'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

Close below 18-day SMA

The ES daily futures today had a close below the "line in the sand", the 18-day simple moving average of closes, as shown on the daily chart below.

ES Futures - Daily - Close Below 18-SMA

This is the second such close and follows a "battle for the line in the sand". The daily slow stochastic is not yet in oversold territory.

With the overnight lower low, the swing line indicator is currently pointed down but needs to undercut Friday's low to firmly establish a downward trend.

From an Elliott Wave perspective, we are watching two consecutive rejections of the 62% Fibonacci level. The first one occurred at the ES 6,377 - 80 level in the overnight session, and the second one occurred after the morning downdraft at the 6,350 level. And the lower low in the overnight may be a bit of a clue.

So, this is a good time to watch the developments carefully and see if a better-defined wave sequence takes place or if price will just bounce around between the Bollinger Bands. We have made the case for the former, but it's up to the market to decide.

Have an excellent rest of the evening,

TraderJoe

The Dog Didn't Bark

In the short story The Adventure of Silver Blaze by Sir Arthur Conan Doyle, Sherlock Holmes helps solve the mystery of the stolen racehorse by noticing for Scotland Yard, that "the dog did nothing in the nighttime." When one would have expected the dog to be barking - with the theft of a horse underway - it didn't. And one had to wonder why. Here in the markets, on the long-term count, we are faced with a similar clue. Ask yourself the following question as you look over this 2-weekly chart of the S&P500 cash index, "Is there anywhere on the chart that even remotely looks like a properly formed sideways triangle?

SP500 Cash Index - 2 Weekly - Potential Diagonal

If you answer the question honestly, you'll likely arrive at the same answer I have. A curt, "No". At this scale, there is no grinding sideways pattern that can clearly form an overlapping a,b,c,d,e which has the characteristic 62 - 78% wave retraces. So, since triangles often (not always) precede the last move in a trend, could it be that - for some period of time - this potential Minor B wave down will form as a triangle prior to the last move up? Maybe. It does not have to, but it is one of the good possibilities.

Degree Labeling

Notice in this count that within Intermediate (3) then Minor A is shorter in price and time than all of Intermediate (1), the previous higher degree wave in the same (up) direction, so that that this wave can qualify as a true subwave. Also, the notice the same is true of Minor C within Intermediate (3). Next, we also note within the potential Intermediate wave (5), then this Minor A is also shorter in price and time than all of Intermediate (3), the previous higher degree wave in the same (up) direction, so that this wave, too, can qualify as a true subwave.

So, what does this mean for potential Minor B? Well, within this wave there is a choice of two prior degree waves in the same (down) direction. So, in terms of price Minor B must be shorter in price than Intermediate (4) down. But, in terms of time, not having been in this situation before at such a high degree, it may be that a triangle for Minor B might have the option of being as long in time as Intermediate (2). Maybe longer because of the nature of triangles to move price sideways, but that remains to be seen.

One's wave counts should try to respect degree labeling to the extent possible. If the degrees are unclear, then it is likely that something hasn't meshed properly in the count.

Have an excellent rest of the weekend,

TraderJoe