Second Verse Same as the First

Yesterday, we pointed out that the daily slow stochastic on the ES futures had its third day of re-embedding. Ira Epstein (broker with the Linn Group, LLC.) who noted this characteristic also noted that the 'second' time embedding happens in-a-row it is often - not always - a sign of a weakened market; one that is wobbling. The ES daily price chart is below. Price has still closed above the 18-day SMA, and so the daily bias is still positive.

ES Futures - Daily - Outside Key-Reversal Bar

However, today's bar can be a "key reversal" bar taking out the high and low of the previous two bars after the highest high in the trend count (i.e. today). And, depending on where it closes, it might also come to be considered a double-close key reversal, closing below two of the prior closes.

Today was a 'turn-around Tuesday' which is interesting of itself. There is a way to consider a top in place, but more downside is needed. Today's bar just is not that long yet although it does overlap with the bars of 22 & 23 Sep. So, patience will rule. Loss of the embedded slow stochastic might be one factor to wait to observe, and a close below that line-in-the-sand might be another. 

With price having hit the upper daily Bollinger Band again, it might be a place where the Smart Money is at least lightening up on some positions. 

If we have finished the Minor A wave up, remember I am primarily looking for a Minor B wave down.

Have an excellent start to the evening,

TraderJoe

Day Three

Today is the 3rd day of the daily slow stochastic re-embedding in the ES E-mini daily futures, as in the chart below. Price is still above the 18-day SMA so the bias is still up.

The sole active up (green) fractal was hit. There are three local active down (red) fractals and numerous gaps below the market. Up progress can still be made by triangle or diagonal. Downward progress could only be made at this point by a failure top (today) but this is less likely.

Have an excellent start to the evening,

TraderJoe

An Original Fibonacci Study

Here's an original Fibonacci study done today on the Dow. I have not seen this idea elsewhere - just to expand the Dow 1929 top from its origin in the first prices available and 1932 bottom in "log Fibs" and see what that gets us. So, I worked this one up this morning and it has some interesting 'hits'. They absolutely are not 'precise', mind you, but they are very much in the neighborhood.

Keep in mind, regardless of the degree symbols used (I just chose these as if I was preliminarily studying any other chart) that the peak RSI is usually on the third-of-three, and the divergence is on five-of-three.

Further, we are up to and slightly past the 2.618 "log" expansion not to mention that price is squeezing out of the upper log trend line, depending on how you draw it (Gulp!).

Have an excellent rest of the weekend,

TraderJoe

Non-fatal Daily Dogi - Yet

With the government shutdown, the non-farm payrolls were not announced today. In the lack of serious news, equity prices - as measured by the ES E-mini futures - headed higher and attacked the upper daily Bollinger Band, exceeded it, and touched the 6,800 level, exactly, before backing off in the oft-cited round-number psychological something-or-other. The day created at Dogi candle, but didn't have a lot of power to it, yet, as on the chart, below.

The problem is that nothing significant has been downwardly overlapped, no significant prior daily lows have been exceeded, and no downward daily fractals are broken. While the daily slow stochastic is still over-bought only, price is still above the 18-day SMA. And so, yet again, the bias remains up.

There is an interesting pattern that might develop Monday morning. It is an expanding diagonal - if it forms properly with a longer fifth wave than third wave. The problem with that, of course, is that these patterns can be ending patterns as well as beginning patterns. So, even if the pattern forms properly, there could be a stiff partial or full retrace following it. So, higher highs might still be possible, and such might happen if important announcements occur, like the re-opening of government, etc. You can see this potential pattern in the comments for the prior post

Further, while it is speculative, it is also possible that NVDA is in the third wave of its fifth wave higher. This might drive other prices higher without the need for announcements.

So, we're taking it slowly and wave-by-wave. Also, we like to examine some of the data over the weekend, but it certainly appears like we are in the neighborhood of a top. Even though higher highs are possible, our assessment remains that the risks are skewed to the downside.

Have an excellent start to the evening,

TraderJoe

ODU

U.S. equity prices - as measured by the ES E-mini futures - declined overnight on the news of the government shutdown. On the daily chart, they closely approached the 18-day SMA, as in the chart below.

As we suggested yesterday, the "first-of-the-month" money had been front-run yesterday after the window-dressing. Then, today, after the cash open, the passive inflows began in earnest, and the ES futures made an outside-day-up (ODU) to a new higher high and near the upper daily Bollinger Band on a divergence with the slow stochastic, which is not embedded.

The higher closes are dragging the 18-day SMA up with them. And, yes, there are ways to be considering a top in this vicinity, but the daily bias is still up - until it isn't. In this instance, the low of an outside day up should not be taken out in the next two trading sessions, or it constitutes a trap for the bulls.

Because of length considerations, it is possible to consider a ivth wave located on the 25th Sep low, or a triangle in the futures that ended this morning as a ivth wave. It is also possible to consider an upward diagonal starting anew from the 25th Sep low, but this will have to be monitored in terms of overlaps and depth of any retraces.

In any case much better reversal signals are needed, along with a close below the 18-day SMA to consider that prices are serious about trading lower for a period.

Have an excellent start to the evening,

TraderJoe

Tri or Di

During the day today, we noted how the market just ping-ponged back-and-forth between the intraday Bollinger Bands, likely delivering whiplashes galore. The futile volatility, likely due to the end-of-month window-dressing we noted continued until about 2:00 pm at which time, the futures decided to front-run the likely first-of-the-month money with a vengeance, before backing off a bit. Today is the end of the month, the end of the quarter and maybe the end of continuous government (just kidding, we don't know about a government shutdown or not, yet). We said that an upward triangle or diagonal was still possible. It still is. Here is the ES futures 4-Hr chart showing two very 'loose' possibilities.

It seems like a triangle might take a lot more time as price is nowhere near the apex. The complex leg of a triangle 'could' form. A diagonal could take less time, but it could also have much wilder internal waves. For the contracting diagonal, upward, price would need to make a higher high, and this third wave would need to stay shorter than the first. For the triangle, price needs to stay above that prior Ⓒ wave - which is pretty darn deep already.

And yes, a top could be in place, but then the diagonal would be downward, not upward, and that is not even close to being on the board, yet.

So, for the time being, both patterns could represent something of a no one's land until something recognizable forms. We'll watch and try to suggest, but it could be quite tricky. In short, it's The Fourth Wave Conundrum, and it happens at every degree of trend.

Have an excellent rest of the evening,

TraderJoe

The Very First Rule

While we are waiting some internal resolution of the current hourly up sequences in the ES futures, I thought I would touch on a basic topic, but in a way that you probably have not seen or heard before. That is the First Rule of Elliott Wave. I have a lot of respect for Glenn Neely. He has had some excellent clarifications of EW theory. But there are some places I disagree with him, plain-and-simple. He claims his rule-base for Elliott Wave is more extensive than EWI's. That is partially true. It may also be true that he has "added" patterns that don't follow the rules. In other words, he may also have decreased the rule base of Elliott Wave, and he won't tell you that or look at it that way. Let's start with an in-depth review of the very first rule in Elliott Wave. You know that rule is as follows:

Wave 2 may not retrace more than 100% of Wave 1.

That rule is diagrammed on the left below.

The First Rule of Elliott Wave

Implicit in that first rule is the fact that wave 2 will, indeed, have a retrace on wave 1. This is clearly supported by the impulse wave "guidelines" that the second wave retrace will typically be 50 - 62% on the first wave.

In Mastering Elliott Wave, Neely does away with this convention and argues for a "running second wave" where the c wave of 2 does not overlap on wave 1. An example of this appears in the diagram on the right. There are two logical traps with this approach. The first one is diagrammed below.

The first logical trap is this: If the lower degree b wave is less than the total length of the larger degree wave 1, as prescribed by degree definitions, then what is to separate the purported running second wave on the left, from a further impulse where the first wave is the extended wave (as shown on the right)? Thus, Neely has created more confusion in this rule set and actually decreased the rule-base of Elliott Wave.

The second logical trap is this: What is the meaning of the depth of a "retrace"? Is it the travel of the "c" wave, or just the travel of the "a" wave? Neely's "running second wave" would seem to suggest that it is only the "a" wave in this case as that is the only thing that overlaps wave 1. But, if that is the case, why isn't that also the case in the very first diagram, where the retrace is measured to the end of the "c" wave and can't go below the start of the first wave? The last-wave-in-the-retrace view is supported further by the rule that states the (e) wave of a running triangle "must" overlap its prior 3 wave or its prior B wave.

Do you see the issues this creates? To have a rule set, definitions must be consistent. In fact, I will even go one further and suggest that in a true "running second wave" the "c" wave would likely have to be longer in price than the "a" wave, overlapping wave 1, or else the pattern could also be confused with a contracting diagonal.

I have long argued that only way to see whether Elliott Wave is working or not is to "follow the rules". If you don't follow the rules, you don't know if the count is working. Still, there are many people out there who won't take the time to internalize the rules well enough to know why they make sense. And, it has even gotten worse.

According to some on-line information, Prechter has now changed the rule for the third wave in a contracting diagonal and now says in some circumstances it can now be the longest wave, precisely contradicting the definition of a contracting pattern. A contracting pattern means 5 < 3 < 1 or e < d < c < b < a. Pure and simple.

In both cases (Neely and Prechter) it's my opinion that the original rules are just fine for the task, and both are currently being fooled by just plan-and-simple but unprecedented monetary expansion, though I will agree that on a log chart the rules should be consistent, and on a short-term arithmetic chart, the rules should 'also' be consistent.

That said, there are still problems with the "rules" for Elliott Wave. For example, what is the definition of a "first wave" up? How does one "know" it is the first wave up, and not the assumed retrace of a part of a bear market? How is this made consistent across all stocks, indexes, commodities, crypto's etc.? 

This is only the first rule. And that is partly why this is so much fun. 

Have an excellent rest of the weekend,

TraderJoe

Bounce off 18-day SMA

U.S. Equity prices, as measured by the ES E-mini futures contracts, went down to the 18-day average of closes, and bounced, as shown in the ES daily chart below. As so often happens, this was accompanied by the loss of the embedded status of the daily slow stochastic, as shown below. The down (red) fractal on the FOMC report date of 17 September was not yet exceeded lower.

ES Futures - Daily - Bounce from the 18-Day SMA

Intraday, thus far, with 105 candles on the ES 30-minute chart, we can only count three-waves down following the degree definitions. The essential problems for wave counters are that 1) wave Ⓒ, below, is actually longer in price than wave Ⓐ; 2) wave Ⓑ - while shorter in price & time than wave a/i, is not at all in five waves; 3) the absolute length of wave ④ is longer than either Ⓒ or Ⓐ; 4) wave c/iii is longer than wave a/i in price & time; and 5) the waves appear at this time to form an exact parallel.

ES Futures - 30 minute - Three Wave So Far

So, the problems seem to be solved by designating the "running b/ii wave", and by suggesting that wave ④ is a flat wave to bring its net travel in line with the prior correction. However, that clearly leaves the count with only three-waves down into the c/iii divergent low.

The EWO now appears to be heading up, and a true non-overlapping fourth and fifth wave are needed for a downward impulse wave, probably within 120 - 180 half-hour candles. If this does not occur, then any downward wave would have to form by diagonal instead - if one is to form properly or at all.

Price closed the session above the 18-day SMA. So, the daily bias is still up. The only day that price can get the embedded status of the daily slow stochastic back is tomorrow. Closing below the 18-day SMA might change the bias to lower and create a longer down wave than prior down waves, but that has just not happened yet.

The "running b/ii wave" was a significant sign of weakness. We have not seen one of those in a while. For that reason - and others - no amount of downside would be surprising to me. It would be a matter of counting it properly. But, right now, the downward wave count is governed by The Principle of Equivalence and has two commensurate meanings. That means an upward diagonal or a triangle could still form here and make higher highs and these must be considered equally with downward counts until the market rules out one set of circumstances.

For our part, we count & we measure. And that is compared to the rule-based logic.

Have an excellent start to the evening,

TraderJoe

Count and Alternate

Prechter says, "stocks are over-valued". Nobody listens. Powell says, "stocks are fairly highly valued" and the market sells off. Here is the current count on the ES 30-min chart. If the high has been set it is because the triangle preceded the last wave up in the move.

If not, here is the likely alternate - being still in a diagonal until the low is exceeded.

Have an excellent start to the evening,

TraderJoe

The Principle of Equivalence - in a potential diagonal

ES futures prices scored higher all-time highs again today. It is possible that a diagonal will end tomorrow and there will be a turn-on-Tuesday. There is also a possibility that this will not happen, and the upward wave will impulse instead. Again, part of the confusion is caused by the compression of the waves made on the FOMC report date - last Wednesday. The chart of the SPY (cash) 15-minute time frame is shown below.

SPY (Cash) - 15 min - Potential Diagonal

We note that the current wave 3 is measured as 0.618 x wave 1. The problem is we don't 'know' the third wave is over. It could be, but it begs waiting to see what tomorrow will bring. The Principle of Equivalence says that within the current wave 3, the Ⓐ and Ⓑ could just be a smaller wave (i) & (ii) with today's high as (iii). We must wait until tomorrow to see what kind of downward movement there is, if any, and what overlaps do or do not occur. 

The overlap level is shown for the wave 4 of a diagonal as currently drawn. Also shown tucked in the middle section of the chart is the 662.75 level where a wave 4 should it develop would become too long in price and invalidate for a contracting diagonal.

We note the MACD on this time scale has some divergence and that is interesting. But divergences can be broken. We have seen that often. But, still, it is interesting. A diagonal should have diverging waves indicating the loss of momentum in the motive wave.

Clearly, the alternate for this wave set would be a non-overlapping impulse. Measurements will become important. The wave degrees shown are just to illustrate the points involved. They will be corrected when we get some confirmation that Minor A is done.

We do note on the daily ES chart that price hit the daily upper Bollinger Band today, that price is still over the 18-day SMA, making the bias still up. And the daily slow stochastic is still embedded, among the very strongest of technical signals. So, there is nothing outright bearish on the chart, with the possible exception of how stretched prices are. But Ira never advises selling when prices have not closed below the "line in the sand".

The Principle of Equivalence says, "keep the powder dry". It says, "evaluate the waves and the lengths of prices seen". 

Have an excellent start to the evening,

TraderJoe

Call Me Sentimental

Many years ago, I wrote about developing a proprietary sentiment index which I have been updating religiously week upon week since well before the 2008-2009 financial crisis. This sentiment indicator is considerably different than some of the casual ones some talk about. This sentiment index reflects the views across a very wide swath of market participants of which the AAII is only a small sub-group. To keep a long story short, the Percent Bullishness (or %B) shown on the chart below is the cleanest and most consistent gauge of sentiment I know. Key data points are plotted on the two-weekly hi-lo chart of the S&P500 Index below.

As you can see, the percent bullishness is currently among the highest recorded. This is in part due to the AAII Sentiment Index (see chart at this LINK) having swung from only 28.0% bulls last week to 41.7% this week. That is a massive one-week swing and represents the market dragging them in near the top. Note that the highest bullish sentiment on the chart was during the middle of the third wave. And that's why sentiment is only "one leg of the stool". Notice, if, as EWI suggests, sentiment is all there is, then this data point provides scientific evidence that is not the case, at least not always.

You can add to this data, the other market-related data I consider relevant as it is transaction-based. It depends on what traders do. And that is daily equity-only put-to-call ratio shown in the chart below.

Equity-Only Put-to-Call Ratio - Daily - Speculative

From the chart, you can see that price has entered the Zone of Speculation as the often-wrong small options players move in to catch the 'new' (sic) trend. Notice that single data points on this index, by-themselves, are not infallible either, as May of this year was an excellent time to purchase, not sell. But what I like about the data is they clearly show what market participants are doing, not saying. And, right now, they are speculating. Still, the moving averages (5, 20 day) could go lower. Those averages have been lower in history.

Sentiment observers will also note that the CNN Fear & Greed Index recently swung from Extreme Greed, to Neutral, and back to just Greed. So, in the manner they measure it, too, 'Extreme Greed' was not the market high, either. Prices are higher than when the Extreme Greed was registered. Again, this is counter to what would be expected in EWI's market model.

I suspect that some of this discrepancy is due to the fact that a good number of decisions are being made by a) machines/algorithms, and/or b) passive investors, and that some of the recent jumping in is due to the FED being interpreted that they will continue to lower rates. One adage market players use is "don't fight the FED", right?

Whether that is the case, a very common technical measure - the NYSE Advance-Decline line made new all-time highs this past week. Again, it would be very, very unusual for a major bear market to start with that condition. Usually, there is a significant divergence before a true bear market begins.

But some other anecdotal evidence is also 'piling up' on the side of a heated market. Jim Cramer, host of Mad Money, said Friday night (paraphrasing), "Just buy the Mag 7. These stocks are in control of their own destinies". And CNBC, whose commentators, are almost never allowed to use the 'bear' word was heard on Friday, via host Brian Sullivan, to say, (again paraphrasing), "Pfff. a 10% correction? We don't even care if that happens. That's reasonable. Those happen." No worries, right? 6600 - 10% = 6000, right? No issues.

So, in sum, it seems the data may indicate we are near the end of "a" wave, and maybe the Minor A wave I'm expecting. But it may not be the end of "the" wave yet. I remain flexible and ready to watch for either - based on measurements and wave counts. But time will tell.

This is the second post this weekend, and the first one has more wave-related measures in it.

Have an excellent rest of the weekend,

TraderJoe

Clear Indications in an Elliott Wave

Yesterday and today, we were able to count a triangle. It did not appear to be a running triangle, just a regular contracting triangle. The ES hourly chart below shows the triangle on the right-hand-side.

ES Futures - Hourly - Indications

Based on the FOMC wave compression we simply cannot say whether the peak before the Ⓑ wave is a 'three' with the triangle as 'four' and the new high as much of 'five', OR, whether - because of the size of the triangle the wave before the Ⓑ wave is a larger 'a' wave of a diagonal with the thrust out of the triangle as the 'c' wave of a larger diagonal.

Regardless, the wave structure gives off a heck of a lot of clues. First, wave v (or c) is not 'done' until price travels under the Ⓔ wave of that triangle. Next, a wave lower is not confirmed until under the Ⓐ wave of the triangle.

Because a diagonal 'could' form, a downward wave 'could' retrace 62 - 82% of wave iv and still be acceptable in a diagonal wave. But such a wave cannot go below iv, and price would likely have a trend change if it does.

Notice the EWO is throwing off a lot of fourth wave signatures at the hourly chart level. Still, on the daily chart level, the BIAS is up, price has contacted the upper Bollinger Band again, and the daily slow stochastic is still embedded.

One thing that might be watched is this: say over the weekend there is a smaller degree triangle, and a higher high; that still might end only smaller degree wave ① of v, so be sure to see whether that triangle Ⓔ wave breaks or not on a downward retrace.

Have an excellent start to the evening and to the weekend.

TraderJoe

The Bias

Two days ago, in the post at this LINK we proposed a way via an Elliott wave count that prices could decline on the FOMC report out and then recover to a great extent. Today they did that. The ES daily futures chart for December lead month contract is below. The FOMC did, by the way, cut the FED Funds rate by 1/4%.

ES Futures - Daily - Hanging Man

The importance of the chart remains that price could not get down to or close below the 18-day MA so the daily bias remains up. The daily slow stochastic is still embedded, so, on substantial breaks, like today, it is expected the Smart Money would deploy some new money, and they appear to have done that by the size of the tail they left. Yes, this is a hanging-man candle, but like all single-candle patterns, then confirmation candles are required.

It is not until the red line of the slow stochastic closes under 79 that price might be expected to start down to that "line in the sand" in earnest.

While it's nice to have an FOMC meeting out of the way, the next item is the reaction to the rates cuts as the sun travels around the globe and the reaction to it in other countries is seen.

So, it is possible that higher highs are made. It is also getting increasingly risky to rely on just the assumption that such will continue. Not only is the wave structure almost fully mature, but the distance between price and the longer 200-day moving average is also getting quite extended.

Have an excellent start to the evening,

TraderJoe

The Brakes

Another Elliott Wave issue I've noted is what is likely incorrect counting off of a top. The tendency is to rush to try to find 'five-waves-down'. The market is currently going to have none of that (until perhaps later in the cycle), and so the market, or the Smart Money, does one of two tricks. They both involve putting on the brakes to avoid a steep decline. To view a recent example from the standpoint of degree labeling see the chart below. This compares the ES futures to the SPY cash index.

ES Futures vs SPY Cash Index - Intraday - Diagonals

So, your eye should first go to the bottom chart. Note it has already made a 62% retrace of the whole wave. That is far too much for any fourth wave. Note also that wave ② is the largest retracement in the decline. So, this likely means that the blue a,b,c are likely sub-waves of wave ①. Then, there appear to be too many overlaps to consider anything other than a diagonal. This is one form of "putting on the brakes".

From what I can tell, there are two reasons for this. The first, and lesser important, is that the whippy behavior makes it nearly impossible for retail to get a decent trade out of it - without considerable skill. The second and more important is that the Smart Money is not going to change from overall buy-mode to sell-mode without considerable evidence the trend has changed - something like trading below the 18-day SMA. So, the Smart Money fights it all the way down from the high, and that is what makes the whippy behavior in the first place.

Now go back up to the first chart. I rightly gave kudos today to someone today in the blog for utilizing the Kennedy Channeling Technique. Bravo! Glad to see it. I use it too. But, what Mr. Kennedy fails to explain to you is what I have termed The Principle of Equivalence. Jeffery explains that leaving the bottom of the channel sketched in is confirmation of third wave price action. Yes, dear Jeffery, it can be and often is. But The Principle of Equivalence I have developed says, "whoa! the last time I checked C waves are in a third wave position, also. There is not a confirmed impulse until the proportional fourth and fifth waves are completed."

So, when the futures leave the channel, as they did in this case it can just be to the 'c' wave which ends the first wave of a diagonal.

What does this do for degree labeling? It makes the whole wave down either the first wave down as a diagonal or it makes a complete wave that ends a previous wave with a :5 - like a 3-3-5 Flat - or similar ending pattern. It can also put the overnight futures in-synch with the cash market.

What is the second trick? They herk & jerk the market down in an expanding diagonal until it sends a big enough signal to the Smart Money to bail if they wish. But they give them time. They put on the brakes.

These are hard learned lessons. They are not for the faint of heart or those easily disappointed in Elliott Wave. They are for serious students who see the glimmer of potential. Do you?

Tomorrow is schedule to be FOMC report date. Have an excellent rest of the evening,

TraderJoe

A Stab

Now likely back within the Minor A wave, this is a probabilistic stab at the local hourly wave count. The wave appears to be extended in time, which means it might be an extended fifth wave sequence. Even within it, retreats to the lower channel line are possible/probable, particularly with the FOMC magicians about to work their conjuring on Wednesday.

Good, stimulating discussion on the blog today. Look at the divergences on this puppy. No issues out there, right?

Have an excellent start to the evening,

TraderJoe

Rebound

Like a basketball off the backboard, stocks prices on Friday - as measured by the ES E-mini futures - hit both the upper daily Bollinger Band and the (red) 1.618 external retrace of the potential minute ⓐ-3 wave, and at least temporarily recoiled from that level. In the process, the bar formed was a doji. As far as I can tell, this would otherwise end a minuet degree (w)-(x)-(y) should upward movement end in this vicinity. Because of the exceptional length of Minor A, there is no time violation for minute ⓑ-3 as things stand. But the issue is the typical price lengths of ⓑ waves in expanded flat corrections. Price appears to be roughly there.

ES Futures - Daily - Near a Limit

There are two additional issues. The first is that the daily slow stochastic has just embedded - which often occurs before continued moves. And the second is the premium of the December ES contract is currently +50 or more points over the current level. The impact on local prices is not known yet. It could be a substantial driver, if not this coming week perhaps later in the year. Certainly, reversal is a potential around the quad witching that occurs this Friday.

So, we have two suggestions. First, if prices extend instead of reversing, then we simply suggest counting the Minor A wave as follows in this best alternate.

ES Futures - Daily Close - Best Alternate for Minor A

The sub-waves in the above chart can be 'forced' to work, so we'll just accept it if that is the case because the identification of a Minor B wave is certainly difficult in that circumstance. This count would simply recognize all of this wave as the volatility squeeze since the tariff low.

The second suggestion relates to the roll-over. The suggestion here is to just use the December front-month contract for local counting. Don't back-adjust it, don't make it a 'continuous' contract - just use it as is and see what it provides.

In terms of local actions, the current ES 2-hr pattern suggests a wedge with three-touch trend lines, as below.

What the chart suggests is that for any significant down trend to begin, there should be a break of the lower trend line, a back-test of it, and a failure below the overlap level. All we can do is watch to see if and/or when larger sellers show up to reverse the current situation.

Have an excellent rest of the weekend,

TraderJoe

ES/SPY (CFD) - Another Short-Term Channel to Watch

Today, we were able to count five-waves-up. The question is whether it is part of another channel or not, because there was only minor divergence on the RSI. Here is the chart of the ES/SPY (CFD) 30-minute.

If the channel does not hold up, then it might be possible to see today's high as part of another three-wave move.

One note of caution: the December roll-over contract is currently trading +50 points higher than the September is. Have an excellent rest of the evening,

TraderJoe

Running Triangle

We had a lot of discussion on the blog about what Neely calls a "running triangle" - which is improperly constructed - and is actually a contracting diagonal, versus a running triangle as defined by the rules of Elliott Wave. Interestingly, there is a live example of a potential running triangle in the US 10 YR Yield as in the 2-weekly chart below. The pattern below does follow the 'rules' for a valid running triangle.

US 10Yr Yield - 2 Weekly - Potential Triangle

Elliott Wave International has shown a similar chart, but my count is more nuanced than theirs. Beginning on the left, I have long held the 2020 low is a truncation as shown. This is one sign of the great strength in yields to follow. The second great sign of strength is the running second wave, (2), where the Minor C wave terminates above the low of the Minor A wave. This presages the great strength in the third wave (3) to follow.

In my understanding, it is only from there that the five Minor waves of the triangle A,B,C,D,E unfold and are still doing so.

Notice three things: first, this likely correct count gives an exact 1.618 Fibonacci relationship for the high of the Minor B wave of the triangle. Second, the E wave of the triangle already has come down under the prior impulse high, (3), to be corrective to it as required by the 'rules'. Third, this picture provides a clear, close and clean invalidation point for the triangle should the FED's actions disrupt the triangle. If a pattern does not provide such a clear invalidation, it is likely of little use to the trader.

If the triangle does play out with a higher high, then a full impulse can be completed. But, what IFF the triangle has become obvious and breaks down? Then, it suggests the impulse is already completed earlier as shown below.

US 10Yr Yield - 2 Weekly - Potential Trap

Both of these charts should currently be viewed as "equal and opposite" by The Principle of Equivalence. Everything depends on the lengths of the waves and the new positioning of the world's largest banks and hedge funds as the result of the FED's actions or inaction.

IF the potential triangle should break down, then I think it speaks to how many bars - time wise - should be considered 'proportional' for a triangle in an impulse wave.

Two other items to keep in mind. Neely often states that the A wave in a true contracting triangle is the most violent and often the shortest. Note the A wave in the first chart is a zigzag, true, but it sure took its own sweet time and didn't go anywhere. So, this gives more credence to the second chart, though not definitive.

Also, the old Wall $treet saw is "trading is treacherous in triangles". That's because apparent triangles have been observed to break down, as well as up. Should this one break down, you'll know the reason why. (hint: it wasn't a real triangle). And, if it should break upwards, that should become clear to you as well.

Have an excellent rest of the evening,

TraderJoe

Freebie

For today's post, here's a freebie on YouTube from Elliott Wave International. All I will say is that it is interesting that they now have adopted my equity count, and not the other way around. After all, it was they who initially taught me to count waves.

There are also some other interesting relationships and data points.

As always, you can make the video larger by clicking the [  ] (full screen) icon in the lower right of the video.

Have an excellent rest of the day and evening.

TraderJoe

"Just a Darn Tootin' Minute"

Between last night and this morning after the payroll report, stock prices as measured by the ES futures were headed higher. And as the daily chart of the ES, below, shows prices got up to - and over - the upper daily Bollinger Band.

It was there that the upper daily Bollinger said, "Hold on just a darn tootin' minute", and fulfilled its function of suggesting that the Smart Money would begin to exit at those prices. This is especially true with the daily slow stochastic above the 70 level and indicating 'over-bought' at the highest prices in history.

So, prices not only stalled there, but they also did a complete outside key reversal day down - making a lower low than Thursday and closing lower than that same day, and all from the highest high in the trend count.

This, again, while not completely 'fatal' to upward market progress, and a downward overlap of a wave i / a up shown this morning in the comments for the prior post, suggest that the market is struggling & failing to make impulsive activity up.

Price is still closing above the 18-day SMA, meaning the bias is still to the upside, and the swingline indicator still has a higher high after a lower low and so is still indeterminate by itself.

Still the outside-day-down cautions us that, "if the high of an outside-day down is exceeded higher within the next two trading sessions, then it can constitute a trap for the bears". So, we need to watch the next two days in particular, very carefully. From an Elliott Wave perspective, there are some remaining legitimate ways that higher highs can be made, but the odds are dropping.

Notice than the minute ⓑ-3 wave still does not violate degree definitions, so it can extend within reason if that is to be the case. Yet, triple zigzags are supposed to be pretty rare, so that is one reason why the odds are dropping a bit. Better odds would be provided by closes below the 18-day SMA, and a bonafide trend on the swing line under that level.

So, why am I thinking that this is still a ⓑ-3 wave, probably of an expanded flat, and not the end of the trend? Because, besides the EW count, if one looks at the NYSE Advance/Decline line, it is still basically at an all-time-high. Bear markets have typically not started in that position. And the weekly sentiment indicators - while getting steamy - just haven't fired off clear signals yet. Maybe someday soon. Meanwhile, the economy gives signs of weakening, and this often associated "B" wave type structures.

Have an excellent start to the evening and the weekend,

TraderJoe

Count Still Suggests the Minute ⓑ wave

The daily ES chart is below. Nothing has changed to invalidate the count presented days ago. The market is whippy as anticipated. "First-of-the-month" money from the usual passive sources is flowing robotically into the market near the all-time-highs, and in the month of September.

ES Futures - Daily - Plausible Count

One might watch to see if the upper daily Bollinger Band is hit. And, if so, does price proceed further to the upper line dashed blue parallel shown? Or is there to be a reversal on the payroll numbers tomorrow? So far, the other most-recent economic reports have been treated benignly.

The swing-line has a lower low and a prior higher high, so it is waffling; not trending. But prices are over the 18-day SMA so the daily bias switched to up.

Have an excellent start to the evening,

TraderJoe

Plausible Route to 195/200 in NVDA

In my last post on Nvidia, I said that I was looking for a fourth wave to come down and attack the lower channel line. As far as the daily chart below, shows, that has happened. 

Note that the formation may be a barrier triangle because wave ④ has come down to overlap wave ③. This could result in a pop above the upper barrier trend line. If so, the usual triangle projection of 'the widest width of the triangle added to the breakout point' allows for a projection to ~200. But barrier triangles can be tricky and do not have to reach the typical targets because of the energy already expended to try to breach the barrier.

None-the-less, the Elliott Wave Oscillator (EWO/AO) has made a reasonable fourth wave travel near the zero line and could allow for a fifth wave higher. This could also result in higher prices for the NQ/NDX and ES at some point.

On the downside, the triangle would likely invalidate below the 165/170 level, and a possible Flat wave could form instead. The EWO has divergences what looks like the extended first wave, and if the first is, indeed, the extended one, then the fifth wave would have to be shorter than the third. Let's see how it goes.

This is the second post this weekend, and if you have not seen the first one, you may wish to read it now at this LINK. Have an excellent rest of day, weekend & holiday, if you are celebrating it.

TraderJoe

Fits Together - So Far

From our post at this LINK on Saturday, we said we thought we were making a large ⓑ-3 wave up. That assessment has not changed. This is what the current wave count looks like on the ES/SPY (CFD) 4-hr chart.

ES/SPY (CFD) - 4 Hr Close Only - Elements of an Eventual Minor B Wave

This morning's dump should be watched to see if it nears the lower parallel, and/or holds there or near there. Double zigzags often form remarkably precise parallels - but we know 'this' market.

This is a further reminder that today is the last trading day of the month, with a Monday holiday, and so Tuesday may see the inflows from the typical passive sources we have so often noted (company bonus plans, 401k's, dividend roll-over schemes, etc.). And the Smart Money may try to front-run such sources, but this is not a requirement, sometimes they are patient and wait.

Eventually, the ⓑ-3 wave could reach the upper parallel, and - while likely - that is not a requirement either.

Have an excellent rest of the day.

TraderJoe

Crawling

As far as I can tell using the 1-Hr ES/SPY (CFD) or the ES alone, which has a delay here, the five-wave structure of the likely a wave from the 4-hr chart in the previous post is now emergent. The chart uses 120 candles. It's a crawler. But it works.

The fourth wave, 4, is between 38% and 50%, with no overlap, so there is no reason to think of any non-impulsive structure. Notice the third wave, 3, "turns-to-the-left" and goes above the channel as I have indicated it should do in true impulse wave structure.

Regular readers of this blog should now explore the channel shown previously on the 4-hr chart. The 'a' wave can have a bit further to go.

Have an excellent rest of the day. I will add the reminder that Nvidia reports after the close.

TraderJoe

'B' is for Belief, Bubble (and Babble, too)

The thing about B waves of expanded flats or running triangles is that they try to get you to believe they are built on something substantial, when they might not be. They might be part of a bubble too. And, as long-time reader and contributor BBRider commented on the prior post, this one is also built on some FED babble. A mumbling, stumbling Jerome Powell, Chairman of the FOMC, said on Friday the FED might be in a position to lower interest rates. OK. With that in mind, we just keep on counting, using parallels and finding clear five-wave sequences where we can find them as on the ES 4-hr chart below.

ES Futures - 4 Hr - Channel Upward

The above count is cognizant of both time and price degree considerations. It also recognizes the following counting items.

• The (c) wave down could be counted as 'five' as a diagonal, pointed out in prior comments.
• The a waves of both upward sequences in (w) & (y) are very, very similar in size and shape.
• The minuet (x) wave, down, can be seen to take less time than the minute ⓐ wave, the prior higher degree wave in the same direction.
• We also said a lower low was needed to call the down sequence from Aug 15th as a five-wave sequence. That lower low did not happen, and there was, instead, a near exact double-bottom leaving only three-waves down.

In terms of price lengths, we know the SPY and the DJI have exceeded their prior highs. So, likely all indexes must be counted in upward sequences, even if the ES has not made a new high yet. It likely will with the momentum from this wave. So, we are watching the typical ⓑ wave external retracement levels to see what information they provide.

Still, things could get very, very whippy near a new all-time high.

Have an excellent rest of the weekend,

TraderJoe

Down But Not Out

Overnight the ES futures went down to tag the 18-day moving average of closes, also known as 'the line in the sand'. Prices have since started to bounce from there as in the daily chart, below. The 18-day SMA is the place where prices often retreat to in order to figure out what to do next. This again might be the case with the FED minutes today, and Jackson Hole on Friday.

Looking at the chart we note several things: 1) there has been a more forceful overlap on L #1. This again is not fatal, but it does rule out some impulsive upward counts. 2) While this morning's lower low has the trend line currently pointing down, it has a prior higher high and now the lower low which is not typically counted as a trend. And it is currently above the 18-day SMA - so even if it was a trend - it is still neutralized by the daily bias still being upward. 3) the daily slow stochastic is currently below the 79% level. That is a warning that price and the 18-day SMA could come together. Well, they already have, they occurred almost simultaneously. 4) The only day that the embedded status can be regained is the next day, if it remains lost through the close. 5) Although not followed by many, we will note there is an upward cross of the 100-day over the 200-day SMA. This has some weak bullish significance to moving average followers.

The overlap of L #2 would provide more information from a wave-counting-perspective but that has not happened yet. So, keep an eye on things.

Have an excellent start to the day.

TraderJoe

Wobbly but Not Topped Yet

The ES daily swing line has wobbled a bit but has not set a clear new downtrend yet. Prices on Friday overlapped the prior high but not by enough to draw any firm conclusions yet. The daily chart is below. Prices retreated from the area of the upper daily Bollinger Band as expected, especially given the daily slow stochastic is over-bought only (for two days). The third day needs to be watched closely to see if gains the embedded status or not.

ES Futures - Daily - Into Minor B

Meanwhile, two other overlap levels are shown which are of interest in ruling-in or ruling-out counts. In particular, we note that if L#2 is exceeded it would probably be below the 18-day SMA and might set a trend.

In terms of an EW count, we still see the Minor A wave at the July high, and the new August highs confirm that the early August drop was only a three-wave sequence (probably ending in the diagonal we counted).

Again, we have no proof positive upward movement is over. It is possible for a Minor B wave to form in numerous ways including: an expanded flat, running triangle, or even more complex Flat-x-Zigzag, Flat-x-Triangle. Those patterns are in the book for a reason.

Have an excellent start to the weekend,

TraderJoe

Hourly Trend Line Becomes Hourly Channel

Today is Friday. Higher highs are possible, although the morning is starting out 'wobbly' - possibly like a triangle or diagonal, there is insufficient evidence for a turn yet. The lower three-touch trend line we cited earlier has held. It has become an hourly channel.

Since 123.6 has been hit and slightly exceeded, then 138.2 may be possible, but not required. Maybe the Minor B wave will be an expanded flat (at least initially) that would add length to the downside. If not, it might become a running triangle with the first :3 waves down as the more violent start of the triangle. Time will tell. The hourly MACD has turned lower again, but could be rehabilitated again, too. Dicey times.

Have an excellent start to the day.

TraderJoe

Hourly Trend Line - In the Making

In the SPY cash hourly index, as confusing as some things might be, there are four or five indisputable facts as shown in the chart below.

The most undisputed item would be the measurement. The up wave made 90%+ of the prior down move. So, if the prior down move is only a :3, then the up move can be the "B" wave of a Flat. If the down move is a :5, then it might be the 'deep retrace' from the diagonal counted provided that price does not exceed the prior high.

The second most likely undisputed item would be that a three-touch trend line has formed in the cash market. The nearly precise rebound off it at the end of the session means the market itself probably recognizes it. So, any break lower and/or back-test & failure of this trend line in the cash market needs to be watched very closely.

The third most likely undisputed item would be the volume on today's close. While a bunch of bulls (green volume bar in the middle of today's session) chomped on the fishhook at the exact high, the red bars started to gain in prominence into the close.

Fourth, like it or not, on this time frame the MACD had a cross and red histogram bars. It remains to be seen if that holds.

Fifth, we counted a wedge to the high. It might be disputed whether it is a true diagonal, and/or whether it has been decisively defeated yet. But the pattern ended on time and without any problems in the measurements. So, it would not be surprising if the up gaps in the chart start filling to the downside, depending on the news tomorrow.

Is there still a way for prices to lurch higher? There is, yet the odds keep getting lower & lower.

Have an excellent start to the evening,

TraderJoe

Three-Fer & The Principle of Equivalence

As you know I count Elliott waves in real time. As far as I can tell, the reason many Elliott analysts make some truly horrendous mistakes is that their Elliott Wave principles are not well founded. As an example, take the ES/SPY (CFD) half-hour close-only chart, below. We are using the closes only - not to hide anything - but to illustrate the overall form of the wave. And we need to tell you that there are at least three reasonably good ways to count this uptrend - being in the channel that it is. The uncertainty in the wave structure is precisely the reason I have developed and added The Principle of Equivalence to my overall wave theory.

If you follow the black count, you can clearly discern the Ⓦ-Ⓧ-Ⓨ triple zigzag count contained within the channel. The two Ⓧ waves would be of slightly different lengths but that would be okay if they are of the same degree. The issue with that count is that we were able to count five-down on the 7th. 

If you follow the blue count, the blue count can correct for this problem by claiming the 'c' wave of a failed-flat at that location. After all, that wave did not travel below the wave on the 5th, and the b wave in that count just ticked beyond the 1.618 external retrace on the 'a' wave down. This is often where the b waves of failure waves end on the upside.

And if you follow the red count, it says there was a gross mismatch ('extreme alternation') between red iv and red ii. But, none-the-less there was no iv to i overlap, so no rules were broken.

So, again, this is why I have developed The Principle of Equivalence. The counts are to be treated as equivalent until there are some distinguishing characteristics available.

For example, we said in the comments for the prior post that because the second Ⓧ wave is larger than the first, it ruled out any further contracting diagonal from that point to the recent high. So, that longer Ⓧ wave is one distinguishing characteristic. We can currently rule out a contracting diagonal and it does not appear on the chart.

Another item to note is within the red count. That count may contain some degree violations because there would then be internal sub-waves of wave iv that would be longer than all of wave ii, the prior higher degree wave in the same (down) direction. And that seems like a violation of degree definitions. So, from this point forward, you can consider the red count to be what I consider a 'cartoon' and just for illustration only. And it will not appear on further charts unless something develops to warrant it.

But - at present - the waves are still in a channel. The timing of the up waves is similar in pace. So, they seem like zigzags. But we also have not confirmed that upward price movement is over. So, a better developed Ⓩ or (c) wave could still form.

But "Wait a minute." You might say. "Isn't The Principle of Equivalence just the same as saying 'there are alternate wave counts'?" In fact, The Principle of Equivalence definitely says there are alternates at some times, but it is also deeper and much broader than only just saying there are alternates. But I will not get into that now so as not to confuse things. But I still caution, The Principle of Equivalence does not say there are any wave labels you like. No. Labels that don't follow the rules or that involve clear violations of degree definitions are still to be avoided to the greatest degree possible.

Have an excellent rest of the weekend,

TraderJoe

Market-suggested trend lines

As of today, the market has suggested slightly contracting trend lines shown in the daily SPY cash index, as below. At this time, they are tentative only.

SPY Cash - Daily - Suggestions

While we were able to count an impulse down, and then either a full or partial (we think the latter) retrace today, the market path is pretty unclear just now. As the daily ES chart below shows, price settled just above the 18-day SMA in a Doji candle.

ES Futures - Daily - Neutral

The slow stochastic is stuck in the middle, so this summertime chart is about as neutral as it can get. Still, taking out yesterday's low - tomorrow - would be more bearish than it would be bullish as it would take out the low of an outside-day-up in less than two sessions (IF it does).

This is a great time for patience, flexibility and small commitments, if any. We're doing our best to count locally, but the number of choppy diagonals on the chart is astounding (see last comments in prior post).

Have an excellent start to the evening,

TraderJoe