Nastiness Continues in both Directions - 2

Bottom line: Local new weekly highs or local new weekly lows are better needed to establish a valid wave count. The W-X-Y double combination to a wave Intermediate (2) has not been invalidated yet, but it is close. Therefore, we are also considering this form of a three-wave bear market with a large triangle in the middle of it.

ES Futures - Weekly - Possible Running Triangle

The proposed triangle does not have convincingly contracting trend lines yet, so it might take a while. The current C wave is about 83% of the A wave, so we would like to see around 78.6% in the downward direction for the triangle's D wave.

We are working with this count because it provides the clearest and most direct invalidation levels. The wave-counting and trading is awful, the EMA-34 is stuck flat in the middle for the time being, and the daily and weekly Bollinger Bands are nearby.

Have a good start to the evening and the weekend.

TraderJoe

Nastiness Continues in both Directions

The nasty structure of the waves continues in both directions in this 5-min chart of the SPY cash after the open. It might be a fourth wave. It might form a larger flat yet.

The very shallow yet overlapping retraces and grinding & grinding on almost every tick make it a tough environment for both wave counting and trading.

Have a good start to the evening.

TraderJoe

A Nasty Set of Waves

So, the potential contracting leading diagonal downward (middle of chart) has not invalidated yet as of the cash close. It could. And, if it does, it leaves us with a contracting ending diagonal in its place. How would such a diagonal fit into the local hourly count? Here is the hourly SPY cash chart.

SPY Cash - Hourly - Channel Count

The best fit I can determine is that we had a flat wave after a contracting leading diagonal a wave up. The downward diagonal was then the Ⓒ wave of the b wave. As we do not know that the up wave is over yet, then there could be an impulse c wave to provide alternation with the diagonal a wave. As the chart also suggests, there is sufficient upward movement (> 78% of the prior wave) to also suggest that even if the upward price movement ended here, then the structure could also then be counted as w-x-y to wave (ii) at this location. 

There is no crying or gnashing of teeth. There is only calm, patience, and flexibility recognizing that the b wave and most recent ② wave markers take on some added importance at this time.

Have an excellent start to the evening.

TraderJoe

Watching Prior High

The half-hourly SPY cash chart is below. Price has gone over the 62% retrace, meaning that a 1.618 or greater wave downward can be supported IFF a down trend wave begins.

Right now we are watching the high, and watching the gap to look for clues.

Have an excellent start to the day.

TraderJoe

Confirmation Step 1

Today in the SPY 5-min chart we were able to count an expanding diagonal downward in five waves which broke yesterday's low. The market, having made five-waves-lower thus provided Confirmation Step 1 of a third wave lower. The hourly chart of the SPY cash ETF is below. 

SPY Cash - Hourly - Off the High

Further, the market broke the (i) - x trend line in less time than wave z took to form. That is a good sign for speed. Please note that even though we were able to count an expanding diagonal lower, the market may want to morph it into the contracting diagonal variety on the hourly chart (so that is why we show an alternate location for wave i).

Regardless, to maintain a downtrend, wave ii should not travel above the high of wave (ii). 

Because of the wave lengths involved in cash to the z wave high, we do not currently see a diagonal upward in cash (unless it was followed by a flat) so we are holding off on posting an upward alternate at this time.

If the wave (ii) high holds, then we would like to see a 1.618 to 2.618 wave downward to provide Confirmation Step 2, and a lower low than wave (i) to provide Confirmation Step 3. Still, we can't put the cart before the horse. The market is still being very cagey - or at least very whippy. So patience, calm and flexibility are still required.

Have an excellent start to the evening.

TraderJoe

Beats Me ...

The US Federal Reserve's FOMC decision was to raise the FED Funds interest rate 0.25% today. They also did a pivot in the language away from continued rates hikes being likely to a stance more in recognition that continued tightening of bank lending standards could have the same effect as a rate hike or two. But they did not rule out future hikes.

They also stated that a vice-chair will conduct an investigation into the supervision of Silicon Valley Bank because he doesn't know how it happened. Right. This has to be the one of the most disingenuous people alive today. Of course, there is partial truth in what he says. He just won't recognize his own organization's, and his own personal, contribution to the failures.

The ES futures made new highs into the press conference, and ran into the upper daily Bollinger Band where it was repelled. In the process the 62% retracement of the down move was hit and exceeded slightly. The move was logical given that yesterday's report cited the daily bias as up, and the local trend as up. However, the prior up (green) fractal was not exceeded higher. 

During the Q&A period prices began to fall off and reversed from 4,074 to 3,967 below the S1 intraday pivot. Ah well, what's a little 100+ point intraday swing in ES prices? It's only money right?  Well, it is an outside reversal day as far as I can tell. Here is the daily chart of the ES futures as of the cash close.

ES Futures - Daily - Outside Day Down

As you can see - in making the reversal - prices ran smack into the 18-day SMA and the 100-day SMA (green crosses) - which are within points of each other. The lower daily lows are an important step in possibly forming a third wave down. Next steps include counting five waves down, and then having a lower high that does not exceed today's high. Next, there needs to be lower low than the five-waves down - if and when they are confirmed. Then, the down (red) fractal should be exceeded lower.

Have an excellent start to your evening.

TraderJoe 

Back to the Daily

Below is the daily chart of the ES futures. Tomorrow is FOMC decision day - followed by the press conference.

Today price is up & over the 50% Fibonacci retracement level and neared the 62% level. We suggested the daily Bollinger Bands could go sideways. They have. Still, the daily bias is up as price is over the 18-day SMA (or 'the line in the sand'), and the swing line is up - together making the local trend up. The daily slow stochastic is not yet in over-bought territory. The prior green (up) fractal has not yet been exceeded higher. 

The fact that the up wave in the futures can be counted as either the triple zigzag w-x-y-x-z or as an expanding diagonal, and the fact that the up wave in cash can be counted as either the triple zigzag w-x-y-x-z or as a contracting diagonal, gives the market an expanded set of options for price movement in the wake of the FED meeting output. Caution, patience and flexibility are thus even more needed at this time.

Have a good start to the evening.

TraderJoe

Local Count

The ES hourly chart is below. The channel count is the most apparent at this time. But be careful because y is slightly greater than w, and x2 is slightly greater than x1.

ES Futures - Hourly - Dzz & 'possible' TZZ

Note that the daily Bollinger Bands are constricting as anticipated and this may eventually set up a longer, more trending move.

Have a good start to the day and the week,

TJ

Update On Gold

Based on the long-term chart of Gold using six-monthly bars we can not specifically say whether we are in a triangular fourth wave, or possibly an ending-diagonal fifth wave. That is the phenomenon often referred to and often written about here as The Fourth Wave Conundrum that happens at every degree of trend. However, based on channel analysis it is possible to sketch out a reasonable scenario for the triangle as we showed in our comments in this post (Mar 14th: LINK see comment at 9:32 am).

The basic reasoning is that when a third wave, III, extends then prices tend to form a channel. If so, based on the amount of 'time' wave II consumed, then wave IV might look to take as much or more time. So, a triangle might fit the bill. Further, an expanded flat correction would likely have the risk of overlapping wave Cycle I.

And, if that is the case, then based on degree labeling. what was known at the time and waves I counted, this monthly count seems to work quite well.

Notice, there is another smaller upward channel. This suggests that all waves in the channel belong to the same set of wave structures. Thus, the waves can be counted as a triple zigzag upward with a (Z) wave truncation at the high. As I have repeatedly suggested (Z) waves are prone to truncation, and this one may have. 

Yet, we do not know that upward movement is over without a lower monthly low on the chart. So, we must also recognize it is dangerous in Elliott Wave to count a triple zigzag upward without also recognizing that it might be the impulse equivalent of an (A) wave. Therefore, it is roughly equally likely at this point that a (C) wave up could make for a higher Primary Ⓑ wave as is shown in the red alternate. It could be that upward price movement will stop in this area with a channel back-test, but there simply is no guarantee.

IF the first scenario is correct, then a lower monthly low on Gold might indicate the Primary Ⓒ wave is underway. If not, then Primary Ⓑ waves of this type can certainly extend higher to 1.382 or 1.618 times their Primary Ⓐ waves. So, the reasonable analyst should not be surprised by movement of this type.

Have an excellent rest of the day.

TraderJoe

New daily fractal

 A lower daily low than Monday was not made today (with about 30-min to go until the futures close), so there is likely a new down (red) fractal at Monday's low.

Yesterday, we concluded wave minuet (i) was likely completed to the down side as a contracting diagonal. It is likely that wave (ii) is underway. Remember, wave (i) took about 19 daily candles to complete. So, in terms of time, wave (ii) could take additional time. The Bollinger Bands are just beginning to narrow in. The daily bias is still down, the daily slow stochastic is still in over-sold territory, and the lower Bollinger Band was hit today, with price rebounding higher off of it.

Kindly remember that while wave (ii) could be a zigzag or multiple zigzag it could also become a Flat wave. So far, it has traversed 38.2% of the decline. Based on where the upper daily band is now I don't see any reason why wave (ii) could not become 50 - 62% or more. There could be a lot of whippy-ness here. There could be a "battle-for-the-line-in-the-sand", etc. So just be flexible, patient and calm.

Have an excellent start to your evening.

TraderJoe

Best Count at this Time

The form on the ES 8-Hour chart is very suggestive of a contracting diagonal. If so, there have been five sub-minuette waves down to minuet wave (i). I didn't want to miss it.

Note, there are not 120 - 160 candles on this chart so as to make the form of the wave is more apparent to you. Thus, the EMA-13 was used, rather than the EMA-34. However, there is a significant numbered wave on each side of the EMA (and when you use the four-hour chart, the same occurs with the EMA-34).

Now notice this count this provides five waves with the required v < iii < i, and iv < ii with well-defined trend lines. Wave iv does overlap wave i - as is typical - and wave v appears to have that characteristic throw-under of the trend line. The wave is whippy; the volatility is high. 

Further, study of the RSI for this wave shows there is indeed divergence on each numbered wave, subtle as it is. That is a fantastic wave signature.

So we may now be in minuet wave (ii), up. This wave may be a very, very difficult wave. It may be long and tiresome. Or it may be short and sharp. The simplest thing to say about it might be, "it would be great if the daily Bollinger Bands were to wrap tightly around price in wave (ii), perhaps for an extended period, so that a larger extended impulse downward might occur." 

Next, literally any price movement below the current wave (i) would provide that the diagonal is leading. For now, price needs to stay below the highs at 4,200+ to better validate the contracting diagonal. We shall see.

Tomorrow is a report-filled morning, including retail sales, the PPI report, and several others. So things might get whippy again.

Have an excellent start to the evening.

TraderJoe

Lower Daily Low

Here is the daily chart of the ES futures. Overnight with the turmoil surrounding some banks, and the need to bail out depositors at some - at least not the stock and bond holders - the futures initially made a lower low and then turned higher.

However, in the upturn both the 18-day SMA and the high of the outside-day down were respected. Thus, the outside-day down was a continuation pattern and not a trap for the bears as its high was not exceeded within two trading days. The lower low keeps the swing line trend headed lower.

Price hit the lower daily Bollinger Band and bounced, and that is often a location where the Smart Money takes at least some profits off the table.

The fractals of interest are shown on the chart. Prior down (red) fractals were hit, and have thus been removed. The next down (red) fractals are shown at the December and January lows. They might be hit.

The daily bias is still down. The daily slow stochastic is in over-sold territory but the Bollinger Bands continue to be bent down. Clearly, the lower Bollinger Band target was hit before the upper one, and so the market indicates it is weaker to the down side than it is stronger to the upside.

Watch carefully over the next couple of days. If the 18-day SMA crosses below the 100-day SMA (green crosses), then this would be another bearish event. It is possible the Gorilla Glue trade could develop in such circumstances, where price rides the lower band - especially if the slow stochastic embeds. 

In the comments for the prior post, we showed the VIX had spiked past 30. By the end of the cash session, it was around 26.70, but is certainly higher than last week, So, traders should expect significant volatility. This does not 'just' mean lower prices; it means wide-ranging price swings both to the downside and to the upside.

From an Elliott Wave perspective, we showed a tentative channel in the chart above. As long as price stays below the upper channel line, we will continue to try to count a third wave iii. We're looking to see if it becomes a 1.618 extension.

The CPI report is tomorrow, and with price in the over-sold zone, some caution is due until the figures are known.

Have an excellent start to the evening.

TraderJoe

A Chart in the News

I don't do this often, but today I thought I'd just take a look at a chart in the news. Sometimes I look back to see, "if I was counting this at the time - and I wasn't - how close would I have gotten using degree labeling concepts?"

I think this one chart has some important lessons for both the beginning and the experienced wave analyst. For example, notice how the decline has one good impulse in it from the high and then degenerates into miserable chop. How many times will the analyst think they are incorrect about a downward count and that a big correction or up-thrust must occur sometime in early 2022?

And how about that truncation at the high? Is it real? It turns out if you start the diagonal from the wave peak before there - from a wave counting perspective - then the lengths of the waves in the diagonal and relative position of the wave 4 - 1 overlap don't work out. So, maybe those truncations are real, after all.

Oh, and it's a Leading Diagonal, right? Where o' where is that supposed 'deep retrace'? Nowhere. That's where!

Yes, last week's fall was stunning. But price is now down near the bottom of a channel. And just look at what preceded it. Who monitors these bank stocks anyway (from a regulatory standpoint)? Do they even give a whip when the stock has fallen from 750 to let's say 500? Hello, anyone home?

Have an excellent rest of the weekend.

TraderJoe

Nope, just Mayonnaise

Today was futures contract roll-over day (based on volume). Some people do actually roll over today. Some don't. A person can wait a few days if they want. But the free chart services show the roll-over as of today, so it created some confusion. Not a Miracle Whip, just Mayonnaise. We did our level best to talk traders through it. So far, so good. Here is the daily chart of the ES futures with just a few of the important features of today's trading.

Today's price was essentially turned lower by the resistance of the 100-day SMA (green crosses). Prices made a lower low on the day - which keeps the swing line indicator headed lower on the daily chart, and price is below the 18-day SMA so the daily bias is still down.

Today's price movement has now undercut the second daily down (red) fractal back, marked by both the red dotted line and the red up arrow. This is a sign of eventual weakness. The other down (red) fractals back at the late December lows are also marked, but they have not been exceeded lower yet. They could be. And further, the downward price movement overlapped the highs of those initial candles in late December that initiated the up trend (shown with the red arrow pointing down below the text). 

Yesterday was an outside day down. Today had some follow-through but, as we showed in comments in the prior post, there can be more price excursion lower from this wave. Bear in mind, though, that price is currently running into the lower daily Bollinger Band. So the Smart Money may look to take some profits there as the probability of being outside of the bands is only about 5% (not impossible, just lower odds), especially since the slow stochastic is only in over-sold territory.

Price is pushing the bands lower, and EW counting does allow for lower lows. But, eventually, we would like to see the bands narrow in or constrict so that they might also signal a larger impulse downward to follow. That would be the most ideal circumstance. Novice wave counters (and even some experienced ones) often wind up rushing the wave count. Few recognize fully that there are often a significant number of overlapping one's and two's before that third wave occurs. It really helps to become familiar with the degree labels so one can see how many waves might have to be worked through.

So far, we are trying to count five sub-minuette waves from the high as i, ii, iii, iv, v. Right now, we are only at wave iii, if it forms properly. If it does, and we get a well-formed iv and v, then we will only be at minuet wave (i), and, yes, traders and counters will have to work their way upward through a minuet wave (ii) whether they like it or not. That's the biz.

Have an excellent start to the evening and the weekend.

TraderJoe

Miracle Whip ? Likely Not

In the prior post, we said to track the daily bars for the next day, and if a higher high was not formed above Monday's high, a up (green) fractal would be valid. We had shown this potential fractal and the prior down (red) fractal in the chart in the daily chart that prior post. We said that a break of that down (red) fractal would likely be significant.

A higher high was not made, and so in the simplified Bollinger Band form of the chart, the new daily up (green) fractal is now shown. 

ES Futures - Daily - Down (Red) Fractal Broken Lower

The significance of the down (red) fractal break is that now a back test of that lower daily up trend line shown yesterday has resulted in a back-test failure. Today's up wave failed at the 18-day SMA, and on the SPY 5-minute chart, we detected another truncation which is now proven correct ..by the lower daily low.

Here is the SPY hourly intraday chart to show you where that new truncation is (red asterisk *).

SPY Cash - Hourly - New Swing Low & Wave Degrees Unfolding in Turn

As you can see prices are below both the prior hourly sub-minuette wave i, and the prior micro degree wave Ⓑ resulting in the swing failure. This post is titled Miracle Whip? because it is now the bulls that must find a way to get up above the new upper descending channel line and that micro wave ②.

As I have said and written before, no amount of price movement to the downside will surprise me. Extreme upward movement is not impossible, and it would be foolish not to be prepared for a surprise report. However, such is getting less and less likely with every passing day. Currently, the market is tracking degree labeling well. And one must keep in mind that wave threes can expand by simply making smaller and smaller degree waves - a lot of them. Often, this happens in the overnight, so the third waves have time to form gaps.

For the record, I said in response to a previous comment that the "sharp rallies" are a feature of true bear markets. I realize how easy it is for some to get bullish on them. But other features of true bear markets are "failure swings", and truncations. These latter two items are two of the weapons the market uses to keep traders from top-ticking swings. And it makes all scratch their head long enough wondering what "the correct EW count is at the moment" that it stalls entries. We're becoming more used to them, but they are still troublesome for all.

For now, as shown on the chart, be aware that in the local hourly count, there are no gaps in the upward direction from sub-minuette wave ii, down to the current low. That might make it more difficult for those pesky algorithms to set targets in that direction.

In any event tomorrow is the Payroll Employment Report and the response is likely to be fun. Let's see how it goes, 

Have a good start to the evening.

TraderJoe

Daily Update

A lot of short term counts appear in the comments of prior posts. This is just to back off from the minutiae to focus on the daily time frame.

Have a look at the recent fractals. If the down (red) fractals break under the blue EMA-34 that will likely be significant. Watch tomorrow to see if the prior high holds. If it does, then the most recent up (green) fractal becomes valid.

So far, there has been a back-test of the prior wedge up trend line and the EMA-34. Let's see if they hold or not. The daily RSI is back below the 50 level. A lower low on the RSI would be more convincing.

As far as I can tell, the degree labels follow the definitions.

Have an excellent rest of the evening.

TraderJoe

Fifty-fifty

Over the weekend, we said there was a risk that the downward channel could break. Sunday night the futures were initially lower, then higher. The cash market opened higher, the downward channel did break, and upward overlaps were created. Prices scurried higher but we showed how thin the rise was getting in terms of volume and divergences. The interim effect was that the cash market closed its gap and left a daily tail candle.

As a result, the only remaining down count we can see in involves moving the truncation position as shown below, as it is the last up wave still in the prior channel.

SPY Cash - 4 Hr - Truncation Moved

If the wave we experienced was a Flat - as it appears to be - then it is possible the retrace is a second wave ii, as shown above.

There is nothing definitive that says the Ⓒ wave of ii is completed yet. There could be overnight hijinks. So, the probabilities really look only 50-50 going into the close. There was not much down movement - just the closing of today's gap. Maybe Chair Powell can help bring some urgency to the situation in his testimony before Congress in the next two days. Until some further clarification occurs, we remain patient, flexible and cautious. As the chart says, there are upside options.

Have a good start to the evening.

TraderJoe

Hold 'Em or Fold 'Em

With now about 107 candles on the ES 4-Hr chart for the wave of interest the benefits of The Eight-Fold Path Methodology should become pretty apparent (see the Featured Post in the upper right of the main blog page if you are unfamiliar with this method).

ES Futures - 4 Hr - Channel Count

Wave iii downward was a 1.618 wave. I dreaded when that happened because the risk of overlap rises with such a mild extension. Blog readers will recognize that we were expecting a fourth wave, likely as a Flat, because the second wave is likely a failed double zigzag. And so, we have that: alternation. Further, the Elliott Wave Oscillator crept above the zero line as is often expected in a fourth wave. Too, the upper parallel trend line was pushed out a bit today but is not significantly cutting off the bars on the low side. This is as expected. This much is terrific. 

The only issue is this. If an impulse is not going to develop, then this is the location where the failure occurs from. If the market doesn't want to make that clean fourth and fifth wave, it won't. And it'll leave a mess instead of an impulse count.

There are relatively few ES points until we know - only about 8 points to the upside. So, we'll soon find out. The alternative is just an a, b, c down with a messy triangle after the current wave iii location.

I have relabeled the fourth wave as Ⓦ-Ⓧ-Ⓨ because of the internal count from the Ⓧ wave. It appears to be three waves in both the Dow and the ES futures. Here is the Dow.

YM (Dow) Futures - 15 Minute - Channel Count

It is very hard to count the expanding diagonal in the Dow any other way. And you can note a crisp c = a Fibonacci relationship as things currently stand. In the ES futures it measures as a 1.272 relationship, again as things closed.

On the subject of Fibonacci, the Ⓨ wave = 1.618 x Ⓦ, when added to the Ⓧ. So, all these things are in place between a 38 - 50% retrace of wave iii. And now we wait to see if the market will do its thing. Either way, we're prepared with the needed information.

Have an excellent start to the weekend.

TraderJoe

The Night Desk Does it Again

Below is the daily chart of the ES futures. Today made an outside day up. The morning started with lower lows that attacked both the 100-day SMA (green crosses), and the lower daily Bollinger Band. We said price could find some short-term support at that location. It did.

What was interesting to me was the time the rally started. If you are a cash session trader, it looks to you like the rally started within a bar or two after the open. It didn't. Overnight, there was a lower futures low on the day. The lowest price in the ES futures was again around 3 AM - when someone or some machine is working the night desk.  There were no lower prices in the futures, and it was an all-choppy morning rally from there until a veritable impulsion of prices in the mid-to-late afternoon.

We were fortunate to count the diagonal rally, a retrace, and get some/most of the third wave up correct. The thrust continued into the last half-hour and the current wave looks like a smaller degree third wave, with possibly the smaller degree fourth wave beginning. Those of you interested in how we counted the intraday, and the rationale, can review the comments in the prior post. It really was fascinating.

So now there is an outside day up, which is below the 18-day SMA. It is to be respected with the caveat that "if the low of an outside day up is undercut within two days, it can constitute a trap for the bulls." Remember, the daily bias is still down, and the daily slow stochastic (regular calculation) is still embedded.

From an Elliott Wave perspective, this wave seems like it is indeed the Ⓒ wave up of wave iv on the ES 4-Hr chart in yesterday's post. It might retrace 38 - 50% of wave iii. As an exercise, readers of this blog should do the measurements in terms of points, and look for where such a wave count would work, and where it wouldn't. For information the Ⓑ wave external retrace measured 1.236 times the Ⓐ wave, well within the normal parameters for a Flat wave.

Have an excellent start to the evening.

TraderJoe

ES 4-Hr Count - Update

This morning the ES futures made a lower low. The wave structure in the downward direction is choppy and overlapping and it may be a Ⓑ wave, or part of one. It may also be counted as an expanding diagonal from what is currently labeled as the Ⓐ wave.

ES Futures - 4 Hr - Ⓑ or iii

As a result, there is no reason yet to stop counting downward - but there may be soon. With only 95 candles on the chart for the wave of interest, lower lows could result and make a more apparent red wave iii. Five waves up today could not be confirmed by the end of the cash session. The Elliott Wave Oscillator (EWO) is not yet above the zero line.

Looking at the ES daily chart, below, the daily slow stochastic (regular calculation) is fully embedded.

ES Futures - Daily - Embedded Stochastic

Price also got quite near the 100-day SMA. The combination of the lower daily Bollinger Band and the 100-day SMA may provide some near-term support.

Have an excellent start to the evening.

TraderJoe