Simple .. but Not Easy

Some traders say trading is "easy" but not simple. It's easy because all you do is press a buy or sell button. But the complexity in making a profit is knowing "when" and at "what price" to buy or sell. Hopefully, the Elliott Wave Principle helps one make those decisions. I'm showing some long-term charts today to show you that there is currently nothing wrong with the Elliott Wave, at least as I'm counting it. First, the yearly chart of the Dow.

DJIA Cash - Yearly - Close Only

The wave is nicely in a parallel, with the "running second wave" the omen of the great upward strength that followed. (Not recognizing this by-the-way may be the single largest mistake Elliott counters have made). The RSI diverges on this Vth wave, and as long as wave III is greater than wave I, then "by the rules" wave V can be "any length". Any top will likely be SuperCycle [III]. Now on to the Monthly.

DJIA Cash - Monthly Close - In a Channel

Again, nothing too wrong here. The wave is nicely in a channel, and it has not left the channel to the downside yet. Primary ④ "might be" a triangle, but it might also just be a Flat. The Flat is shown. IFF wave ④ was a triangle then wave ⑤ "might be" over already. But, again, with higher prices there is just nothing to make that conclusive and there are other options. So, as long as prices are higher, we continue to explore other options. In this wave since Primary ④ we note there is not currently a confirmed triangle or diagonal. And we note that since wave ③ is longer than wave ①, then wave ⑤ "by-the-rules" can be any length. You'll note the RSI divergence has busted above.

So, we began the counting of Primary ⑤ looking potentially for a contracting ending diagonal wave. In that wave, wave Intermediate (3) simply must be shorter than wave Intermediate (1). So far, it is, so we don't want to get off track. That remains the current count - especially in the Dow. 

Now, we know that the NDX has 'exceeded' its length of Intermediate (1). What if the ES/SPX does that too? Students of Elliott Wave likely know that the options are few - making life somewhat simpler than guessing at random: here are two of them.

ES Futures - Monthly Continuous Close - Two Patterns

IFF wave Intermediate (3) becomes longer than Intermediate (1), then one case can be made for the non-overlapping impulse upward. In that case, wave (3) might tend towards 1.27 or 1.62 x wave (1). It has not done so yet. There is no requirement that wave Primary ⑤ contain a diagonal, but given the extent of the rise it certainly is likely. So, what I am saying is this wave could end with an impulse. In this case, maybe wave (4) would be a triangle or wave (5) would be a diagonal - still within the larger impulse on the left. All of that is completely possible.

But the other - more ugly - case is simply for the expanding diagonal.  This case would become more likely the more overheated sentiment and upward price targets get as we head into the election. And it is starting to get there already. It would still be a way to end Cycle V with a diagonal! Note that the Dow is showing some signs of an expanding diagonal already, but at a lower degree. And also note that daily Bollinger Bands are not too far overhead. Further, either of these two patterns would explain why Intermediate (3) is now longer-in-time than Intermediate (1).

The thing is that patience is needed. And a stopping point (or terminal) of this upward wave and reversal is needed for any decision-making at all. So, we are keen on the lookout for the latter and urging with all intensity the former. Let's not lose sight of the basic measurements, the parallels, the basic patterns and the rules.

Have an excellent rest of the weekend,

TraderJoe