Big, Medium, & Smaller Picture

Here is the long-term picture from 2009 as best as can pieced together from degree labeling. The span since 2009 is now 16 years, and during that time much inflation has occurred, Therefore, the chart is log format, and the channel is a log channel. The SPX (S&P500 Cash) Index is used to reduce any influence of time-decay from the futures. The chart shows the Cycle, Primary and Intermediate degree waves.

S&P500 Cash Index - Monthly - Log Channel Count

The next chart focuses more on the medium term. It is the two-weekly chart of the ES E-mini futures since the 2020 low.

ES Futures - Two Weekly - Log Diagonal Count

The above chart shows the Primary, Intermediate and Minor Sized waves in this advance. As best we can tell, while the whole sequence can follow The Eight-Fold-Path Method for a diagonal, the internal sequences are grinding three-wave corrective waves. The third wave, (3), is longest in linear scale, but not in log format. It is longest in time. The fourth wave, (4), is shorter than wave (2) in time and in log length. It misses overlap with wave (1) by less than 1%. The Elliott Wave Principle by Frost & Prechter says the fourth wave in a diagonal 'almost always' overlaps the first wave. It does not say 'always'. It does overlap in the Dow and the Russell. It does not in the S&P500; it misses by much less than 1%. Given the exceptional influence of seven stocks in this market, that is likely acceptable. And a fourth wave signal was received on the EWO.

And the Minor B wave? Well, first it may not travel - even by a tick - below the low of wave Intermediate (4). Next, technically it can be "any three" including a zigzag, a multiple zigzag, a Flat, an expanded Flat - and go over the high again - or be a triangle. And within the triangle category, it could be a symmetric contracting triangle, a barrier triangle, a running triangle or an expanding triangle. In the last three cases of triangles, higher highs could occur.

If instead there is fast and rapid movement below the low of wave Intermediate (4), we would have to conclude that Intermediate (5), red alternate, finished at the high we just experienced. But there is no evidence of that yet. Yet, most Elliott analysts know, the B wave could be any measurement (more typically 38 - 78%), but even less than that, or more than that.

And if Minor wave B turned out to be a triangle, it could stretch the wave sequence potentially well into next year. We'll have to see. A triangle is often likely in the next-to-last position before a wave termination.

For the smaller picture, we noted that the SPY made a higher high on Friday while the ES futures did not. Although we initially surmised that this could have meant we made a larger diagonal downward in the ES (as in prior comments), when we consider the SPY's higher high, it could also mean we had this diagonal failure in the vth wave of (v).

ES Futures - 4 Hr - Diagonal Failure

The lengths of waves ii and iv are acceptable for it, and the down move very characteristic after the end of a true diagonal. The start of the diagonal (iv) would have been exceeded in less time than the diagonal took to form. Further, there is one green pip above the zero line on the EWO associated with v, so it may indeed be a fifth wave. Further, the EMA-34 on this time scale fits for form and balance.

So, now we have to see how the Minor B wave evolves. Once again, nothing to the downside will surprise me. The downside is covered. The task ahead is to see if a B wave holds up; if something like a nasty 'take-your-money' triangle forms, or if we should get zigzags lower for the wave.

The bottom line is it remains risky for trades to the upside (very!). And yet we know there will be retrace waves, and waves that will form an eventual pattern. It's just that most Elliott trading references advise one to steer clear of B waves because of the number of forms they can take. What you do, of course, is up to you. I'm just summarizing what the literature that I've read suggests - not offering trading or investment advice.

And the reason for showing this smaller term picture is to show that ending diagonals can fail. So can the C wave of the (5) wave of Primary ⑤. That is important to note, and we will also address it later.

This is the second post this weekend, and if you have not read the first one yet, you might like too.

Have an excellent rest of the weekend,

TraderJoe