Back to the "Line-In-the-Sand"

Today, in the daily ES futures, is a good example of why the work of Ira Epstein is not to be ignored. Regardless of opinion, regardless of earnings reports, regardless of Elliott Wave counts and lower targets, the algorithms just took prices back to "The Line in the Sand", the 18-day SMA starting well before the FOMC report out. Here is the daily chart in the requested format.

In previous days we noted how the daily slow stochastic was over-sold, and concomitantly, how the Smart Money does not like to commit new funds against a band in just over-bought or over-sold conditions. And, even with some skunky tech earnings last night, prices staged quite a rally today - getting back to that declining 18-day SMA.

In the process, the swing-line indicator turned up, but this is negated by prices closing below the 18-day SMA, as Ira teaches. So, there is - as yet - no new trend established. And the daily slow stochastic is now working off an over-sold condition but is not fully there (i.e. is not fully above the 30 level) yet.

Yes, we see the gap on the futures chart, and we see the up (green) fractal from 23 Jul.  But as of the futures close, price was respecting both of those.

We'll see where we go from here. A couple of us have suggested a slightly truncated down count for a first wave. On the way up - particularly in early June and early July the 18-day SMA acted as significant support. The question now whether it will act as resistance on the way down.

Have an excellent start to the evening,

TraderJoe

Bugly - 2

The daily ES chart in the requested format is below. Today was much more of the same back & forth expected in a possible fourth wave. But in the after-hours today futures took a knock when earnings came out, particularly MSFT and SBUX. In the late session, futures closed the prior gap up in the futures themselves from Thursday- to- Friday.

The result was the futures again traded down near the lower daily band, remained over-sold, and made a lower low on the day. The lower band is being pushed out wider, the swing-line indicator is still down, the daily bias is still lower, and even the 18-day SMA is beginning to curl lower. Another potential target remains the combination of the 100-day SMA and the lower band.

Tomorrow is Wednesday, there is more economic news out in the morning, and the FOMC statement is scheduled for 14:00 ET, to be followed by the Press Conference at 14:30. And if that isn't enough, it is the last day of the calendar month which may be accompanied by some window-dressing as well as additional earnings reports after the close.

Have an excellent start to the evening.

TraderJoe

Bugly

It's summer out, the trading is sloppy, and there's lots of bugs and flies and gnats along to interfere with otherwise great weather. Sometimes you want to swat 'em, sometimes you want to slap at 'em, sometimes you want to wave them off. Today's ES hourly count was a lot like that.

So far, price has extended upward about 50% of wave (iii) / (c), going a little further than it usually does - kind of like that mosquito that finds its way up your pant cuff to bite you around the ankle. The back & forth action today resembled the kids trying to rock you to sleep in the hammock, but maybe just getting you angry or spilling you out at the end. 

Perhaps there was an ending diagonal made on the hourly chart - as shown. If so, that would tilt the odds further in favor of completing the fifth wave lower. For now, the hourly MACD points lower. And today was another close below the 18-day SMA, so the bias is still lower.

Try not to let it get to you. Get some repellent if you need it. There's lots of news and earnings reports out later in the week.

Have a good rest of the evening.

TraderJoe

Inside Day

The requested format of the daily ES futures chart appears below. Today was an inside bar which - while temporarily changing the local direction of the swing-line to up - has not changed the trend of lower highs and lower lows.

So far, there are four non-overlapping waves down on the above chart from the July all-time high. But to claim a non-overlapping impulse wave, a lower daily low is still needed. As for today it is pretty clear the lower daily Bollinger Band acted as support.

Today was a true inside day with a higher low and a lower high. It was full of whip and fluff but didn't do much except burn time off the clock. It may be a portion of a fourth wave in a non-overlapping impulse but that remains to be seen. So far, price is channeling nicely downward. We need to see if that continues. If it does, the 100-day SMA could become the next target.

Have an excellent start to the evening and the weekend.

TraderJoe

Big Day in ES

The daily ES chart in the requested format is below. Today was a big day for the reasons given below the chart.

Occurrences Today

• Price today hit the lower daily Bollinger band - we said before it could be a local target.
• Price today established a swing-line down trend with a lower low and a lower high now below the 18-day SMA.
• Price again closed below the 18-day SMA, keeping the closing price bias lower.
• Downward price today from (3) is clearly longer than wave (iv) and likely makes for a change of degree structure in the waves.
• As we showed at this LINK the upward diagonal was exceeded lower in less time than the diagonal took to build - a key Neely step in post-pattern-confirmation. The expected behavior did occur.

What to Expect

• Today, technically, we only have some or all of three-waves down. So, we still need to use the Principle of Equivalence to count i/a, ii/b, iii/c until there is more wave structure. This is true even though we suspect we are in a real third wave. The market needs to prove that. Otherwise, there are diagonal shapes that could form downward.
• The daily slow stochastic is currently over-sold, so this might be a place where the Smart Money takes some profits at the lower band.
• But if price wishes to give way, the 100-day SMA can be a next target; and it is possible with several days of the slow stochastic under the 20 level that it might embed.
• IFF we truly had the extended fifth wave scenario of (v), above, then extended fifth waves are almost always retraced a minimum of 68%, and many times they are fully retraced (or more).

To continue the downtrend price should remain under the previous swing-line high, shown by the up (green) fractal triangle - which is also the EW resistance at this time.

So have an excellent start to the evening,

TraderJoe

Some Dow Degree Notes

Here are the Dow Jones Futures on a Monthly timeframe. The potential contracting diagonal may still be in play.

Dow (YM) Futures - Monthly - Potential Contracting Diagonal

If the potential diagonal is to play out, price should soon begin to trace out an overlap downward on wave Intermediate (1) in a 'relatively' brief zigzag that might undercut the lower trend line to generate enough bearishness for the subsequent fifth wave higher - also in a zigzag.

Here is an internal look at wave Intermediate (3) which is formed of a double-zigzag and is shown on the two-weekly chart.

We note from the first chart, that overlap would occur at 36,832 and from a visual inspection of the second chart that prior support/resistance might come in at 35,288 which might allow for the overlap and still have wave (4) remain shorter in price than wave (2).

Some Degree Notes for these Charts

• Wave Minor W is shorter in price & time than Intermediate (1), the prior higher degree wave in the same direction. Same with Minor Y.
• Wave Minor X is shorter in price & time than Intermediate (2), the prior higher degree wave in the same direction.
• Within wave Minor Y, wave minute ⓑ is shorter in price and time than wave Minor X, the prior higher degree wave in the same direction.
• Within wave Minor W, wave minute ⓑ is shorter in price & time that Minor A of Intermediate (2), the larger of the two prior higher degree waves in the same direction.
• Also note that if Minor W occurred at the end of 2022, then Minor X would be longer in time than Intermediate (2) which would seem to violate degree definitions, so this count appears correct. This count also agrees with the current ES futures count.

Note that these charts are predictive of a corrective decline at this time, probably back down to the lower two-weekly channel line or just below. This decline should happen as a 5-3-5 wave, and the middle wave, or the -3-, can be "any three" including a flat, zigzag, combination or triangle. And we are not even close to completing the first "five", yet. The wave should look proportional on the two-weekly chart. The exact amount of time of wave (4) is not seen as critical as it is a fourth wave.

Have an excellent rest of the day and the weekend,

TraderJoe

Quiet as a Churchmouse - 2

Well, it got even quieter today. Fewer participants. No one has the energy to comment. Very interesting. I won't rustle the leaves. Here is the daily ES chart in the requested format again, with two changes to note.

ES Futures - Daily - Bias Lower

The first change is that the daily bias looks pretty decisively lower with a further lower-low candle and likely a close below the 18-day SMA (chart is as of the cash close, futures have almost an hour to go).

The second change is that the daily slow stochastic is also headed lower as of this time, but it has not gotten to over-sold territory yet. This suggests that a future price target can be the lower daily Bollinger Band.

The Elliott Wave count has not changed as of today. Still, price can rebound at any time, and this count would remain valid as long as price does not yet trade back over the high.

Have an excellent start to the evening and the weekend.

TraderJoe

Quiet as a Churchmouse

Quiet is as quiet does. I know there are lots of people heading out for their summer vacations, and they don't want to be disturbed while they are laying around in their hammock sipping their favorite libation. So, I'll be quiet too and just present the daily ES chart in the requested format.

ES Futures - Daily - Back to 18-day SMA

Price is starting to stretch its legs to the downside. The approximate confluence of wave iv and the lower daily Bollinger Band is interesting. From yesterday's comments, we could count five-down on the SPY using The Eight-Fold-Path-Method (appearing in the featured post in the upper right of the main blog page.)

Have a great start to the evening.

TraderJoe

LL LC

The ES futures started down in the overnight and kept going through the cash open, making the local pattern of a lower low (LL) and a lower close (LC). This might finish off the minute ⓒ wave of the Minor Y wave of Intermediate (3). But the count is still tentative.

First, what is needed is a retrace wave that does not go over the high, and then a down wave which makes a lower low. They are not on the board yet. Yes, we very well might have finished off the minute ⓒ wave with the wedge count at the high. But there is nothing that prevents all of July from being an awful b wave up, and we could make a dramatic c wave lower as part of a larger fourth wave, (iv). The analyst must be on guard for such an occurrence.

Price came down to touch one possibility for the (iv) to (v) trend line, and it would have done so in less time than the fifth wave took to build. But the break is not decisive yet, even though the close was poor in terms of continuing the immediate uptrend. And the RSI is diverging. But those are only confirmation step #1. So, it is now up to the price action to determine whether or not prior wave markers (such as 5,503) bust lower or not.

Right now, we only have a countable sequence. What is needed is swift confirmation, and the down wave certainly took its time today.

Have an excellent rest of the evening,

TraderJoe

For Newer Readers

Try to learn the item on this chart. It shows 'why' counting a diagonal may be possible here. It has to do with the degree labels. Although the chart uses some non-standard degree labels, they are meant to be relative only to convey the point.

In the chart, the -ii label is meant to be one degree smaller than ④. Further, the (B) is meant to be one degree smaller than -ii. Note: the UP waves are only compared to prior UP waves (i.e. the waves before ④ to see if they are smaller than those waves.

The prospect of a contracting diagonal is always intriguing, but the reason they can bust is that the waves get progressively smaller, and therefore, they can be a misleading nested 1-2-i-ii count instead. So, in this count to maintain a diagonal, then wave -v must remain smaller than wave -iii. If it does - great! If not, the count simply is revised - no whining, wailing or gnashing of teeth because the reason is explained as to how they can bust or be confused with other waves. That is simply the nature of EW.

Have an excellent rest of the evening,

TraderJoe

New Highs Beginning to Diverge

The newest higher highs in the ES daily futures are just beginning to diverge versus the RSI and MACD. We may not be at a top yet, but we may be close. Here is an update on the extended fifth wave count of the Minor C wave of Intermediate (3).

Often the extended wave is the 1.618 wave. It would be so as shown when compared to minute-iii, circle-iii. If we're making a diagonal near the top, we may be hours/days away. Closer in local counts are in the comments for the prior post. See the ES 4-hr chart.

Have an excellent start to the evening,

TraderJoe

NDX Past Equality

This brief update is just to show measurements that the NDX Cash Index on the right is past equality for a wave Intermediate (3) compared to Intermediate (1), as per the monthly chart below. That means that by the rules the NDX simply may not be in a contracting diagonal when measured from the 2020 low.

Meanwhile the SPX Cash (CFD shown) is not yet near equality, nor is the Dow Jones Industrial Average. So, while getting less likely, contracting diagonals are not ruled out for those two indexes.

For the NDX the possibilities are that in an impulse count wave (4) would not overlap wave (1). Or it there should be substantial overlap, perhaps the NDX will go on to make an expanding diagonal instead of a contracting one. Lastly, perhaps the NDX would go back to the 2019 low and make the A,B,C up from there for (1) where it currently is. But that seems the last possibility. we will monitor it though.

Have an excellent start to the evening and the weekend.

TraderJoe

ES Outside Day Down & Gold Futures

ES Futures

If you were following the market intraday then you know the ES daily futures made a new all-time high on the benign CPI report before the market opened. It got to about 5,708 which is very near the Fibonacci resistance of 5,701 which is the level of 0.618 x net [ i to iii ] on the chart below.

Then, even before the cash market opened, price began to fall off - slowly - and then picked up some steam as the session wore on. Although the cash market made a new all-time-high, too, it did not extend to the length that the futures did. As the day progressed, the futures created an outside day down from the highest level - or a key reversal day. But the swing line is still mixed, the daily bias is still up, the daily slow stochastic is still embedded, and there is now a signal candle which requires significant downside follow-through for confirmation. Therefore, the high of the outside candle should not be taken out within the next two trading sessions or else it constitutes a trap for the bears.

Of note, we stated that we were running out of degree labels for extensions. We had gotten down to Minor, minute, minuette, subminuette, micro, sub-micro and even nano. From the degree perspective the up wave is about out of options (no pun intended). Even so, we urge continue caution and patience as price is still above the 18-day SMA and a significant retrace wave (..or more ..) is still possible.

Gold

As far as I can tell, the situation in Gold futures looks like this on the daily chart. I won't elaborate except to say that both a second wave and a fourth wave correction are clearly visible on the Elliott Wave Oscillator.

GOLD Futures - Daily - Fourth Wave Likely

Further, one should look for alternation from this wave, and wave Minor 4 should either be a triangle or a Flat wave with an equal or higher 'b' wave. It is the fourth wave conundrum at every degree of trend.

Have an excellent rest of the evening,

TraderJoe

Narrowing Range

Odd for a FED Chair report day, the U.S. equity market as measured by the ES futures had quite a narrow range. This was despite FED Chair Powell testifying on Capitol Hill. Cash SPY gapped open, traded down to try to fill its opening gap, but that didn't work.

ES Futures - Daily - Stuck on Upper Band

 

ES prices continue to narrowly ride the upper daily Bollinger Band, and the daily slow stochastic has regained an embedded status. Today could be a spinning top candle but it did make a higher high, and there is, as yet, no significant confirming downside confirmation.

The summer doldrums appear to be here, and until there are better signal candles and/or a slow stochastic that closes back under the 79 level - it is what it is. Even given today's pattern a slightly higher high could still be made as the EWO (AO) on the hourly ES was just getting down to the zero level at the end of the cash session with now over 100 candles on the chart for the wave of interest.

In the chart, the next EW resistance figure would come from v = i which does not have to be reached but certainly could.

Have an excellent rest of the evening.

TraderJoe

Cash Moves into the Confluence Zone

The S&P500 Cash Index over the long holiday weekend has moved into the Fibonacci confluence zone provided by the 0.786 Extension projection from waves Intermediate (1) and (2), below and the 'external' Fibonacci 1.618 external retrace of just wave (2) - as labeled on the monthly cash chart, below.

S&P500 Cash Index - Monthly - Confluence Here

The ES futures are actually tagging the 1.618 external retrace at this time. Because of some length added in this wave, the up-wave count from the October 2022 low reverts back to the Minor W-X-Y count. The larger question now is whether the RSI divergences will hold, or not. If they don't and the market unexpectedly surges, we are still in a third wave, (3), in that case. The count from the X wave appears below on the weekly chart of the ES futures.

ES Futures - Weekly Continuation - Diverging RSI

Within the minute ⓒ wave we are currently counting a non-overlapping impulse wave upward. Because of length considerations, the minute ⓑ wave may have taken the form of an expanded flat.

From what I can tell, the X-to-ⓑ trend line is now the one to watch. Remember, at this time, the ES futures remain above the 18-day SMA and therefore has a positive bias. Further, the weekly ES chart is fully embedded. Regular readers of this blog should now be able to generate such charts for themselves after several examples and review that situation.

Have an excellent rest of the weekend,

TraderJoe

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