Woo a Potential Triangle, Don't Marry It

Below is the daily chart of the ES futures. The potential triangle we have been trying to count can be seen between the blue converging lines in the middle-right of the chart.

If a lower low is made in the YM futures, then it is possible to count five waves in both the ES and the YM futures. But, as noted previously, there simply are no guarantees. The structure could break up as well as lower. IF it breaks up, then it is likely the second wave, ii, of the structure.

At the end of the day, prices were left nearer the highs than lows. But a wave ((E)) in a triangle was not invalidated yet. If there is to be a fifth wave down, the wave should likely impulse, but we can also see no reason why it could not diagonal. One issue might be timing, as below.

Tomorrow is the last trading day of the month, the quarter and the year. It is possible that it will be a sloppy or a down day to accommodate "window dressing" prior to the potential standard inflows we have written about that accompany a new month, new quarter or new year as money from company bonuses, pension plans, 401k's, dividend roll-over schemes, etc., enters the market. 

So, an impulse down might we well-timed to set up the market for a rise in the new year. It does not have to happen that way, but it could. If so, look for a significant gap in the overnight.

I should also note, that the daily slow stochastic un-embedded for only one day. Therefore, it has indeed re-embedded, even using the standard calculation.

Have an excellent start to the evening,

TraderJoe

Apple Pit ?

While we are doing our level best to count waves downward, the potential four-hour triangle in the ES futures is still just barely alive at the end of the session. If the triangle breaks down further, it could become a barrier triangle. If it breaks down even further than that, it might morph into a contracting diagonal.

We are 'expecting' downward waves. They are occurring. We continue to do our best to count waves in accordance with the rules. Today, before a wave surprised on the downside a bit, we warned twice that there are ways the waves could just crumble. It's a bear market and today some waves did fall apart. One of those charts that is falling apart more is that of AAPL as shown below in the weekly chart.

In the last couple of days AAPL has broken the prior weekly low.  Just be aware of it. It has a lot of influence on a lot of stock averages. 

Have an excellent start to the evening.

TraderJoe

One of the 'possibilities'

Overnight the ES futures were roughly 25 - 30 points higher. Before the cash open, they started downward. But the highest that the cash new high reached was less than one full point! Some very weird things are going on in the lighter holiday volume. We're used to that. Below on the ES 4-hr chart is one of a couple of good possibilities. As we've said, it is possible to see wave v at the low.

Yet it is also possible to see a running triangle at this point as well, and then wave v form later. Only a couple more wave termination points need to form properly. And they might happen in the after-hours. The purpose of the running triangle would be to even up the net difference with the second wave in the structure. But because the triangle has a lower ((B)) wave it would still be a bearish formation and not necessarily halt the total decline.

There are other ways for a longer in time fourth wave to form (larger flat?) but so far there no signs of those formations and there is already downward overlap.

Conversely, if the potential triangle is invalidated upwards, then it is more likely wave wave v ended where shown at the low, and this would also end wave (i), down, and price would then more likely be in wave (ii), up.

Have a good start to the evening.

TraderJoe

Simplify, Simplify

Here is the weekly chart of the ES futures, with the count simplified just to show the major idea. So, for better chart clarity forgive the use of a to represent minute ((a)) or circle-a. The other symbols are correct, and a symbol key is shown in the lower left.

So, is the 5th Extension Diagonal (also known as the 3-3-3-3-3 Expanding Diagonal) a good way to form a Head & Shoulders pattern? That is the question. If we are in Minor wave x5, then it is already longer in time than wave Minor 3, and now it needs to become longer in price, with the minimum shown. So far, volume has been increasing with lower price.

Merry Christmas & Happy Holidays to all,

TraderJoe

Still on Track - 2

We were expecting upside movement today in form of the continuation of a fourth wave, higher. The ES 2-Hr chart, below, shows the current count. It's good as far as it goes.

With price at the 38% retrace of wave iii, it is an excellent place for wave iv to have ended. We got some indication of that in the prior post by seeing a potential ending expanding diagonal which was fully retraced in less time than the wave took to form (see LINK here).

So, we would expect a fifth wave, v, to begin in earnest tomorrow - perhaps on the unemployment claims data. Time will tell.

Any down movement today - even off the high - was still slow and halting. Someone is keeping a consistent bid under the market: for what reason is unclear. The pre-holiday trading is now a bit lighter.

There is really no reason to look at alternates other than for the exercise because there is no upward overlap and price is not over the 50% retrace level. If we do get a surprise move upward, I could see how the low on the 19th might be wave an alternate i, and a further up move might be wave ii. It just depends on if that extra wave is present at the high or not. But let's see how it goes first.

Today was a higher high day. and does move the swing-line indicator higher on the daily chart - at least temporarily.

Have a good start to the evening.

TraderJoe

Still on Track

ES futures prices were lower overnight and made a lower daily low keeping the swing-indicator headed downward without indicating a trend, lower. Prices remained below the 18-day SMA and the daily bias remained negative. However, after two consecutive days outside of the lower daily Bollinger Band, prices did creep back inside the band resetting the number of consecutive closes. Remember, price tends to close outside of the band only about 5% of the time. The daily chart is below.

ES Futures - Daily - Back Inside the Band

The daily slow stochastic is still in over-sold territory and has not yet embedded. The Bollinger Bands continued to widen to the downside.

From an hourly perspective, there is no proof of anything yet - although there may very well be a 1.618 wave downward, as below, with 120+ hourly candles on the chart.

ES Futures - Hourly - A 1.618 Wave

As is typical, the primary question now is whether an adequate fourth wave, up, forms, and then whether a fifth wave lower forms after that. Already the Elliott Wave Oscillator is back above the zero line in some very compressed action today. Recall, the exact location of wave iii depends on how many one-two's you see on the 14th. It is not as clean as one would like.

Keep in mind it would take a daily higher high candle to even temporarily turn the swing line up enough to say there is a point from which a trend lower could develop. So far, that has not yet happened.

Have a good start to the evening.

TraderJoe

So far on track

For the time being price movement is largely as expected. I'm trying not to over-complicate things and that's why the wave-counting-stop is shown in the ES Futures Daily Chart, below. The minute ((b)) wave up was a bear to count.

ES Futures - Close Only - Currently Lower

Now, the overlap warning on the downside was hit two days ago. The EWO is falling off, and price has pierced a parallel to the down side. It's hard to give the upside much credence until or unless the wave-counting-stop is hit or exceeded (use OHLC for that).

There could still be surprises in both directions although downside surprises would be much less shocking at this point.

Have an excellent start to the evening.

TraderJoe

Battle at the Lower Band

Overnight, ES futures prices were marginally higher but failed at the 100-day SMA shown as the green crosses in the daily chart, below. In follow-through selling to yesterday's down move, prices continued falling overnight and then began tracking on the lower daily Bollinger Band. New lows were made after the cash open and then prices began to get very compressed and began oscillating, trying to rally into the close but giving much of that back.

ES Futures - Daily - Battle at the lower band

The bands are just beginning to be pushed outward by price. The daily slow stochastic is in over-sold territory, the bias is down as prices closed below the 18-day SMA, and the first target of the lower band was hit. The ES spent much of the second half of the day fighting a battle at that lower band.

From a wave-counting perspective, we can see today as possibly ending a small degree third wave, with possibly a small degree fourth wave up to follow. 

A good question will be whether the slow stochastic converts to embedded status on the down side at some point in the future. It has not started that process yet.

Have an excellent start to the evening and the weekend.

TraderJoe

Signs

Some better signs are beginning to appear that the minute ((b) wave, circle-b, on the ES daily chart below may indeed be over. Today, we had a lower low below prior lows and below the parallel which was modified slightly to account for last week's lows.

ES Futures - Daily - Below Modified Parallel

The MACD indicator also confirmed its divergence with a lower low. Even though that is the case, price is not too far away from the lower daily Bollinger Band, so it might be bumpy for a bit. It would be helpful to see a countable impulse or diagonal wave to establish the trend downward.

Have a very good start to your evening.

TraderJoe

FED Scores 1/2 a point!

Chairman Powell and the FOMC lifted interest rates 0.50% and got prices back down to the 18-day SMA temporarily. Then prices bounced back part-way. The daily chart of the ES futures is below.

The daily Bollinger Bands are still going sideways. The daily slow stochastic has lost its over-sold reading and is now neutral, as well. The daily bias is modestly positive. And the swing-line is mixed with a lower low and a higher high.

Today's bar made a downward overlap on a prior up bar from four-days-ago.

From a wave counting perspective, the minute ((b)) wave still has options but today we only counted three-waves-down from yesterday's high (so far). It's possible  a top is in place, but downward acceleration would be needed for that.

So patience, calm and flexibility are still needed until waves are long enough in either direction to make more sense of them.

Have a good start to your evening.

TraderJoe

NBC = Nothing But Chaos

Famed trader Bill Williams titled his book, "Trading Chaos". Today was a good reason why. Although we were counting waves upward, the local count invalidated over a prior high. Here is an intraday snapshot of the ES daily chart taken about 1 PM ET.

Sometimes the chaos the market makes is somewhat predictable - sometimes it is much less so. This morning was one of the latter cases and a good reason I urged patience and caution in front of large news reports coming out this week.

Some of the reasons for the market chaos may be due to the increased speed of information flow in modern times. We know that our current situation is vastly different than that in which Nathan Rothschild made a fortune in British bonds after receiving messages from the Waterloo battlefield by carrier pigeon.

Here, all traders new the CPI report was coming at 8:30 am ET, and they quickly received the results of the report in a similar manner. But, what added to the chaos were some commodities brokers who informed their clients only an hour before the report that full margins would be enforced. Then, after the report came out, they relaxed back to day-trading margins. Seriously?!! They knew the report would be released at a certain day and time. They couldn't tell us the night before that they would have this policy?

What is going on here? No, this chaos is being generated by the market-makers themselves. Obviously, they will say it is "to protect them and their clients". Really? OK. So what about if I were (and I wasn't) in my car on the way to work when they issued the email saying they were implementing the full margin requirement? How does that protect the client that is driving to work, or busy at a meeting at work if the person did have to meet the new margin requirements? 

If you look into it, you will note that the futures spiked about 35 points in the five-minutes ahead of the report. Was that driven by the new margin requirements? Did it start the upward spike in itself. This is sheer craziness.

Maybe it's one reason to continue to be very, very cautious ahead of all major reports. Maybe another is whether the Smart Money just wanted a really swell shorting-opportunity ahead of the FED meeting. They certainly got one, whether it sticks or not. But perhaps another reason is that as Bill Williams indicates maybe the market just makes and breaks fractals on various time frames as people respond to the chaos in various waves. "And - between any two fractals - is always, always an Elliott Wave of some degree." Our task is to try to figure them out.

In terms of the wave count, a local second wave up was invalidated. But a minute ((b)) wave up in the ES futures has not yet been. The day isn't over. The lower parallel trend line was not broken and back-tested with a resulting failure of the back-test. And I indicated there would be nothing to the down side until or unless that occurred. It didn't.

Have an excellent rest of the day.

TraderJoe

The Wave Formations are Awful

Volume is light and seemingly declining in the futures for the time being. Here is the ES futures 2-Hr chart. It is the best I can do. Can the up wave fail? It can. But it can go higher, as well.

ES Futures - 2 Hr - Correction Upward?

 

There is lots of news out over Tuesday, Wednesday and Thursday including the CPI Report, the FOMC decision and the ECB Policy Decision just to name a few. Be careful, flexible and patient.

Have a good start to the evening and the week,

TraderJoe

Higher High Day - 2

The ES daily chart made a higher high and a lower close. Today was PPI (Producer Price Index) Day, and the futures were higher before the open, then tanked on the PPI report, then rallied to almost 80%, then fell off again into the close on much higher volume. The daily chart is below.

My understanding of the swing-line indicator is that this allowed the line to continue higher for yet another day - as shown.  A low below Wednesday's low is needed to change to a down-trending rather than a neutral reading for this chart element.

The daily slow stochastic is still in over-sold territory. The Bollinger Bands are still traveling sideways, the swing-line remains trend-less, and price settled under the 18-day SMA, so the daily bias is down again. Today made the fourth consecutive day that prices closed below the lower parallel trend line.

The bumpy and whippy conditions continue. The CPI report is currently scheduled for Tuesday of next week before the market opens.

Have an excellent start to the evening and the weekend.

TraderJoe

Higher High Day

Today the algorithms spent most of the day doin'-the-deed after making a higher high before and after the cash open. So far, ES prices have backed up towards the prior price channel in a higher high day. But this does mark three daily closes below the lower parallel. The daily chart of the ES futures is below.

ES Futures - Daily - Higher High Day

My understanding of Ira's swing-line indicator is that this has the effect of moving the swing-line up at least temporarily (as shown) but there is "no trend" established because there was a higher high followed by a lower low (yesterday's low) and because prices closed below the 18-day SMA in any case. A new lower low day - lower than yesterday's low - would be needed to begin a trend towards lower prices, provided the day does not turn out as an outside day up.

As things stands there was still no new upward overlap of concern on the intraday charts.

The daily slow stochastic remains in over-sold position, and the daily Bollinger Bands are narrowing which indicates at least some consolidation. Tomorrow morning is the PPI report before the market opens. Bumpy conditions can persist.

Have an excellent start to your evening.

TraderJoe 

Second Close Below Parallel

Today was a fairly narrow range day and might represent some of all of wave iv from yesterday's intraday chart - see LINK here. As of this time there was no upward overlap on wave i of the potential impulse. The daily ES futures did make a new daily low early in the morning, but then they formed a doji by the close of the cash market and price is still fighting at the 100-day SMA. The daily chart is below. Today was the second close below the parallel, and the close is still below the 18-day SMA so the daily bias is still down.

Tomorrow could be another whippy day. It might start lower on comments from the ECB (Christine LeGarde, see Economic Calendar) or the weekly jobless claims and - based on the wave count - it might then whip around higher, perhaps after testing the lower daily Bollinger Band. We don't know for sure; we just surmise from 1) the wave count, 2) the news, and 3) the market's position relative to the band.

The daily slow stochastic is in over-sold territory, so the market might have a bit more down-side but would not like attract the new positions of the so-called Smart Money. Rather, the first hit of the lower band, in conjunction with the 100-day SMA, is where the Smart Money may merely take some profits and wait to see what occurs next. The Bollinger Bands are beginning to narrow in a bit, so some consolidation might follow.

We note that the 18-day SMA ("the line in the sand") is still above the 100-day SMA, and it has not crossed lower yet. If it were to do so, it might provide more confirmation of a market turn lower.

Have an excellent start to your evening.

TraderJoe

Plausible - Extended 1st Wave?

Is the diagonal already complete, and now morphing into an impulse? Here is the ES 30-minute chart with this wave counting idea shown. The symbol x i means the first wave would be the extended wave, the longest wave in the sequence in price.

ES Futures - 30 min - Completed Diagonal Morphing to Impulse?

When looked at using the futures, the third wave of the diagonal ((3)) does not look as awkward as it does in cash with this count. The fifth wave of the already completed diagonal ((5)) would have stopped short of the lower expanding diagonal line - just as the literature reports several do. Although I am showing a close-only chart so that form may be studied, the idea has been checked on OHLC charts and it works there, too.

The very substandard second wave retrace (less than 38%) would fit with a second wave only if the first wave is the extended wave in the sequence. So far, wave iii is shorter than wave i.

We would now be in the fourth wave iv in the overnight session. If the diagonal is now morphing into a true impulse, then overlap should be avoided as indicated. Otherwise, a larger diagonal is likely being formed. But if a true impulse results, it has some benefits a larger diagonal does not.

Have a good rest of the evening,

TraderJoe

Plausible Minute ((b)) - Circle b

Friday's hanging-man candle in the futures did get confirmation lower today. U.S. equities as measured by the SPY cash ETF opened with a gap lower, and followed-through. First, a reminder of the weekly count.

Prices fell off of the upper dashed expanding diagonal trend line in an interesting sign. Now on to the plausible daily count.

The count of a (c) = (a) zigzag with an expanding ending diagonal for the the fifth wave, v, of (c) would expect to see prices drop below the start of the diagonal at the 390 level in less time than the diagonal took to form. The Fibonacci ruler shows the (c) = (a) level.

As of yet, price has not dropped below the dashed lower uptrend parallel. It needs to do that, and back-test that line and then fail the back-test with a lower low candle. Again, I am not in love with any particular up count at the moment. This one has some strengths to it in that it would follow degree labeling considerations. If you also called it (y) = (w) I would see no reason to argue.

I would also just add that as of the cash close, the ES futures daily slow stochastic was no longer embedded. This needs to be watched for the next day.

Have a good start to the evening.

TraderJoe

LTMD - Let The Market Decide

Daily ES prices continued to close above the 18-day SMA. Therefore, according to what Ira teaches in his public videos, the price bias remains up. The daily slow stochastic is still embedded. Therefore, the so-called Smart Money may still try for the upper daily Bollinger Band. They didn't do it today. They might have but it didn't happen. So, let's go down to the Intraday Wave-Counting-Screen, which mirrors on the 30-minute timeframe the same guidance as for the daily chart.

Here you can see the spike down in the futures which accompanied the Payroll report. Following this wave which was only about 1.27 x as long as the first wave down, there was not a fourth and a fifth wave down. The payroll candle took out the two previous down (grey triangle) fractals.

When prices turned and hacked & hacked higher, they initially created an upward wave which is followed by a down (red) fractal. However, price ended over the 18-period SMA, and so even the intraday chart ended with a positive price bias. The intraday slow stochastic is over-bought and not embedded at this time.

In the futures - besides the top being its own up (green) fractal - there are two other up (green) fractals that have not yet been broken.

We have tentatively labeled the down move as an ((A))-((B))-((C)) down. That's all there is. A fourth wave higher that did not overlap did not form, as neither did a fifth wave lower.

At this point, if one were to draw Ira's swing-line on the intraday chart, it would be indecisive because there is a lower low and a higher high at the end of the day. Because of this indecision, one of the best strategies is to Let The Market Decide at the moment which way it wants to go.

Yes, we can make arguments that we may have started a diagonal downward, as in ((A))-((B))-((C)) of a wave i, downward, and that the afternoon high is a wave ii, upward. But the upward wave may be completed, or it may not be. The jury is still out.

And, just like we can make an argument for a downward diagonal, we can make a good case for a triangle pattern, too, that might lead to higher highs.

So, watching those fractals for a bit might be an excellent strategy. If the first down (red) fractal back is broken it is only of minor significance because until the morning low is broken, a FLAT wave could also occur - still making new highs eventually.

Fractals are the location where the markets make decisions. You can try to out-guess them if you want. That is up to you. But remember where the daily bias is pointed. And if you chose to fight it, then at least recognize clearly you are fighting that bias, and it is you that decided to.

Otherwise, although today is known as a "hanging man" candle day, there is no confirmation of that candle until a new daily low is made. Isn't it interesting how that fractal at ((C)) and the confirmation of the hanging man would likely be at the same place??!!

Also, keep in mind that if a diagonal downward takes place, it could have two forms: either a contracting diagonal or an expanding one. And, typically, if the third wave lower is in the contracting form, then it would be shorter in time, while if the third wave lower is in the expanding form it would be longer in time - another excruciating drip-drip-drop.

But, further, looking at daily seasonals, since Tuesday is often (not always) a turn-around day, then if there is a triangle into Monday, the prices could pop on Tuesday to then make a better full-reversal bar. Nothing like that exists on the daily chart yet.

So, be cautious, be careful, be patient, keep your wits about you. The volatility is difficult to deal with, and the wave count is only of secondary usefulness right now to outline some of the shorter-term risks. Hopefully, some clarity will be provided soon.

And remember, Ira does not recommend outright short positions until below the 18-day SMA. This is in order to get the wind at your back if at all possible.

Have a good start to your evening and your weekend.

TraderJoe

Driving Miss Crazy - 8

It remains an extremely difficult up count. Here is the chart of the ES 8-hr futures. Price would still be within (c) = (a).

ES Futures - 8 Hr - Zigzag?

 

The alternation would be diagonal (a), impulse (c). The (c) wave would have a very long-in-time wave iv to alternate with the short, sharp wave ii.

Again, nothing says the up wave is over until/unless the lower parallel trend line is both broken and then back-tested with a new low after a failure.

Have a good start to your evening.

TraderJoe