Current Local Count Update

Here again is the ES 4-Hr chart. Prices today took a stab at the lower parallel channel line after looking like they wanted to form a triangle all day.

Prices could still head lower tomorrow in an attempt to hit the 38% or 50% retrace on wave ③. Maybe this happens before or on the payroll employment report. Then a fifth wave could track higher into the first trading day of the new month.

If there are a solid five-waves-up, it just ups the odds, but does not make conclusive, the chance for a,b,c as i,ii,iii.

Have a good start to the evening.

TraderJoe

Higher High and Longer Wave

ES futures prices made a higher high after the open, then made a fairly dramatic down wave that did not break the prior wave ④ low. Then went over the high again slightly. As a result, the second step in a trend change confirmation did not occur. Here is the ES 4-Hr chart. 

ES Futures - 4 Hr - Roughly Equivalent

The added length from today's waves forces consideration of c = 1.618 x a, or a full-on impulse wave. The expanding diagonal from the low suggests the a wave, while the deep retrace suggests possible impulse. The odds are so mixed, like 50:50 at this moment. It would be great if there was better guidance on this topic, but I, for one, haven't found any. So, we'll just stay on our toes through the long weekend.

Have a good start to the evening,

TraderJoe

Upward Correction, So Far

The current upward wave count from the 18 Aug low is currently a three-wave affair. It is roughly at the 50% retrace level, but it may not be completed yet. The ES 4-Hr chart from the low is below.

So far, we have the expanding diagonal - which, with the higher high today - proved to be leading. After the diagonal was a quite deep 80-90% wave, and the current up wave is an impulse. So, if this is a corrective structure, there is good alternation.

We said yesterday, if we didn't get a flat wave for a deeper correction of Monday's waves and instead got higher waves in the overnight, it was possible to get an extended first wave count x①, and that is what turned out to be the case today. IF this is a c wave up, it is about due for a fourth wave.

Within this impulse wave ⑤ could be almost as long as wave ③. And, if wave ⑤ occurs with the right lengths then it might get price up to the 62% or 78% retracement level.

Keep in mind the Principle of Equivalence. If price is to go over the high again, or near it, then it is possible that a,b,c is i,ii,iii until proven differently.

Have an excellent start to the evening.

TraderJoe

The current 

Gap and Grind to Nowhere

Today was a gap up at the open to complete a fifth wave up, ⑤, shown on the SPY cash 15-minute chart, below. Over the weekend, we clearly indicated this could happen. It did. Then prices ground sideways to higher for the rest of the day making two marginal higher-highs.

It is possible there is a larger flat in the making (a-3, b-3, c-5) as a corrective wave lower, to take up more time and to move prices a bit lower than the initial correction. If not, and prices gap up and stay up tonight, then it is possible to have an extended first wave at the current wave ⑤ marker.

The price movement is pretty choppy, and even if there is a c-5 wave down tomorrow to finish a flat, it might be hard to handle as most of it might be made in the overnight (by the night desk) again.

In a larger hourly time frame, today's marginal higher highs argue for either an eventual high beyond the hourly expanding diagonal a wave we showed in the prior post, as a c wave, or else a triangle in progress on that time frame as, so far, it is a 78% retrace. 

Volume is shrinking a bit as some people already head out on holiday, and so the chop may continue.

Have a good start to the evening.

TraderJoe

 

Weekly Count and Best Alternate

The ES Weekly chart (Close Only) is below. The main count is shown in black. It could hold. The issue is some stocks (like the Magnificent One, AAPL) could complete a fifth wave up. That's where the alternate comes from.

Prices in the last couple of weeks have been skating on the dashed rising three-touch trend line. If it breaks significantly, is back tested, and fails lower, then a downward count might resume. 

From the ES hourly chart, below, one can see the significant whippiness in price behavior. 

On Friday, the market did not complete a five-wave-up sequence, but it could in the overnight on Sunday.  Whether it does or it doesn't, it could head back to-and/or-through the low in a larger flat wave or next impulse lower. (We also indicated in cash it is possible to consider the upward diagonal as a -3, and not a -5).

Short term, the uncertainty is high. We can easily see the high of the diagonal being taken out and an upward correction continuing as the current upward correction is quite short in time compared to the decline from the late-JUL, early-AUG high.

Still, if the right news comes to the fore (difficulties in China, the banking system, etc.) nothing to the downside will surprise us either.

Have an excellent start to the weekend,

TraderJoe

Best Count Given Nvidia Earnings

Using the ES 4-Hr chart, below is the best count given the announced NVDA earnings after the close today.  As of this writing (about 5 min before the futures close), the futures are trading at roughly 4,474-6. The conference call takes place after 5 pm ET when the futures are closed.

The upward move from the low appears to best count as an overlapping expanding diagonal. I stated that I would look for one. This appears to be it - as an a wave up of a corrective wave higher.

Have a good start to the evening,

TraderJoe

Local Squiggles

If we are making the larger v down from last night's post, then this local squiggle count from the ES 5-min futures might work. Note there is a running triangle in the mix, and those do not necessarily indicate last wave in the current direction.

ES Futures - 5 Min - Local Squiggles

Although it is worth watching the overnight for clues on this one, if that ending diagonal is real, then it has already been exceeded downward in less time than it took to form. The market does seem to be stalling as much as it possibly can, and the cash count looks simply dreadful, perhaps as an expanding diagonal, followed by a flat.

On a separate note we noted in the comments that with the 10-Year yield crossing the high yesterday, a (5)th Intermediate wave, up has been validated. Thus, one should look to see how that fifth wave completes, recognizing it could be a few weeks away yet.

Best wishes to all.

TraderJoe

Larger Correction ?

Today we noted if the up fractal was taken out on the ES 30-min chart, a larger correction might be at play. That up fractal was broken today. That correction comes from the ES 4-Hr chart, below.

IFF the parallel holds, then a new low might be expected. IFF the upper parallel begins to get breached by full candles then consider this five-down completed count.

I'm leaning only slightly in favor of the first count because of the complex and overlapping wave structures from iii to iv. Study is needed to see if these overlaps might be an expanding diagonal from the low, however.

Have a good start to the evening.

TraderJoe

Extensive Analysis of the Dow Jones Industrial Average & Predictions

The 3-day chart of the Dow Jones Industrial Average, below, is selected to illustrate as many facets of the current wave count as possible. Overall, the picture presents a contracting diagonal wave down, and a 'deep retrace' of the diagonal which is greater than 78.6% by measurement. It was also selected because - if studied carefully - it can also illustrate many features of 'degree labeling', as well. This is not a new count. It was shown previously on the ES futures (post at this LINK) back on 24 June. If you read the details, below I think you will see how this chart comes together is truly fascinating.

DJIA Cash Index - 3 Day - Current Count

Overall

Wave Intermediate (1) / (A) down is selected as a 'contracting diagonal' because it follows the rules. Wave Minor 5 is shorter than 3, which is shorter than 1. Wave 4 is shorter than 2 and overlaps wave 1. Wave 2 is a 62% retrace of wave 1 which also follows the guidelines. Many wave analysts have selected the expanding form of the diagonal, from the high, but this breaks the rules, so I won't do it. Wave 5 is too short in that attempt at an expanding diagonal count. Further, note the MACD diverges at the low which is the exact opposite of what to expect from an expanding diagonal wave.

In the downward wave count shown above the only questionable item is that wave 4 is very short in length. That is true, but it does not break any rules. It only runs afoul of a guideline. Still note how well this wave 4 fits up to a declining down trend line to preserve the right look of a contracting pattern.

Initially, I was also thinking there might be an expanding diagonal down, and I can see why I and others thought so too. That is because the very beginning wave, Minute wave a, is an expanding leading diagonal down in itself!

Degree Labeling Details

Overall Intermediate (1)/(A) and (2)/B) are about the same length in price. So, they should be of the same degree (or else (1)/(A) is of one higher degree). Further, we already know that Intermediate (1)/(A) down is longer in price and time than the Covid downward to March 2020, if that wave was an Intermediate (C) wave, this wave down - being about the same length should be an Intermediate wave also.

Starting at the upper left, there is the expanding contracting diagonal minute a wave. Readers of this blog and interested Elliott analysts and students should confirm on the daily chart that the fifth subwave is longer than the third, which is longer than the first, and the fourth wave longer than the second and overlaps the first without traveling beyond of the second wave.

Then, there is a minute degree b wave up. This is then followed by a minute c wave down of Minor 1 (not explicitly labeled just for chart clarity).  Again, readers should verify this can be counted as five non-overlapping waves down. And wave c is larger than wave a, so the two waves should be of the same degree (or else c is of one larger degree). So, within Minor 1 are three smaller waves a,b,c which fits with degree labeling. Further, within wave Minor 1, if minute a is a Leading Diagonal, then minute c is an impulse which shows excellent alternation in a corrective-style pattern.

But the next wave up, wave 2, is larger in price than minute b which is the prior wave in the same direction. So, it should be a larger degree than minute, and it is - it is shown as Minor degree. 

Next wave Minor 3 is about the same length as - but shorter than - Minor 1, so the two waves should be of the same degree, and they are shown as that. Wave Minor 3 also contains three lower degree waves Minute a,b,c and degree labeling is preserved here, as well.

Waves 4 & 5 are unremarkable at this level of detail except for their apparent quickness to end the move and make new lows in the DOW cash and ES futures.

Then, on the wave up after the October low note that Minor wave A is longer in price than Minor wave 2 - the preceding wave in the same direction. But it is shorter than the Intermediate Wave (1)/(A), so, it should be of the same degree as Minor 2 (or else the up wave is of one higher degree). They are of the same degree. Within wave A, the first subwave up, minute i is shorter in price and time than Minor 2, the prior higher degree wave in the same direction. Thus, degree labeling fits here as well.

The Minor degree B wave down then fits with being less in price length and time than the Intermediate (1)/(A), down, which is the prior wave in the same direction, and so its degree looks appropriate, as well. 

Finally, the Minor C wave up is shorter in price than Minor A, but it is longer in time than Minor A. So, the two waves should again be of the same degree (or else C is of one higher degree). And, within Intermediate wave (2)/(B) wave, Minor A is an impulse and Minor C is potentially an ending diagonal which again would show excellent alternation within another corrective-style wave.

Critical Observations & Predictions

Overall, the diagonal and deep retrace can support a range of downward waves from equality to 1.618 to even 2.618 or more if an Intermediate (3)rd wave lower develops and the high is not exceeded first. Keep in mind these statements from The Elliott Wave Principle by Frost & Prechter, 1) Diagonals can be (1) or (A) waves; 2) When the diagonal is "retraced deeply" it is often the wave (1) form. So, wave (1) is shown first in the preference for the count.

If the high is "in", then the next item to watch for is a break the lower rising trend line shown. This line should be broken and back tested. And if the back test fails lower, it will serve as significant confirmation of the count.

Lastly, we have shown in previous posts that Minor C can be considered as an ending contracting diagonal wave. It has maintained the correct lengths up to this point in time. 

However, if it is truly an ending contracting diagonal wave, then its origin at B should be retraced fully in less time than the diagonal took to build. The MACD on this time scale does appear to be about to cross-over.

If the high holds, it would not be out of the question to get five Intermediate waves down (1) -> (5) to make the Primary ((C)) wave lower of the complex flat back to the March 2020 low or thereabouts.

Then, from the Principle of Equivalence keep in mind the alternate Intermediate (A), (B), (C) count downward would be for the alternate of a Primary ((2)) wave, down, counterpart of Primary ((1)) up to the 2021-2 high as part of a larger contracting diagonal Cycle V wave. This cannot be ruled out just yet.

The above are some very specific observations and predictions aided by degree-labeling definitions. Now let's see what the market has in mind.

Have an excellent rest of the weekend.

TraderJoe

Truncation Count

There's just not a lot of evidence to go on, yet, but the ES 4-Hr chart below can explain the count considering that there was a potential truncation at the high as we noted days ago. Let's call this one the Truncation Count. IFF it is playing out, it is not labeled with a lot of alternates as this count could lead to a serious decline.

ES Futures - 4 Hr - Close Only

Prices accelerated lower today, and the decline just doesn't look complete yet. If the EWO makes lower lower bars then it would help confirm the count. The second wave, 2, is being shown as a running flat wave (Flat-X-Zigzag) which would indicate a very weak market. The most recent downward wave may not be over yet.

As of this writing - shortly before the futures close - price is breaching the lower channel line slightly. In this count wave 2 would be longer in time than wave 1.

The counting is difficult at best. The above is one idea. Nothing to the down side will surprise me for now.

Have an excellent start to the evening.

TraderJoe

 

Strongest Signal in Technical Analysis

According to Ira Epstein, the embedded slow stochastic reading (daily or weekly) is "the strongest signal in technical analysis". He's a broker with over 50+ years of experience and has interviewed scores of the developers of technical analysis. So, he might know. Yesterday, we pointed out the embedded reading and said we might expect another lower daily low. That did happen today. The ES daily chart is below.

The embedded reading persisted into the cash close. Further, while a contracting diagonal invalidated today - with a third wave that is too long - the benefit is that two necklines of possible head-and-shoulders formations can now be located. See above.

From an Elliott Wave perspective, the down wave is at two different 38.2% retracement levels. But the down wave is hard to count as finished. So, if a fifth wave is in progress, then an expanding diagonal might work. We'll see. There is still a lot of whipping around to do for that formation.

If instead there is an over-sized gap lower tomorrow, then a nested 1-2-i-ii count would be the alternate. If we made Minor C at the high and Intermediate wave (2) / (B) at the same location, then such a large gap could not be ruled out. But, at this time, I am just counting waves and not trying to predict. Let's see how it goes.

Have a good start to the evening.

TraderJoe

One More? SPY lower?

Cautioning that we do not know that downward movement is over, we are watching the length of the downward wave on the hourly SPY cash chart to see if a diagonal wave 5 is in progress, as below.

If we are getting a diagonal fifth wave 5, then internal wave (iii) for a contracting diagonal should remain shorter than internal wave (i). And if there is to be an internal wave (iv) it should be shorter in price (and possibly in time) than internal wave (ii). Further, internal wave (iv) should overlap internal wave (i).

It's been some pretty whippy conditions. One might want to check in on the overnight to see what progress is like in either case. There are two alternates. If a diagonal should not play out, then the first alternate is a 'b' wave at today's low. The second alternate is that the contracting diagonal morphs into an expanding diagonal. But, there is not terrific evidence yet for either of the alternates.

Turning for a moment to the ES daily chart - as of the cash close - we see the regular calculation of the slow stochastic is fully embedded below the 20 level and has been for a couple of days.

This bears some watching over the next day or two, as well.

Have an excellent start to the evening,

TraderJoe

Once More - US 10-Yr Yield ??

According to The Eight-Fold-Path Method (the featured post in the upper right of the main blog page) any newer recovery high yield for the U.S. 10-Yr interest rate will likely validate an impulse wave which may still run a bit higher.

US 10-Yr Yield - Weekly - In A Parallel

After the higher highs, and perhaps a (5) = (1) wave, then a significant pullback in rates is likely to occur. This might coincide with a FED pause and stabilization of FED activity until sufficient weakness is shown to enable an actual rate-cut. Note: because of TEFPM we have not been one of those voices saying, "the FED is gonna cut; the FED is gonna cut" as the impulse pattern had not played out according to the method. It is now getting close (many weeks or a few months away to stability). 

As you can see from the above, wave 3 of (3) occurred on the peak of the Elliott Wave Oscillator, and wave 5 of (3) diverged. The EWO on the fourth wave, (4), went back to the expected area of +10% to -40% of the third wave EWO peak, crossing the zero line to go negative. And the EWO has now come back above the zero line for a fifth wave, (5) where it may again diverge on the EWO.

To check for form and balance, the EMA-34 is added to the chart and one can see that every Intermediate wave (with the parentheses) is on an opposite side of the indicator as it is expected to be. Further, wave (3) has five clearly marked Minor Impulse waves 1 - 5 and is an impulse wave itself and not a diagonal of any sort.

Still (1), (2), (3) is (A), (B), (C) until it is not. A higher high is needed for validation of the impulse. It is also possible that wave (4) might want to get a bit testy and make a triangle. This is certainly possible, but not required.

Lastly, back at the beginning of the chart, we correctly sited the likely truncation (*) at the low after the triangle which allowed the degree labeling in the rest of the chart to be followed without incident.

This is the second post this weekend, and if you have not read the first one yet, you may wish to.

Have an excellent rest of the weekend.

TraderJoe

Caution Still Warranted

On a weekly basis the cash VIX was soundly turned lower at the EMA-34, as per the chart below. If the VIX follows-through lower, it might be because the stock market as measured by the ES futures tries to retrace higher. 

VIX Cash - Weekly - Wedge

Let me be clear: lower lows for the ES are possible on the daily chart, but these lows might happen in a grinding fashion. Why is that? Because as the daily ES chart shows, below, prices have already tagged the lower daily Bollinger Band which offers some level of support, but this is often the place where the Smart Money takes some profits off the table.

Further price may be bouncing off the June highs from some support there, as well. Readers of this blog will want to try as an exercise drawing the local daily channel on the ES chart to see how close price is to the lower channel line. 

A diagonal formation at the recent bottom to end the fifth wave or the 'b' wave of a Flat are possibilities at this time.

Have an excellent rest of the weekend.

TraderJoe

Wave 1/A ?

Below is the ES 4-hr chart. I think it is pretty clear that counting in this manner provides for a minute fourth wave that alternates with the minute second wave because the minute second wave is a simple zigzag a,b,c and the minute fourth wave is a more complex failed double-combination w,x,y where the x wave travels below the prior wave minute three.

Further, the most recent lower lows are happening on divergences with the RSI, as shown. This is what impulse waves are supposed to do - show alternation. And fifth waves are supposed to diverge. So, let's say yay to that! Note that the fourth wave would still be in the approximate location of the 382% Fibonacci retracement.

On the upside, I can't help but notice the potential convergence of the black support/resistance line and the potential declining channel line.

CPI is tomorrow, PPI is Friday. Might be whippy. And nothing in the above count prevents lower lows from being made if the market wants to take more time to make a flat wave for 2/B.

Best wishes to all. Keep the thinking caps on and have an excellent rest of the evening.

TraderJoe

Second Bounce off Lower Band

ES futures started lower in the overnight and - when the cash market opened - both made new lower daily lows. The prior days' up waves did not overlap with the 27 JUL down wave, and so counting of a full non-overlapping impulse from the that date is now possible (see this LINK). As would generally be expected, after the new low on a lower daily Bollinger Band, the Smart Money likely began exiting some positions. The daily ES chart is below.

It is likely the Smart Money would not think to sell additional until either the 18-day line in sand is met again, or until the over-sold status of the slow stochastic is lost (both lines of slow stochastic over 30+).

But another reason for this post is to point out that the 16 JUN high of 4,493.75 has now also been overlapped today with the wave down to 4,482. (See blue down arrow). When counting waves, noting the overlaps is an essential tool.

We did several intraday counts in the prior post which worked out well. If you haven't seen them, you might like to have a look at them.

Have an excellent start to the evening,

TraderJoe

One Pattern Can Be Ruled Out

Below is a portion of the ES daily chart. As the Fibonacci ruler shows, the down wave since the 27 JUL high is longer in price than the down wave to the 23 JUN low, the one shown with the down (red) triangle for a daily fractal. This means, according to the rules one should eliminate the contracting diagonal from contention for a wave count because the fourth wave in a contracting diagonal must be shorter in price length than than the second wave.

Nothing, however, yet rules out any of these plausible scenarios: 1) the truncation at the high (*) and the continuation of a larger down wave, 2) a further rebound up in a second wave, 3) the formation of a long drawn-out summer triangle as the Bollinger Bands contract, followed by a higher high.

Clearly more information is needed before the count can become more definitive. At least one option seems to have been taken off the table. Yay!

Have an excellent start to the evening,

TraderJoe

Typical Uncertainty Surrounding a Prior High

First, here is the weekly view of the ES futures, again. On a closing basis the upper channel boundary has been breached a bit. On an OHLC chart it does not seem to be. Prices are now back in the channel, but the Principle of Equivalence suggests that minor "A,B,C, is 1,2,3" until it is not. The same will apply to the larger (A)/(1),(B)/(2) if the high should be "in" and not exceeded. Still, we remind all of the line from The Elliott Wave Principle by Frost & Prechter that states, "draw a line from the start of wave A, to the end of wave B, and place a parallel copy on the end of wave A. This often shows the location of wave C." And it often does, unless it doesn't and prices go on to impulse. For the moment, we favor the A,B,C so it is listed first.

ES Futures - Weekly - Up Channel

Next here are two methods that seem valid for counting the up wave to the prior high, and the down legs on the ES 8-hr chart. First, Method #1 - which is the 'visual' high or what Elliott called the 'nominal' high. This method sees a barrier triangle for the 4th wave (degree is for illustration only) and a 5th wave up on a divergent RSI. From there the count would be three-waves-down to the rising three-touch trend line noted. Once again, "a,b,c is i,ii,iii until it isn't".

ES Futures - 8 Hr - Method #1

The three waves down could be a completed zigzag. They could also start a downward diagonal. The zigzag could also start a larger degree fourth wave triangle - sideways. Lastly, nothing says the down wave is complete where it ended, although we could count five-waves-down on Friday and are now located directly on the lower daily Bollinger Band.

The second method suggests the larger, more complex 4th wave as might be as commensurate with the amount of time used by wave 3, and indicates a truncation or failure for the fifth wave - or what Elliott might have called the orthodox high. Again, that would be true only if prices don't exceed the wave 5 high, shown below in the future. We remind you, we saw that possibility live, and as it happened.

ES Futures - 8 Hr - Method #2

Then, it is possible to count five-waves-down to the low in one of two manners. The primary way shown in Method #2 is if there was a very large zigzag for the fourth wave, to alternate with the running flat correction we showed in yesterday's post. One item in favor of this count is the gap occurred on the break of the trend line from wave 2 to wave 4 on the Fitch Debt Downgrade. This makes a longer, faster wave as Neely likes to see from a high. The wave 2 to 4 trend line would have broken in less time that wave 5 took to form.

Again, we don't know the new down wave is over, and if it breaks away, it is possible to see Friday's Payroll Employment rally - before the dump in prices - as a second wave shown as alt: 2. This is less likely, but definitely possible. Again, it's about those odds.

So, as in many plausible-top situations, one is best served by paying attention to local technical data and announcements that might have a bearing on the situation until waves with sufficient length are made to clarify the situation.

Until then, have an excellent rest of the weekend.

TraderJoe

Hourly Count

Can be counted this way on the ES futures in very whippy trade. Comments are temporarily disabled. Degrees are for relative purposes only on this chart.

Wave 2 would be a failure flat. Wave 4 might be a sharp or triangle.

TraderJoe

Fitch Downgrades US Debt

Using the ES 8-hour chart, we see that there has been a better hit on the lower parallel trend line - mostly likely for a fourth wave, iv, which may not be over yet to the downside. This is the type of structure that The Eight-Fold-Path Method (TEFPM) anticipates.

ES Futures - 8 Hr - Likely wave iv

So, the most-likely path, the one with the slightly higher odds are that a fifth wave up will be made when the fourth wave is complete. The Ⓒ wave of wave iv may need more time as a contracting diagonal wave. And the fifth wave, v, may end on a divergence with the MACD.

Should the parallel fail to hold, instead, and the first wave, i, is overlapped downward, then it is possible to see the alternate as a truncation top shown in red (*). Regardless, whippy conditions are expected to prevail.

Have an excellent start to the day.

TraderJoe

Monitor Mode

ES bullish futures volume in the real-time session was slowing down today. After prices started down in the overnight, they basically stuck like glue to 4,600 +/- 10 points. The best suggestion I have at this point is to monitor this hourly three-touch trend line and look to see if it is significantly broken, if it back-tested, and if the back-test fails or not.

We could be making triangles or diagonals on light volume (say, waiting for the economic reports) but right now the waves have little power to break out or break down. The MACD has made lower highs and is currently below the zero line.

There is a weird way the market could have topped last night in a failure as the up wave is over 78% of the prior high, but, aside from the gap, there is little follow-through at this point. So we suspect either a diagonal or a triangle is in progress and patience, calm and flexibility are still needed.

Have an excellent start to the evening.

TraderJoe