Lower High, Lower Low, Lower Close

Including yesterday's Doji candle, we can count only a 5-3-5 downward, so far, with the ISM - Manufacturing report due out tomorrow. In an earlier draft I had expected the Payroll Employment Report due tomorrow - first Friday in the month - but I see it is being delayed a week. The 5-3-5 from the potential minute ((ii)) is shown in the ES 2-Hr chart below.

ES Futures - 2 Hr - Before Payroll Report

The intraday count very much depends on whether new highs or new lows are made from here. Either is plausible as of today. It is possible/probable today's move up to 3,825 is also another five-wave sequence higher, but it is not labeled pending confirmation. If so, a zigzag or more upward might be forming.

Of importance, the (a) wave up, has been overlapped lower, making a five-wave-sequence up from the low on this chart much, much less likely.

On the daily chart, the price bias remains lower as price is below the 18-day SMA, and the daily slow stochastic is traveling sideways although it remains marginally crossed lower.

Remember that today is the end of the month and tomorrow is the first trading day of a new month and possibly the quarter depending on company, exchange and pension fund calendars.

Have an excellent start to your evening.

TraderJoe

Lower Low - Doji Day

Overnight ES futures made a marginal new lower low. During the day stock futures traded sideways, possibly in a flat or triangle. At the close prices were near the mid-point of the ES 30-min intraday wave counting screen. Price did not approach an intraday pivot point today. The daily chart is below.

The daily bias remains lower. the slow stochastic has crossed to the down side.

Comments remain temporarily disabled. Have a good start to your evening,

TraderJoe

Wave v occurred on schedule, too

After some slight overnight lower lows in the ES 2-Hr futures, and then an reversal, ES prices opened with a gap up and nudged out a slightly higher high to the 3,950 level. This, as we suggested yesterday, was wave v. The gap was an exhaustion gap up. And after the open prices reversed, filled the gap and kept on going lower. The ES 2-Hr chart is continued below.

ES Futures - 2 Hr - Minute ((ii)) likely

The extent of the move up - as best I can tell - is (c) = 1.382 x (a). Note that even though wave 'a' made a very deep retrace on the minuet (a) wave, the up wave could not make a 1.618 extension as would be expected in a true impulse wave. Further, given that we think the best count in the futures of the center section of the wave is as a minuet (b) triangle, we think this "ups the odds" of there only having been a zigzag upward. We note the RSI divergence both on the high of wave iv and on wave v.

The magenta lower parallel trend line has been broken lower in less time than wave v took to form (at least in the futures) and the down wave is larger than the 'a' wave of the (b) wave triangle - the largest prior down wave. This tends to indicate the degree has turned.

We were able to count 'five-down' to today's close with no degree violation, and have posted a :5 at today's low. Back-testing the lower parallel trend line is certainly an option. A lot of flopping around can go on as people head out on vacation or for celebrations and the volume gets even thinner. The algo's just love the light volume to find orders and stops.

Have a good start to the evening.

TraderJoe

Wave iv occurred on schedule

Updating the ES 2-Hr wave chart in yesterday's post, wave iv occurred on schedule and as expected today. We just need to verify tomorrow that it has concluded downward. There are still ways it could extend lower, but as of the cash close it was doing OK.

If wave v upward behaves, then it might finish off the minute wave ((ii)), upward, tomorrow or the day after. If that occurs as expected that means the next wave down should be minute ((iii)) of Minor 3, and it might be a doozie (a highly technical term) with some of it occurring while people are trying to take summer vacations and time off.

Have an excellent start to the weekend.

TraderJoe

Plausible with Better Fibo's

When out of the 'heat-of-battle' it's a good time to review counts and look for the best Fibonacci ratios. While we have been counting the minute ((ii)) wave upward, the expanding wedge is still on the table. The alternative for the ES 2-Hr chart, below, is a simpler (a), (b), (c) wave of this type.

If we are making the zigzag in a parallel, then these types of waves often burn out around 1.272 - 1.618 times wave (a) for the length of the (c) wave. In this case, the overlapping waves are the (b) wave in a triangle fashion.

Have an excellent rest of the weekend.

TraderJoe

A Bit Less Doubt

Using the ES 2-Hr chart, there can be little doubt of the expanding-diagonal-type structure off of the bottom. We noted this potential structure in the past.

ES Futures - 2 Hr - Likely Expanding Pattern

There is a gap above that could fill. The diagonal itself could be ending or leading. That is still the part that raises doubt. If it is a 'leading' diagonal, then it could be an "(a)" wave, up. IFF it is an ending diagonal then it can count as the w-x-y-x-z of minute ((ii)) in its entirety. We know the degree has turned up, but other than that, degree labeling is not of great assist at this time.

Have a good start to your day.

TraderJoe

Ran into Some Resistance (Prior Support)

Price today reversed slightly higher from overnight levels in the wake of FED Chair Jerome Powell's comments. Still, after the new high, price movement was not very dynamic. Based on the ES 4-Hr futures, below, price ran into some prior support which became resistance and gave up the climb higher for the day. Price could find ways to extend the local uptrend.

As shown the upturn from the minute ((i)) wave is still quite short in both time and price. While the prior fourth wave, iv, might be all of the story, a case can be made for additional upside movement from the lower time-frame counts. Confusing the issue is the fact that the futures traded down last night and overlapped the prior high. Cash did not. Remember that structures like diagonals and triangles are certainly possible to extend the duration of an upturn. It is possible with the overnight overlap that the ES futures are trying to make one of those patterns.

And while we will continue to monitor the situation, additional wave structure is needed. We do note that the Elliott Wave Oscillator was able to get itself back into positive territory, albeit weakly.

Have an excellent start to your evening,

TraderJoe

Market Maximizes Uncertainty for Minute ((ii))

Overnight, the market made a 62% retrace in the futures and overlapped the price highs from Friday & Sunday / Monday. Not a lick of it in the cash SPY, yet. So, that seems to leave the situation below, where the black count indicates minute ((ii)) would be unfinished.

Yet, it is possible to note that there might be a flat wave from Friday where red (c) = 2.00 x red (a). That leaves the possibilities as follows: 1) a further impulse up, 2) a further diagonal up, 3) a further flat, up, or 4) a finished flat and done.

Having a finished minute ((ii)) at last night's high would only be a 23.6% retrace on the prior 4-hr down wave, and it seems short in both price and time. But it is not entirely outside of the probability space for a crash wave. That would be choice #4, above.

Choice #3, above, allows for a lower low - perhaps by a fair amount - and allows minute wave ((ii)) to extend in both price and time. The lower lows might be a trap in that case, so exceptional caution and patience is urged.

Have an excellent start to the day.

TraderJoe

EUR/USD Triangle?

The daily chart of the EUR/USD futures shows a possible/probable triangle developing in a fourth wave position. Such a triangle might precede a move down to parity with the U.S. Dollar.

EUR/USD Futures (6E) - Daily - Triangle?

Both the first, i, and third, iii, waves show clean impulses. The impulse in wave iii has been labeled.  Within potential wave iv the wave sequences already overlap, and they have a very 'three-wave' look to them.

Have an excellent rest of the holiday and start to the week. (P.S. This is the second post for the weekend and if you have not read the first, you may wish to).

TraderJoe

As Long as We're in the Channel

Below is the ES 2-Daily chart which is only provided so the degree labels of the current wave count can be determined. The degree labels are actually based on the Dow's locations BUT the ES may have its recent Minor 1 low located on the 2 May low or a slightly lower low. Then, wave Minor 2 is still corrective to Minor 1 and 1 is shorter than (1). As it stands now, the new minute ((i)) is shorter in price and time than the prior minor 1 in the same direction thus qualifying as another sub-wave.

ES Futures - 2 Day - Degree Labels

Price is currently below the lower parallel trend line - gray dashed - of the base channel as shown. Remember, as Elliott taught, the base channel is drawn from 0-to-(2) of whichever wave degree is being considered and an initial parallel is placed on (1). It is now in the magenta acceleration channel which is drawn from (2) to 2, with an initial parallel also placed on (1). As long as prices remain in the acceleration channel, then an impulse count attempt remains in effect. Price may take a relatively large price excursion upward for a minute ((ii)) wave, up. If so, any lower low following minute ((ii)) would likely be a third wave, minute ((iii)) and may serve to extend Intermediate wave (3) lower. 

A Minor 3 wave can expand significantly as long as the interior wave sequences become of increasingly smaller degree. Sometimes - because of gaps - this becomes very difficult to gauge.

Let's see how it goes.

Have a good rest of the weekend.

TraderJoe

Short-Term Count (Updated) - 2

Overnight, the market gapped lower. When the cash market opened, it kept going although with less momentum. This was not unexpected. Towards the end of the day another more definitive potential divergence formed with the RSI indicator. The update of the ES 2-Hr chart is below. It has the suggested 120 - 160 candles on it per The Eight Fold Path Methodology, actually 119 to the futures close.

In the lower right we have indicated ((i))? for the possible minute ((i)) or circle-i location which is a direct hit on the mid-channel line. Note that the EMA-34 passes through all of the larger numbered waves indicating good form and balance to the count at this time.

IFF a minute ((ii)) wave begins in the next couple of days, it can traveled upwards from 38%. However, it should not become larger in price than the Minor 2 wave. Minor 2 is located at this location in the Dow Jones Industrial Average (chart at this LINK), and it is located at the 2 June high in the upper left in tonight's posted chart update. Readers of this blog should do the calculation as to how many points in their favorite index is permitted.

Why do I suggest such? Because some people just need to do the work of Elliott Wave. EW is not just counting from 1-to-5, or putting your favorite letters on a chart. It is about understanding the size of each wave, the momentum shown in each wave, the impulsiveness versus choppiness of each wave and fitting these to the rules and guidelines in the wave principle. When you put these all together, then besides a valid count, the clear invalidation levels will stand out like a sore thumb. And these can be useful in setting stops vs. targets.

Have an excellent start to your evening.

TraderJoe

Short-Term Count (Updated)

The U.S. Federal Reserve increased interest rates by +0.75 basis points today. The market dropped, popped and then wheezed into the close. With about 106 candles now on the ES 2-Hr chart, a plausible count is shown below. An alternate count is still an expanding triangle for wave (iv).  There were too many overlaps to count impulsively today, and the measurements were not correct for a diagonal (either expanding or contracting).

Still from a channeling perspective, and from a divergence perspective, a fourth wave (iv) is plausible at this location. All of this suggests monitoring the overnight gap tonight and not getting caught off guard.

(Note: the alternate of an expanding triangle would require a lower low - as a 'd' wave - and a whippy higher high that would be the 'e' wave of a wave (iv) expanding triangle. 'Possible', but not required.)

Any lower low could be a fifth wave.

Have a good start to your evening.

TraderJoe

Short Term Count

Here are the ES 2-Hr futures and the best count that fits with degree labeling that I can see. There are currently about 97 candles on the chart.

Wave i and ii are visible on the EWO. Wave iii is the extension wave. Wave iv should be given lots of breathing room as tomorrow is the report out from the Federal Reserve Open Market Committee at about 14:00 ET, followed by the press conference.

Have a good start to the evening.

TraderJoe

The Optimistic Weekly Count

The larger parallel channel upward cracked a bit today. Price can still move lower; prices can then also back-test the lower channel boundary. The overall weekly count is currently as shown on the chart below. While the US Federal Reserve is raising interest rates and doing QT (Quantitative Tightening) a simple bear market (five-wave-decline) would not be out of the question from a fundamental viewpoint.

ES Futures - Weekly - Flat Count

Again, in trying to keep the degrees of the wave count correct, if we had three Intermediate waves as a flat to the Covid-19 low (lower left) as Primary [A], and a triple zigzag each of Intermediate degree to the Primary [B] wave high, then if we have five Intermediate degree waves down to the about the level of Primary [A], then those would make up a Primary [C] wave down to be a Cycle a wave down of a larger flat.

Why is this termed an "optimistic" count? Because if Cycle a is a three-wave sequence, it implies a Cycle b wave that can again approach the high within 90% of the prior all time high or perhaps even go over the high. Each of these cycle waves, Cycle a, Cycle b, and an eventual Cycle c would make up a wave known as SuperCycle {IV}. Again, as I have written before, I think SuperCycle {III} ended in October 2018 for reasons I have explained.

At this point, other counts assume the FED will relent on its policy, or some other factor will come along to save equity prices. Right now those items are not in evidence. So, the count remains as it is until something not expected presents itself.

If you happen to think that a wave count like this is not possible, flat waves happen every day on smaller time scales. We have shown many of them on this blog. A flat is a very common type of sideways correction. There are others. But if you think this count is too drastic, you should see what the counts that end with a five-wave-sequence up to the high predict - much, much worse than this.

Regardless of optimistic or drastic, the count being presented is the one that can most be defended using the definitions inherent in degree labeling. At this point, there is only one other count I give almost equal weight too, but the weekly chart has to make a 62 - 78% retrace to activate it, and we are not there yet.

And, for the bulls, yes - in this count - there will be plenty of wave 2's and 4's along the way that will provide significant retraces. But, we may have seen the largest wave (2) already.

Have an excellent start to your evening.

TraderJoe

The Bearish Option

On yesterday's intraday SPY chart, we did post the red label of or Top at the A wave location upward. Here's why. Downward price movement on Friday got prices down to near (but not quite hitting) the 78.6% retrace level in the ES futures. From here prices could turn up to make a larger C wave up or they could easily continue lower. If this is a true bear market, they might do the latter. Earlier we had posted the nested 1,2 count. And we have shown elements of the count before. Here is the update of the nested count which looks the best in the Dow Jones Industrial Average.

Notice that this count is consistent with degree labeling. Wave Minor 1 is smaller in price & time than wave Intermediate (1), so it may be considered as a subwave, and wave Minor 2 is smaller in price and time than wave Intermediate (2), so it may also be considered a subwave. Further wave Minute ((i)) is smaller in price and time than the prior largest Minor wave, wave 5 of Intermediate (1), down, so it may be considered as a subwave, as well.

We have counted out the Dow's expanding leading diagonal before. It has perfect form with wave lengths 5 > 3 > 1, 4 > 2 and 4 overlap 1 without going over the high of wave 2, all as three-wave zigzag sequences. We have also shown the potential contracting diagonal for the Dow before for Minor 1..

If wave Intermediate (2) is a double zigzag, then wave Minor 2 is an expanded flat.

Wave Intermediate (3) could become a 1.618 or 2.618 leg because the retrace for Intermediate (2) is greater than 50%+.

Unfortunately, this count is not yet active. It would not be activated until/unless the low of minute wave ((b)) is exceeded lower as per the chart note shown. Yet with yesterday's significant price drop and as yet unfilled gap, the odds have tilted a bit in favor of the full-on bear count. I would rate them at about 40-60% bull vs bear right now. Either could happen, but the current trend should be given the odds. The onus is now on the bulls to make a higher high than the highest high within prior Minor 2 to invalidate this count.

P.S. You might not be able to find this count in your favorite equity index - whichever it is - because of the way that index is weighted, or the number of FAANGM stocks it contains. That's not my fault. The Dow is a particular index with a particular make-up and number of stocks which is somewhat different from others. Please count each index on its own.

Have an excellent rest of the weekend,

TraderJoe

There it is again .. See yesterday's post

These expanding patterns off the high can be nasty; if they are made of three-wave sequences, they can fool anyone into thinking a long sideways triangle is in progress - until they break down. The difference being in this case, that those claiming a sideways triangle pattern were ignoring the extreme retraces inside of a triangle. There were double-bottoms and greater than 90% retraces. Most often contracting triangles have retraces that are in the range of 78.6% - 80% max. Here is the SPY hourly chart.

So, we know the SPY made a marginal higher high than wave minute ((iii)) for minute ((v)). But, we also know that the ES futures did not. Since ES might be a minor truncation, we have labeled the high as Minor A or top. Literally the only thing that matters right at this moment is whether the "prior low" holds or not. The five down waves can be an minute ((a)) wave, or they could be a ((i)) wave. 

And, yes, the waves (i) to (v) could also be the cousin triple zigzag (w) to (z) of a Minor B wave complete or near complete depending on the CPI report tomorrow morning.

Currently the wave structure is below the prior minute ((iv)) wave. If the wave is a top then it is likely the end of the flat wave from the prior downward structure and a larger impulse lower would begin. If it is the Minor A wave, then after the B wave, there could be a C wave up to make a zigzag for a wave (2) in a larger diagonal. Or, we could go over the all time high again. Be patient. Follow and count the waves. Try it for yourself. You will definitely learn a thing or two.

Have a good start to your evening.

TraderJoe

How the Dow? (You had to be there!)

I have been droning on for days and weeks now about how the market recently has been starting down from its local highs in expanding diagonals. I asked you not to get perturbed with me: the market is making the patterns; I am just trying to count them. Now why is this at all important? Well, if you were trading in the years 1990 - 2007, you would have seen the venerable Dow Jones Industrial Average make this pattern in the weekly chart.

I counted this pattern in real time, and so I remember it well. I also remember where I was able to take advantage of the count, and where the count was able to take advantage of me. It is definitely an expanding diagonal pattern, with ((v)) > ((iii)) > ((i)), and ((iv)) > ((ii)) where wave ((iv)) overlaps wave ((i)), but yet wave ((iv)) does not travel above the high of wave ((ii)).

The diagonal is just the Minor A wave. There is a large three-wave B wave, up, after that, followed by a strong and swift non-overlapping Minor C wave down to make the even larger Intermediate (A) wave which is a wave in a three-wave sequence from the high. The Expanding Diagonal Minor A wave is a "Leading Diagonal". There is a lower low after it. It did not 'have to be' leading, but it was. Diagonals are 'often' A waves. This one was, too.

After Intermediate (A), down, not shown but almost all chartists know there was an Intermediate (B) wave that went marginally over the Dow's 2000 high prior to the financial crisis Intermediate (C) wave to the 2009 low. So how does this apply to today? I think each major equity index is in this position shown for the Dow and the SPY below.

As far as I can tell, we have three waves down in each index in 5-3-5 format as Minor A,B,C. I have also shown a tentative larger blue Intermediate wave (1) for the Dow. Will an expanding diagonal or contracting diagonal come to fruition? I simply do not know. I am counting waves. But, as in the Dow example, the retraces can be quite severe. So, one must be patient and follow the rules for both types of diagonals.

Is it possible to "go over the top" again? Yes, it is. With a pattern like this The Fourth Wave Conundrum is in full swing. We are watching it operate on a lower time scale on smaller waves if you are following the comments.

But, be forewarned. See what that Dow did in 2000? Just keep it in mind is all I ask. You had to be there to see it, to experience it, and to fully understand its implications. All I can do is share that with you, and hope it provides some learning for those who didn't experience it.

Have an excellent start to your evening.

TraderJoe

Sunset & Santa Monica - More on Degree

A couple of days ago, I posted this chart of the Russell 2000 futures. As a 'test' I asked people to tell me what was wrong with the labeling. As usual few responded to the test. And the few that did, missed the larger point.

The test was in the labeling. Notice that the February bottom is labeled as (1). This means an Intermediate degree wave one. Now, look at the red label. The red label is for Minor wave A. The problem in the test is very simple. Two waves of exactly the same length at the same location simply can not be of different degree.

Let me try to verbalize it this way. The label of Intermediate (1) is like a street address. Let's say it is like the intersection of Sunset & Santa Monica Boulevard in Los Angeles which is about 7 miles from LAX airport. It represents a point in the price space and time.

The problem is that the label of Minor A is a totally different street address. It is like the intersection of Melrose and Western in Los Angeles which is about 12 miles from LAX. If you give your Uber driver the wrong location, he or she is definitely going to take your to the wrong spot.

The point is that one of the two degree labels is incorrect at that location. And, if you see an Elliott analysts labeling the same point on a chart with two different degrees, then they don't really know what they are addressing - pure and simple. Let me try to say it a different way: the exact same wave can not have two entirely different degree wave labels. It is illogical to say, "this wave is definitely 20% long", and so it needs to have two different labels. Totally illogical. We don't do this in any other aspect of life.

That's why I said at the outset I had included a quiz.

Well, no one got the simple test correct. This is not surprising. I still can't find any other analysts that are truly interested in the concept of degree. Perhaps some day I will.  

Have an excellent start to the evening.

TraderJoe

Fourth Wave Longer in Time than Third?

In this MotiveWave chart, below, the potential fourth wave in the four-hour futures is 'longer in time' than the third wave. There is a double bottom at (c), (b) which doesn't really lend itself well to a triangle count although that is a good alternate. Or perhaps the triangle will work in cash, but not in futures.

ES Futures - 4 Hr - Wave 4 longer in time than 3

The two most recent fractals are clearly shown on this chart: down (red) and up (green). Other items to note are the potential sharp for wave 2 and a potential flat for wave 4. The upward minute ((b)) wave reaches the 90% level, even as cash went slightly over the prior top. Further note the location of the prior wave four of one lower degree - minute ((iv)) at 4,041.50 and the likely running second wave ((ii)).

More later. Have a good start to your evening.

TraderJoe

The Fourth Wave Conundrum (Clearly Illustrated) - Pick Yer Poison

I have written often about Elliott Waves in a potential fourth wave position referring to this phenomenon as The Fourth Wave Conundrum (TFWC). This weekend the SPY hourly wave structure and our lack of knowledge about the outcome make this an ideal time to clearly illustrate further The Fourth Wave Conundrum with a series of charts. To do so, recall that the primary wave structures for sideways fourth waves are Flat, Triangles, and Combinations. Let's look at the first chart.

SPY Cash - Hourly - Running Triangle Variation

As you know, the most prominent feature of Friday's session was the gap down on the Payroll Employment Report. The key question becomes, "will this gap fill, or is it the start of something larger to the downside"? One way the gap could fill is with the triangle variation of a larger fourth wave. In this case, in the cash market, because the ((B)) wave is above wave iii, it would be a 'running triangle'. There is some support for this count because of the decided lack of follow-through on Friday. However, this variant would invalidate if prices travel below wave ((A)) of the triangle. If it holds, then the other waves must form properly.

The next way the gap could fill is with the larger Flat (or combination flat) variant, as illustrated below.

SPY Cash - Hourly - Flat/Combination Flat Variation

In this case the wave sequence is labeled as ((W))-((X))-((Y)) and the purpose of the pattern is to get the wave structure down to the 38.2% Fibonacci level, or greater, for a deeper fourth wave, and one that is longer in time, too. In trying not to rush the wave count both the triangle and the Flat are excellent candidates. They may be trying to create a fourth wave that better approximates the number of bars in the third wave.

The last way the gap could fill, and still not be a further correction is by the formation of a diagonal count. From wave iii there are three-waves-down. This is the deadly structure that can start all of this potential confusion. Here is how the diagonal could form from here.

SPY Cash - Hourly - Diagonal Variation

Similar to the triangle, 'a cousin pattern', this variant would invalidate at the same place. Then, there are more waves to have to form properly with the third wave shorter in price than the first, and the fifth shorter in price than the third.

The next variation in The Fourth Wave Conundrum is actually that the market topped as shown.

SPY Cash - Hourly - Market Topped Variation

In this case, the gap actually starts the next wave lower, and a second wave may still be under development if a new high is not made. Keep in mind that since the ES futures did not make a new higher high, it might also be considered a 'truncation top'. We will next add the first variation of the prior (magenta) parallel trend channel to this count.

SPY Cash - Hourly - Initial Elliott Parallel Trend Channel

The support for this count comes from the attack of the vth wave on the mid-channel line and failure there. Then, there is a back test of lower channel line which fails. In this count wave iv did not hit the 38.2% retrace unless the wave ii low is moved up to the location of ((2)) as we noted was possible particularly in the futures counts we provided in prior posts. Certainly possible.

We will also add, but not illustrate that the market could form additionally complex structures for a fourth wave. These are primarily structures like: flat-x-zigzag, flat-x-triangle and triple combination. And this almost finishes our illustration of The Fourth Wave Conundrum. There are two things to add. First, is that it is possible to drop the initial (magenta) parallel and still have it be valid as in the following chart.

SPY Cash - Hourly - Modified Elliott Parallel Trend Channel

In dropping the parallel for a larger fourth wave flat or triangle, it is best drawn to the high of the "b" wave and the lower parallel then provides target point for the fourth wave. This might also coincide with a 38% or 50% Fibonacci retracement level. Doing this allows that wave iii to pop over the top of the channel as we have illustrated often happens when the third wave is the extended wave as per The Eight-Fold-Path Method for Counting an Impulse. In our general experience, once the parallel is lowered beyond the 'b' wave high, the odds of the impulse surviving begin to drop precipitously. This is because too many of the wave peaks/troughs get cut off to satisfy the requirements of the parallel.

The last thing to add is that The Fourth Wave Conundrum occurs at every degree of trend. It is one factor that allows the market to survive by tripping traders up, creating thrusts and fake-outs that can cause account losses. So what is a trader to do? I often say that a key symptom of TFWC is that everyone wants to know what the count is. Well, here are some factors you can consider.

1. Is the fifth wave, v, yet the length of the first wave? If not, there might be more upside.
2. Are trend lines from the low repeatedly being broken without lower lows? If so, think triangle.
3. Do you have 120 - 160 bars on the chart, and what is the position of the Elliott Wave Oscillator?
4. Are marginal new highs being made each day? Then consider a possible diagonal.
5. What is the direction of gaps and are they being filled or not?

If you try to honestly answer some/most of these questions you will see that "more wave structure is needed to decide". Yes, precisely. The payoff for this diligence is that there should be either three-waves down of significance or perhaps even a new low below the low of wave i. That might be worth capitalizing on.

We hope that the awareness of the phenomenon helps you be patient in Elliott Wave counting. And we further hope that this awareness reduces perhaps the propensity to over-trade during the uncertain conditions which are presented. This is the second post since Friday and if you have not read that one yet you might like to.

Have an excellent rest of the weekend.

TraderJoe

Jobs Friday

The news let us know more than the market did today. Payroll employment levels beat the consensus, as you probably know by now, and that will likely allow the FED to proceed with QT and interest rate hikes at least as currently planned. The daily chart of the ES futures is below.

ES Futures - Daily - Mixed Message

The reason the market didn't tell us much today is that price made a higher-high, higher-low and lower-close day compared to the previous bar (HH-HL-LC). It is still below the high of three bars ago, and once again, the upper daily Bollinger Band provided resistance to a further rise. So, without making a lower low, the swing line is neutral and bias is still up. And groan: the traditional calculation of the slow stochastic closed in an embedded status today, but risks losing it on Monday. Worse still, there was only one wave down we could count today without a lower low, unless we have a truncation at the low.

The market was really a pain today, even though it declined overall. Much of the decline occurred in the after-hours leaving a sizable gap on the cash chart. And the market again resisted wave counting, making either a leading diagonal lower, or an a wave, down, and a possible triangle. More waves are needed. Just why this is occurring is a feature of this market. It may have to do with the myriad computer systems and algorithms being used to harvest market profits. Or, it may just be a function of the current high volatility level overall (as per the VIX). It could also be a function of making even a further fourth wave more extensive in time. Elucidation at this exact moment is futile.

We discussed possibilities for further upside in the comments for the prior post. You are encouraged to read them. But, today can also be viewed as a failure or truncation day for the ES (the cash SPY may have made a fifth wave higher).

Again, it is difficult to find a clarifying wave-count edge at the moment. But hang on for a bit; the skies usually clear after a while. We certainly hope so.

Have a good start to the weekend.

TraderJoe

IFF then Analogue

IFF we are in a bear market, I found a wave sequence this morning that might be its analogue. Granted this is on a much shorter time scale, ES 5-min, it shows that the wave sequence is possible! When I saw the sequence this morning my jaw dropped a bit.

ES Futures - 5 min - Mini Bear Market

Starting out down to wave ((1)), the wave sequence looks like absolutely nothing. You & I might otherwise be thinking just another corrective sequence. Then, there is the sharp rebound to just avoid  going over the high. Then, another still innocuous corrective sequence lower as wave ((3)). Then, a huge pop back up to almost take out the high of ((2)) as wave ((4)). Why wasn't the high exceeded?? Reasonable people want to know. Then there is a drop, then a clear b wave triangle, and then a much, much larger drop. And, it's a much larger drop than the triangle suggests by the usual triangle targets. All throughout waves ((1)) to ((4)) there is huge uncertainty. And then, it lets go. Notice I caught this at the time. With the waves you see.

To demonstrate to you that this really is indeed a diagonal, I am going to add the follow-on sequences in the chart below.

ES Futures - 5 min - Follow-Up Waves

Notice, the diagonal ends where I initially suggested, and then a massive, corrective flat follows, labeled as ((A))-((B))-((C)) to b. And this is followed by a c wave lower, proving out that the diagonal was a leading diagonal.

My point is two-fold: 1) there is some force in the market currently restraining downward impulses from initially forming. I'm not quite sure what it is, but I have a feeling it has a lot to do with people 'trying to get their money back' from losses. Or perhaps it is related to automatic investment schemes that just deploy money regardless of what the market is doing. Again, I'm not sure. So, there remains a huge bid under the market which causes diagonals. And, 2) with the daily three-waves down in the Dow shown yesterday, do you know where those would go? They would be that little number ((1)) up there. That's right, the majority won't believe a bear market until the breakdown of ((3)).

Will this happen? I absolutely do not know. Can it happen? Seems like it is possible. But again, diagonals are low probability patterns that must prove themselves in every detail. IFF we are in a bear market, we may only be in the very beginning stages. Can we go over the high again? Absolutely. Right now I assess pretty even odds 47-53 bull market-bear market. There is very little edge except counting the waves and trying to stay with the local trends.

Have an excellent start to the evening.

TraderJoe

Welcome to QT! (And I already smell a rat...)

Today is the first of June, the month in which the U.S. Federal Reserve said it would begin its program of selling back to the market various Treasury and mortgage-backed securities. Today was also the first trading day of a new calendar month - which often sees inflows from the common sources we have mentioned already numerous times. Well, the market mucked that second one up, and only popped higher initially before settling in to a down day.

I decided to take a look at the daily Dow today. I decided to look at it like I was analyzing any other wave. And this is what I arrived at.

Dow Futures - Daily - Count

I am highly confident that the Dow had an expanding diagonal from the high, labeled as waves ((i)) -> ((iv)) of an A wave. The measurements on the Dow are spot on. The retraces are deep. There is overlap between wave ((iv)) & ((i)). And, unlike the S&P500, wave ((v)) in the Dow is longer than wave ((iii)). And all of the sequences look like three-waves. Diagonals are often A waves. So that fits, too.

Then, after the A wave down, there is a wave up that seems to have too many sequences to be called a simple zigzag. So perhaps it is a more complex B wave. Yes, you can force it into a zigzag. But the Dow made a higher high at the end of April that the S&P500 did not.

After the B wave up, it is possible to consider the wave structure as a non-overlapping five-waves-down with a flat for wave ((ii)). Note that this wave is largely in a channel. Also note that this wave is slightly longer than wave A. This is a key tell. I've been having a lot of difficulty finding other down counts that don't violate degree logic. This count does not. And - if you consider alternation - then one has a diagonal down, a correction, and an impulse down. So, the alternation is excellent.

Next, note the overall appearance. It simply looks like three waves down in a parallel channel. If this was on the upside, I guarantee you I'd be labeling it A,B,C so far - especially with the waves so close to equality in length. And, further, if you count the daily bars, you will will find there are 94 of them from high-to-low. This seems insufficient compared to the 120 - 160 bar guideline for The Eight Fold Path Method to count an impulse.

Lastly, Neely provides the guideline that if you have a single zigzag, it will almost never have the C wave land exactly on the parallel. And see the chart note, where I specifically call out that that this wave did not terminate exactly on the parallel - just as Neely indicates.

If you add to this all that verbal hokum about whether there was or was not a bear market, I do think we had a temporary low, particularly if this wave up proves out to be in five waves: don't know if it will or it won't, but let's see.

Could this start an even larger diagonal downward? It could - if those five waves up occur, first - followed by another set of five. It needs to be a clean zigzag though.

For the moment, we also need to keep our minds open to any other count that starts with three-down. And that might include triangles, and upward diagonals or a higher high as well.

Like I said yesterday: the wave count is currently a mess. But it's our mess. Could this wave count surprise us? It could, but it is simply not possible now to travel below the low of the C wave without activating some kind of larger downward count. We remain on our toes and flexible. It is the current wave structure that is nasty. So, be calm and patient in the midst of it, and hopefully you'll persevere.

Have a good start to your evening.

TraderJoe