Keeping in mind that this is not a solicitation to buy or sell anything, there is one very cogent count we could possibly see in the ES futures daily chart for a top. We only rate the odds though as 60:40. First, let's explain the count from the ES daily line chart, below.
There is a memorable line from The Elliott Wave Principle by Frost and Prechter that goes like this, "Draw line from the start of A to end of B, and place a parallel copy on the end of A. This often shows the location of the C wave." We have done that above.
And when we do so, we notice a count that we can suggest as "diagonal for A, (truncated) Flat for B, and impulse for C." That winds up being excellent alternation in a corrective count. The slight truncation in the B wave presages the rip-roaring C wave impulse to follow. Well, what about the odds assessment?
First, there is an RSI divergence on the high. That's a positive. Second, the waves are confined to a channel. That's a positive. And third, currently C is shy of 1.618 x A, and that's a mild positive. It would be better if C and A were nearer equality.
But the negatives that detract from a near-perfect score are 1) the weekly up wave is over 78%. It would have been better if closer to 62%, 2) some stocks - like AAPL - are up over their previous weekly high, and 3) there is no confirmation wave lower in terms of a faster wave down that undercuts a recent fourth wave.
Barring such a confirmation, barring trading down below the parallel channel, back-testing the lower channel line and failing the back-test, we remain open-minded, calm and flexible. We can see this as a very good possibility - and can even assign some odds because of the elements that work. But we can also see other good possibilities - such as that a new high is made a part of an overall ending diagonal wave V, or that a 90% wave is made to the upside (NDX is only 60 points away), and a larger monthly Flat develops.
I have termed it the Principle of Equivalence in Elliott Wave, and stated it as, "A,B,C is 1,2,3 until it is not." The Principle keeps me flexible and watching for confirmation until it occurs. And, yes, there are some broken trend lines and topping tails among the Magnificent Seven. But, there are other internal parallel trend channels that can still be drawn which are not broken. I'm watching those, as well.
Many people don't understand probability all that well. An awful lot can happen with 40% odds. It is a slight edge only. And it's something to watch. Many, many days in the stock market, you can see something with only 5% probability happen as a regularity: that is closing above or below the upper or lower daily Bollinger Band. We refer to it often. So be mindful of that, and again that has only about 5% odds of it happening.
Have an excellent start to your evening and to your weekend.
TraderJoe
T.J one of the constant challenges I face in trying to establish a viable
ReplyDeleteEW count is how frequently what initially appears to be a perfectly legit count gets invalidated by unexpected price action. Just when I got the knack of looking out for expanded flats, diagonals and double combos started multiplying like rabbits! I am curious to know if your analytical approach always begins with a longer time frame working down to smaller ones when you try to establish the more likely count on say a daily chart. In other words, are there ways that reference to a longer time frame can help to identify more likely alternatives when shorter term counts invalidate? Thanks!
The 'main' simple technique I use is The-Eight-Fold-Path-Method for counting an Impulse (Featured Post, upper right in Main Blog page), abbreviated TEFPM.
Deletehttps://www.tradingview.com/x/8kRk0zXk/
That technique requires two key questions to be answered for every potential impulse wave: 1) will price reach the lower channel line - with the EWO in the range of +10% to -40% of the EWO in the prior wave three high? and 2) IF it does, will the lower channel line hold as support (approximately)?
All short-term pattern recognition (triangles, combos, flats) is done ONLY in furtherance of determining whether the pattern of ALTERNATION (as given in TEFPM) is sharp-sideways or sideways-sharp. The majority of impulses will show alternation. The analysis of diagonals is only to determine if a wave could have legitimately ended or started in that pattern.
All waves are constructed in real time. I don't know how to make money from a wave constructed in 1987.
The largest problem the retail trader has is not knowing or 'fully appreciating' that the recognition exercise is 'probabilistic only'. That is 1) the FED can step in at any time they want - e.g. like to rescue bank depositors recently, and 2) the Smart Money (hedge funds, brokers, large banks, individual billionaires, corporations) have their own agendas that move prices. For example, if Tim Cook at Apple wants to buy-back his shares to improve his EPS, and he is, there is nothing little 'ole me is going to do to stop him in the short run. And if I am stupidly short AAPL because of a pattern, perhaps, well woe is me.
Simple enough?
TJ
P.S. Now you tell me - with reference to the main chart in this post (hint), and with the link I sent you which shows sideways-sharp alternation in an impulse where the EWO has not yet reached the +10% to -40% level, "what does it mean if the lower channel line should not hold approximately??" TJ.
DeleteSeems to considering all the attendant conditions in the context of any such failure of the lower channel line, it would argue for a strong conclusion (probabilistiic, if course) regarding the question of 1,2,3, vs ABC. 😊
DeleteBingo, bango; almost boingo. It just argues for a trip to the lower channel line of the larger channel shown in the main post. Then you have to work 'exactly-the-same iteration' at a higher degree (i.e. down to 4,200 instead of just 4,350 - 4,400 in the linked chart). And you keep working that iteration until you are able to establish resumption of the up-trend, or an impulse, diagonal or channel downward. It's same over-and-over, as Miyagi (Karate Kid) use to say, "Wax on, wax off. Wax on, wax off...Daniel-San". And fractals help establish when the up trend or down trend resumes. Hope it helps.
DeleteTJ
Thanks! Great stuff! Spent a lot of time this week-end reading widely and quite stunning how virtually NO ONE now believes the bear market is incomplete. As a matter of fact, the typical response to anyone voicing the opinion that the move up off the October lows "could" be corrective is met with outright hostility. While I am sure we have all taken advantage of the remarkable upside ramps, with timely and judicious exits for those with a corrective viewpoint, implications are huge for those wedded to an impulsive count off the October lows. I have a feeling the EW boys are soon to be separated from the men!
ReplyDeleteThat is not how I am overall encouraging you to think. One should not be concerned about 'who' is right. One should be concerned about 'what' is right. I took you from the overall count, down to the daily count. But now one should go down to the 4-Hr count, as in the link below.
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Note that the EWO has not yet gone below the zero line here. It certainly could. Further, there is not a 'clear' ending sequence like a triangle or contracting diagonal (you have to really 'push' to make an ending expanding diagonal out of the last waves, but it can be done).
So, there is another 4-hr channel. Price could easily come back to that lower channel line in a sideways flat or in a triangle. Now ask yourself, "IF it does, how many four-hour'ses are you going to have to wait just for that?" Look at wave (iii). How many four-hour'ses did it consume? Neely 'prefers', not requires, that wave four be 'as long in time' as wave three. What does that mean? Are you prepared to wait that long?
What analysis should you do to confirm or deny an ending pattern? What types of patterns can 'most easily' evolve from here? Is there a 'clear' 5 = 1 yet on this time frame? If not why, not, etc.
In short, don't worry about the EW boys, or the crowd. Do the work, instead. Once you learn to rely on yourself, you will need to watch a lot fewer YouTube videos, market analysis, earning's reports, etc. It will help one de-stress. And stress is a major health deterrent.
TJ
P.S. This chart is one of the reasons I said the odds were only 60:40. As I said in the initial write-up, "... there are other internal parallel trend channels that can still be drawn which are not broken. I'm watching those, as well." I am really trying not to spoon-feed people. BBRider is one of those who is getting a good feel for the work involved. He quickly stated he could see another fourth wave. Become one of those who 'gets a good feel for it' .. I encourage you. I encourage all blog readers to. Wax-on, wax-off; wax-on, wax-off, wax-on, wax-off. Over & over & over...
DeleteTJ
I understand your point. I do suspect that the series gaps are suggesting strong bullish, OR bearish portents, and this adds significance, at this degree if we have abc, or 123.
DeleteSuperb!
DeleteHow about this count from 13/3 bottom?
ReplyDeleteA triangle 4 from 16/6 high fits pretty well imo, and gives good proportion to 2 without causing any degreee violations.
https://invst.ly/10ro5b
There is no proportional 'e' wave in the proposed triangle (see link).
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You can make one up if you like. I won't. TJ.
SPY 15-min: nothing conclusive yet, but it sure is a weird upward wave.
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TJ
Overlaps again after 62+% rise.
Deletehttps://www.tradingview.com/x/hXybsgUI/
TJ
Interesting inter-index divergence persists....
ReplyDelete...agreed! TJ
DeleteA new post is started for the next day.
ReplyDeleteTJ