the prior low to show its character as a Motive Wave. Remember, by the principles of degree labeling, wave minute ((a)), if it is to be a sub-wave, should not be longer than all of Minor 3. 

Then, there would be a minute ((b)) retrace which would be 'entirely up for grabs'. I have seen them be very long and touch the upper down-trend line. I have seen them we very short, or be a triangle, and then just break loose into the minute ((c)) wave - fooling a lot of us in the process. Here, the only restriction is that minute ((b)), again by degree labeling, should be shorter in price and time than all of Minor 4.

As long as all of Minor 5 is longer than Minor 3, the wave is in good shape. It may come out near 4,000. It could go lower. Sometimes Target # 2 is near the Wave 3 x 1.618 level. So, don't be surprised if it is. Again, this is all supposing five waves down to minute ((a)) form as they should.

Have a good rest of the day.

TraderJoe

US Dollar Index Gets the Impulse

In our post of 8 January 2022 (which you can revisit at this LINK) we suggested that there was a way that the U.S. Dollar Index could fully develop an impulse upward. That impulse did occur, as per the updated weekly chart below.

US Dollar Index Futures (DX) - 1 Week - Intermediate Impulse

At the time of the January analysis, we used the Elliott Wave Oscillator on the two-day chart and The Eight-Fold Path Method to indicate that as long as tentative wave Minor 4 did not overlap, then one more five-wave push higher could result in an impulse. It did. Although wave 4 did head a bit lower, it did not overlap.

At the present time, the five-waves up are being labeled as an Intermediate wave (A), up. It is likely the Intermediate (B) wave, down, has now begun. As always, the nature of a (B) wave in Elliott Wave can be "any three", including zigzag, multiple zigzags, flat, combination, or triangle. And if wave (B) should become a flat, there could be additional higher highs. Still, one might try drawing a line from ((i)) to 3 and putting a parallel on wave ((ii)), to see if the lower limits of such a parallel are tested.

Please note that this 'impulse' up is currently in contradistinction to the dollar alarmists who suggested that the dollar was about to collapse. Also note that this rise in the US Dollar occurred simultaneous with a rise in Crude Oil prices, again in contradistinction to those who base their views on the correlation of markets - who always suggest that a rising dollar means falling crude oil prices because oil is priced in dollars. That simply didn't happen this time. Why? We could suggest numerous mechanisms, but they are not the point.

The point is that we always count markets independently of each other. 

Sometimes counting markets is frustrating, boring, time-consuming, mind-twisting and a little like doing a crossword puzzle or completing a Sudoku. But unlike these last two exercises, which are also fun, there is little dollar profit to be enjoyed. Wave counting can be different.

Have an excellent rest of the weekend.

TraderJoe

Resistance at the 100-Day

Back on January 26th, I publish a chart showing a potential expanding diagonal in the ES / SPY. I did that because of strained wave counts on the way down. Today, both cash and futures got upward overlap on wave Minor 1. Here is an updated daily chart.

ES Futures - 1 Day - Potential Diagonal

Today I posted what I thought of those counts as the bottom waves were made. I had said that there were some irregularities in the impulse count. You can find that chart at this LINK. Read yesterday's comment at 09:46 am to see what the anomalies were.

After the cash close FB missed earnings and it started a downward wave of some degree.  Now the question is whether price heads below the 18-day SMA again or not, after finding some resistance at the 100-day SMA.

This is one of the reasons why diagonals are low probability patterns that must prove themselves. Price is over the 18-day SMA for wave 4, and that means this wave is fighting the daily bias. Thus, the potential pattern fights the odds.

Still, the daily slow stochastic is no longer in over-sold territory, so some of the Smart Money that got caught unawares in the decline may wish to minimize their losses, and see if there is more to the down side. As this is written, the upper daily Bollinger Band is beginning to curl down under the prior high.

For a diagonal to complete properly, wave 5 should be longer than wave 3 in both price and time, and it should be made up of a zigzag at this point. The invalidation point of the potential diagonal is above wave 2. A cause for concern would be any price higher than today, as we could count a completed ((c)) wave up today, with these last five waves. See the chart at this LINK2. (In this last chart the degree symbols are only illustrative).

Have a good start to your evening.

TraderJoe