DOW Futures Reach 90% - Weekly

Now we know why we had a recent countable diagonal downward from July to October 2023 on the weekly chart of the Dow futures, below. It was the minute-c, ⓒ-5, wave of the end of a Minor B wave. There is no escaping the 90% measurement and the fact that today the Dow made higher daily and weekly highs while the other indexes did not.

This chart might also clarify that the wave down on the left could have been a diagonal Minor A, down, triangle Minor B, sideways, and impulse Minor C downward to make wave Intermediate (A) per our labels of (A)/(1) to adhere to the Principle of Equivalence. In this case, it winds up being a perfect Fibonacci  C = A relationship between the two waves.

Since October of last year, we have had Minor A impulse, up, sideways truncated Flat for Minor B, and now a Minor C wave, up. The alternate labels shown at the bottom (roughly equally likely at this point) are Primary ① at the 2022 high, Primary ② down at the October 2022 low, and Primary ③, up, to make three legs of a five-leg contracting ending diagonal IF and only IF Primary ③ goes over the all time high. It isn't there yet.

We also now know that the wave to the ⓑ-3 high was not a true diagonal as it's low was not broken in less time than the diagonal took to form. Meanwhile, the wave down to ⓒ-5 was a true diagonal downward (an ending diagonal) because it's high was broken upward in less time than this diagonal took to form.

One of the reasons I post this update with dispatch is to show just how incorrect one can be when they break the rules.

At the moment, all we know is what we know. Could this be an Intermediate wave (B), up? It certainly could be - even if it goes over the high. But, the odds are just about even, or maybe even a little better, that an ending diagonal wave forms to end the Dow's Cycle Vth wave.

All-in-all whippy difficult to trade action.

Have an excellent start to the evening,

TraderJoe

Higher High after X-Over

Ira Epstein (broker with the Linn & Assoc.) offers the advice that when major moving averages cross over then a higher high, or a lower low can occur and that's all the market owe's it. A couple of days ago, the 18-day SMA crossed over the 100-day SMA in a Golden Cross, and today the higher high resulted. See the ES daily chart, below.

ES Futures - Daily - Doji Candle

Note that today would be a Fibonacci 21+1 days since the up trend began. And the wave is more turning to the right than it seems to be impulsing. A channel formed from the low has broken lower, not higher.

So, today's candle needs to be watched to see if the initial confirmation steps of a lower high and lower low are made, and whether or not the daily slow stochastic loses its embedded status or not. The current wave count is given in the comments for the prior post.

Have an excellent start to the evening,

TraderJoe

Four of the Seven

Four of the Magnificent Seven stocks have their new daily highs. They are AMZN, META, MSFT, and NVDA, as below.

The three that do not are AAPL, GOOG and TSLA. It's not to say they can't, it's just to keep abreast of the situation with them.

Have an excellent start to the evening,

TraderJoe

One More Time .. A Little Different

Here is another take on EWI's view. It is short, simple and deals more with the wave count. (No credence is given to any ad YouTube may show with the video, particularly one for any financial product. They are not inserted by me.)

Some, but not many, ideas are given if the high doesn't hold, as per the prior post.

Have an excellent rest of the holiday.

TraderJoe

The Fourth Wave Conundrum

I have written often that The Fourth Wave Conundrum - which occurs at every degree of trend - is what helps make the Elliott Wave quite a bit less predictable than one would like. The problem, again, is that when a fourth wave is expected, and the market starts down with only a three-wave sequence, then the number of possible patterns explodes to thirteen! So, one has only a one-in-thirteen possibility of being correct by random chance. This amounts to odds of 8 : 92 of being correct. Not good. 

To further illustrate this point, we are going to look at the longer-term market prospects IF, and only IF, the SP500 makes a higher monthly high like the NDX has. We don't care if it does. We are agnostic from a wave counting viewpoint. We have no vested emotional interest in the matter as we are too well aware of this conundrum that we have explained numerous times in the history of this blog. So let's start with some scenarios. The first one is this.

Flat Wave for SuperCycle [IV]

That scenario derives from the "Thrust from a Triangle Interpretation" of wave Cycle V. That means that the downward wave sequence into 2022 was only a three-wave sequence (the 'devil' that creates all the issues). And we could eventually bust the local high and travel to 90% to 150% to make a Primary Ⓑ wave up, before making a Primary Ⓒ wave down. This is a completely realistic scenario, and one must be open to it. Perhaps the 5,000 level will be touched, first.

This scenario has going for it that that 2020 rise "looks like" a thrust from an expanding triangle. It is a massive explosion and can be interpreted that way. Keep in mind on the way down recently the ES futures did overlap downwards. So, we might only have A-B-C up to (W) in the recent count, with an (X) wave down - unlike in the NDX that has no overlaps. The next scenario is this one.

The Contracting Diagonal Scenario

The scenario results from the Flat IV Interpretation of the Covid-19 decline instead of the triangle. The issues with this scenario are that wave Cycle V looks out-of-proportion to Cycle IV in terms of time. But, such a condition might be due to the money-printing and fiscal stimulus we all know of. Another issue is that wave Primary ③ must go over the top again for this count. That hasn't happened yet. Regarding the double-zigzag for wave ③ instead of a single zigzag Prechter has written (and I have seen it once in the EuroFX) that sometimes the third wave forms as a double-zigzag in an effort to try to become the longest wave. The "zigzag substitution rule" in The Elliott Wave Principle by Frost & Prechter allows triple and double zigzags to substitute for a single zigzag. Again, the SP500 5,000 level could be touched or exceeded.

Such a pattern would be a fitting end to a Cycle Degree wave, and it is a way to hobble over to the next Presidential Inauguration. So, one should keep it in the back of one's mind. The third pattern being presented is this one.

The Barrier Triangle Scenario

This scenario recognizes the extreme rise to the 2021-2022 top as a third primary wave. Since then, we may be in a triangle. The wave down would be Intermediate (A) and was the most violent leg of the triangle. The other waves of the triangle would still be in construction in what might turn into a horrible range-bound grind until there is a pop out of the triangle. Again, the S&P500 level of 5,000 could be met or exceeded.

Of these scenarios, the first is favored slightly. But any of them could happen - as could some others. So, one really, really needs to be flexible and open-minded. As Prechter presented in the interview shown previously, long-term sentiment is excessive. So, could this index crumble from here and use the three-waves down from the high as the first wave of a diagonal? It could, but the odds are low. And one must wait until the high is exceeded or not to draw any conclusions.

But IF the high is exceeded, one shouldn't be scratching one's head too long. These very same wave scenarios play out in very, very many fourth waves at all degrees of trend. And, going over the high again - if that's what happens is not a sign of failure or anything else - it is what it is: maybe just a sign of money-printing. So remain flexible, calm and patient.

Have an excellent start to the holiday.

TraderJoe

Now We Know Why - NDX

Did you ever wonder why the NDX (NASDAQ 100) index did not make a new low in March 2020 like many of the other major indexes did? Well, I think now we know. We must tip our hats to the very sombrero looking wave-count below which can be (5) waves up, even if a new high is not made. The chart is the 2-Weekly chart of the cash NDX.

NDX - Cash - 2 Weekly - Five Up

The wave count is awful, but with today's 'five up' in this index the conclusion seems inescapable that there is a five-wave sequence upward - even though some of the segments look like three-wave sequences - and even count better in other indexes as three-wave sequences.

But we must count what we see, and wave (4) is at the 50% retrace level without overlap on wave (1). Further, the recent five-wave sequence up is well over the 78% retracement level of the prior high-to-low which is certainly within the allowable truncation zone. So, even IF price doesn't go up over the wave (3) high - which it certainly may - it would count as an Intermediate (5), up.

The key item to note is the character of this index is significantly different than the other more industrial indexes. The stocks are different, so I would not attempt to count the other indexes the same until there is a good reason. 

Have an excellent start to the evening,

TraderJoe

EWI Solid

I'm doing Elliott Wave International a solid this morning and advertising their work only because they taught me much of what I know about Elliott Wave. No claims are made for the accuracy of any forecasts. This is for educational purposes only. And it is quite recent.

Since it seemed to be free on YouTube, I thought I would pass it along.

Have an excellent rest of the weekend.

TraderJoe

Triangle vs Diagonal

Triangles move price sideways and take up time. Triangles 'often' precede the last wave in the direction that price entered the triangle. Diagonals slant either with or against the trend. Like triangles, diagonals cannot be called until all five waves are securely made in price.

There is currently a valid "running triangle" in the SPY 30-min chart, above. That is because the Ⓔ wave has crossed over the prior high on 14 Nov to be corrective to it. Sometimes - when a triangle 'fails' - the same three-wave sequences that make a triangle can also be used to build 3-3-3-3-3 diagonals.

There is currently not a valid diagonal, but if the Ⓒ wave breaks lower before a new higher high than the Ⓑ wave, then one might look for the expanded diagonal down for a larger expanded flat, lower. In that case, the wave sequence shown as (w),(x),(y),(x),(z) = (i) - (v) of the diagonal.

Have a good rest of the morning.

TraderJoe

Current Up Count

The ES 4-hr chart (close-only) is below. This is just so the form of the wave can be studied. At present, the lack of a retrace beyond 38% suggests the wave is a zigzag being counted as a,b,c.

The count remains in place until/unless there is evidence of a fourth and fifth wave higher. On the daily chart, the slow stochastic remains embedded, and price has touched the upper daily Bollinger Band. A reminder than the PPI report is tomorrow.

Have an excellent start to the evening.

TraderJoe

Another Pop from Rates?

In a previous post, (13 August 2023 at this LINK) we noted that according to The Eight-Fold-Path Method on the weekly chart, the US 10-Yr Yield had likely made its minor wave 4, now at the lower left, and started its wave Minor 5, up. We said, it would be a question of when the fifth wave ends. Now, with 135 candles on the daily chart, the Elliott Wave Oscillator has again gone below the zero-line indicating a fourth wave at the one lower degree, minute-iv (or circle-iv). Here is the daily chart.

Some points to note follow.

1. Wave minute-iii (circle-iii) is 1.618 x wave minute-i (circle-i) and is the extended wave.
2. Wave minute-iv (circle-iv) is a little greater than a 38.2% retrace at prior wave iv.
3. All we know is that minute-iv has 'sufficient length in price'.
4. That means only that minute-iv could take much more time if it wants (flat, triangle?)
5. Minute-v (circle-v) could easily become the length of minute-i (circle-i).

This would suggest that rates would top out around 5.25 - 5.50% (or more). And Minor wave 5 should end on a weekly divergence, as minute-v (circle-v) should end on a daily divergence.

Only time will tell, but that is what the method suggests at this point. The Eight-Fold-Path-Method is the featured post of this site and appears at the upper right of the main blog page. This is the second post this weekend and if you have not read the first one, you may wish to read it now.

Have an excellent rest of the weekend,

TraderJoe

To b or not to Be ?

As you know, my position has been that if we are making a zigzag upward, then the b wave overall might be 38% of the a wave. Does that have to happen? No. Nothing has to happen in financial markets, but it is a typical (..and in this case one of the least typical) expectation of a b wave. In the ES 4-hr chart, below, you can see where the 38.2% level is located using the Fibonacci ruler on the left side of the image.

If the a wave ended in the diagonal this Thursday on the fourth RSI divergence, then the true diagonal was retraced in 'less time' than the diagonal took to form. But we could only count Thursday's wave down as a three-wave sequence and it was well-short of even the 23% retrace. And, so far, Friday's wave up is 150% of the length of Ⓐ wave down. This is well inside Ⓑ wave parameters.

We know that after the close, Moody's downgraded the outlook for the U.S.A. to negative (see story at this LINK) and price only started to fall off. But a "spinning top" candle was made. We also know that a new debt deal must be passed by Friday 17th November. Could these be responsible for the Ⓒ wave down?

A measurement for a potential supporting argument is that if the b wave turns out to be an expanded flat, then the Fibonacci ruler on the right shows 2.618 x Ⓐ subtracted from Ⓑ is just longer than 38.2% of the a wave - and this measurement confluence seems fairly compelling. This is not proof - just an argument in favor. A second argument is that the AAII survey of mom & pop investors just took one of the largest weekly jumps I have ever seen. The percent bullishness in this group jumped to 42.6% from 24.3% last week. Staggering.

Well, we'll have to see. As always, I just urge patience, calm and flexibility until various confirmations are obtained. For example, the "spinning top" candle needs a large lower closing candle. And one should draw a revised up-trend line from the low through the Ⓐ wave low. Then, this trend line should be breached lower, be back tested, and proven to fail lower for improved confidence a down move is starting. Let's see how it goes.

Have an excellent rest of the weekend.

TraderJoe

Outside-Day Down

As an outside day down, today's high should not be taken out within two trading days or it might become a trap for the bears. Today may have finished the a wave, up. Here is the ES 4-Hr chart.

ES Futures - 4 Hr - Possibly into b wave down

As noted before I'd like to see between a 38% and 87% wave down. In the event the support areas do not hold and the low is exceeded first, the alternate has to be that the up wave is a more-difficult-to-count zigzag to be all of the fourth wave (iv), up, of the downward expanding diagonal. The primary count tries to recognize that this fourth wave can take much more time in an expanding diagonal than the second wave.

Note above that the wave ④ low has been exceeded lower in the first step of the confirmation process. The next two steps would be a lower high, followed by a low below today's low.

Have an excellent start to the evening.

TraderJoe

Nothing Says We're Done, but Maybe

From a counting perspective, the a wave up might be close to finishing up. But there is a way it could extend a tad. The SPY cash 15-min chart is below. There might be a contracting diagonal in progress.

The alternative is that perhaps a (b) wave of the larger b wave is in progress. The issue right now is that only increased downward length will begin to let us know. I, for one, would like to confirm that the a wave up is completed. It would be great to see a b wave that is between 32 - 87% of the a wave upward.

Have an excellent start to the evening,

TraderJoe

Back to Weekly Channel

US equity prices, as measured by the ES futures contract, retraced back to the lower channel line of the weekly up channel shown previously, and again in the chart below. Remember when we showed how prices were sticking to the channel before they initially collapsed lower? Well, after the gap up on Sunday night, prices rose every day this week and settled back under the underside of the channel.

As shown, prices bounced at the prior support and when the daily chart had two daily closes in-a-row below the lower daily Bollinger Band reducing the odds of the next close being outside of the band to roughly 3 - 5%, small odds. In the course of the week, as readers noted, the nested count invalidated as this wave up is too large to be a smaller degree second wave. It's good to see our blog followers are really beginning to get a handle on degree labeling. It makes writing about it worthwhile.

So, to get to the current wave count, the best valid downward count is this expanding diagonal which would be of the 3-3-3-3-3 variety as shown on the daily chart.

The price rise was very sharp, and on the daily chart the wave looks unsubdivided. So, the suspicion is that the rise is the a wave of this leg of minute-iv (circle-iv). And this wave seems to have ended - so far- at the prior support/resistance noted by the minute-i wave, the prior b wave, and the underside of the weekly channel. If so, that means a b wave lower could occur this week.

And it would be possible for such a b wave to be any of these structures: a) zigzag, b) flat, c) triangle, d) multiple zigzags, e) combination. I cover those again to indicate how much whippy trading might occur in the upcoming week. The only thing the b wave cannot do is travel below minute-iii (circle-iii).

Given the above, can prices move higher? Yes, in two ways: if the a wave is not fully complete yet or if the b wave forms as a Flat wave.

Given the above, can prices break the minute-iii (circle-iii) low? Yes, but not as the b wave. If the current low is broken it would just mean that this week's up wave is all of minute-iv (circle-iv), and the new daily low would be part of minute-v (circle-v).

In terms of minute-iv, the one thing it is not allowed to do is cross the high of minute-ii (circle-ii). This should be checked on an OHLC chart.

Because expanding diagonals tend to expand in time as well as in price, we are giving this wave much more time to develop. It could be a slog.

Have an excellent rest of the weekend.

TraderJoe

Two Measurements

Here's a two-block of the ES 2-Hr futures showing two ways to measure the current up move. One contains a cut-off by the channel, the other does not.

There is not a good way to decide unless/until the market decides to add more bars and we see how much higher it goes. At the time of this writing, there is not a good solid turning bar (hammer, doji, engulfing candle, etc.) to assist with a decision. We wait and watch carefully.

After the above post, this plausible count was developed looking at the weekly line chart. This count is good to 4,340 and it represents all one wave, the (a) wave of wave minute-iv, circle-iv of a larger diagonal.

ES Futures - Hourly - All One Wave?

The count starts with a leading contracting diagonal wave.

Have a good start to the day.

TraderJoe