Battle at the 18-Day SMA

Last night price and the 18-day SMA met by a combination of price dropping and the average rising. There is now a battle going on for control of the 18-day SMA, with FED Chair Powell speaking this morning. The ES daily chart is below.

ES Futures - Daily - Touch of 18-day SMA

On a shorter-term timeframe, the SPY cash index appears to have made a diagonal lower and then possibly three waves up to a 38% retracement. This morning's opening gap has already been closed. As far as I can tell, there are no gaps above in the cash market. The SPY 15-min intraday chart is below.

SPY Cash - 15 min - Correcting?

So, things to watch for this morning are a) whether the blue b wave needs to be moved one trough to the right as a Flat wave itself, or b) whether a double or triple zigzag forms for the correction, with the latter being much more rare, or c) whether the structure possibly breaks down to the lows to form a larger Flat wave altogether. Hard to say let's keep an eye on it. Suffice it to say, there would be nothing wrong with a 50 - 78% retrace after a potential diagonal. The key still is whether prices respect the high or not.

Have an excellent rest of the day,

TraderJoe

Paraphrase: The Five Most Common Errors Elliott Analysts Make

This post is a paraphrase of Glenn Neely's publicly available audio interview on The Five Most Common Errors Elliott Wave Analysts make. You are encouraged to listen to the full audio interview at this LINK. This post will become incorporated as a part of the Featured Post, as well.

The Five Most Common Errors

Price Degree Errors

If a wave is claimed to be of 'smaller' degree in price, it may not be larger in price than a wave that is claimed to be of 'larger' degree in price. Smaller degree waves must actually be smaller in price than larger degree waves. That is the definition of the term degree. Example: If one if referring to a Primary degree wave, say wave Primary ①, then the smaller degree Intermediate wave (1) of Primary degree ③ can not be longer in price than the Primary ① wave that it is supposed to be of smaller than. So, (1) must be smaller than ①. Similarly, a minute ⓘ wave, must be smaller in price than its larger corresponding Minor 1 wave.

Time Degree Errors

If a wave is claimed to be of 'smaller' degree, it may not be longer in time than a wave that is claimed to be of 'larger' degree. Smaller degree waves must actually be shorter in time than larger degree waves. That is the definition of the term degree. Example: If one is referring to a Primary degree wave, say wave Primary ①, then the smaller degree Intermediate wave (1) of Primary degree ③ can not be longer in time than the Primary ① wave that it is supposed to be of smaller than. So, (1) must be shorter in time than ①. Similarly, minute ⓘ must consume less time than its larger corresponding Minor 1.

Time Consumption Errors

Within a standard Impulse wave, wave 2 consumes more time than wave 1. Wave 4 consumes more time than wave 3. Markets like to "go where they're going, and then hang around for a while." If these relationships do not exist, one might be counting a rarer terminal wave (i.e. diagonal), rather than a typical impulse.

Price Consumption Errors

Within a standard Impulse wave, the further wave 2 goes beyond 62%, the less likely it is to be in an impulse. The further wave 4 goes beyond the 62% of wave 3, then the odds rise exponentially that it is not a 4th wave, such that beyond 72% or so, it is nearly impossible.

Post-Pattern Behavior Confirmation

This is like the market 'grading your paper in school'. The market is telling you whether your count was correct or not. You are not relying on your opinion or someone else's. So, for example, certain patterns have certain requirements afterword. The easiest is this: IF you suspect wave 1, then a wave 2 will probably take more time and not exceed the low of wave 1 in an uptrend, or the high of wave 1 in a downtrend. If this does not occur, then the assessment of having a wave 1 was incorrect. 

There are other examples as well: A) after a suspected diagonal, the market should fully retrace the pattern in less time than it took to build.  B) If wave 5 is suspected, the market should break the wave 4-5 trend line in less time than the fifth wave took to build.

Charts should not be posted unless they have been checked for these errors, recognizing some slack for charts posted in the heat of the trading day because of the amount of activity that can be going on then and the sheer lack of time to be able to check the work. The reason for this is that it may confuse other first-time or more junior readers into thinking such charts are correct when they may not be.

Have an excellent rest of the day,

TraderJoe