Are we trying to count by fives in the upward direction or not? That is the very basis of the Elliott Wave Principle. The Eight-Fold-Path-Method tries to better quantify a chaotic and non-linear wave form by always examining the time frame that looks for between 120 - 160 candles. (If you have questions, see the post in the upper right-hand-corner of the main blog page under the Purpose and Ground Rules). This chart has been shown several times in the past. The bar count is currently up to about 153 two-weekly candles.
The chart is of the S&P500 Cash Index using just the Zigzag indicator to provide accurate wave termination points and illustrate the overall form of the wave. The RSI indicator and the Elliott Wave Oscillator (EWO or AO) are shown and are currently diverging. The distinctive fourth wave signature can clearly be seen with the EWO briefly dipping below zero before quickly rebounding.
Although it is possible to count a top here long-time readers of this blog will understand that one objection to doing that is the NY Advance/Decline line is at an all-time high this week and last. Few, if any, true bear markets have started in this condition - with the advance broadening out and little divergence seen.
Countering this, though, is the NASDAQ Advance/Decline line which is diverging. And, remembering that it was the "A.I. trade" that largely built this wave segment, one could wonder if just a few high-tech stocks were largely responsible for the advance, what will happen if they seriously decline? And, we're not even entirely convinced every Mag-7 stock has topped for good.
With that in mind, the Principle of Equivalence says to be patient, be calm, and be flexible as the market overlaps in this area. As the red arrow towards the end of the price series, above, indicates we could easily see a deeper drop for a B wave, before a final C wave advance that provides more in the way of divergence.
The bottom line is 1) we are attempting to count-by-fives, 2) it is possible we are topping now, but we question only how likely that is at this time, and 3) therefore no amount of downside will provide a surprise to us as the risks continue to mount and mount.
Just remember, if we are attempting to count by fives, then this up wave, when over, would be (5) of ⑤ of V of [III] with [IV], ahead, and [V] after that. If you would like to see the difference between counting by fives, and not counting by fives, you should have a look at a fairly recent free NeoWave blog post at this LINK. I have learned a lot from Glenn Neely, but it's very hard to say Elliott would agree with his counting technique.
Have an excellent rest of the weekend,
TraderJoe
Thank you I look forward to these posts. Do you have any updates for the book release?
ReplyDeleteIn another chart (NBIS), I'm seeing EW analysts claiming that a proposed wave 2 completed in December. I'm counting a triple 3 with the z wave potentially about to start. Using channeling, this z wave could target around $70 which also happens to fill the gap made in September 2025.
I see what you and other analysts are thinking. While I hope your scenario works as you wish, keep in mind that Elliott said that the theory works 'best' on the averages. The averages smooth out performance differences in individual businesses. To see what I mean, take a chart of AAPL and see how intractable it would be to count from the outset. While there is a way to do it, it is primarily 'in the rear-view mirror'. EW would not typically predict such a massive move for its third wave. But we know roughly why based on the popularity of its products, etc.
Deletehttps://www.tradingview.com/x/4koqYQ01/
The third wave has a three-log rise! And it looks quite out of proportion. So, for single stocks, the business model and its success have a lot to do with what the count is.
TJ
I see your point. To confirm, he also thought it works 'best' on commodities. Though it seems to me that the basic wave structure is "good enough" to still be used effectively as a tool to determine if a stock is trending or correcting. AAPL would just be a highly trending stock with minor corrections, especially when viewed on the higher time frames.
DeleteYes, the key is 'mass participation' or 'the most votes possible'. So, a widely followed stock index or widely followed commodity is best. TJ.
DeleteTJ, wouldn't that contraindicate the use of futures as a primary wave counting index, given the low number of individual participants compared to cash indexes.
Delete@Roy. The expression from the pit traders is, "futures lead, but cash is king". There are plusses & minuses of both. While you get the volume from cash, sometimes one needs to judge 'true extent of move, and true time duration of move' from futures. Eventually, futures will come to resemble cash. TJ.
DeleteI was referring to number of participants(people). Relative to your previous comment of "mass participation' or 'the most votes possible'"
DeleteIf we're looking for the B here, it makes sense that AD line is not calling for a bear market yet.
ReplyDeleteAgree. TJ.
DeleteAD was making new highs with the market in February of 2020 before the markets crashed almost 40%. Nasdaq topped in October 2025. That divergence means something IMO.
DeleteThe gap down at open increases the probability of expanding diagonal to down side.. this being 5th wave
ReplyDeleteyes, I concur with that. TJ.
Delete..because this appears to be a valid diagonal in the CFD (10 min), it suggests placing a wave-counting-stop above the high.
Deletehttps://www.tradingview.com/x/6UCdyZyB/
TJ
ES 1-hr: if one is looking for a cover story for this initial decline, this seems to fit,
ReplyDeletehttps://www.cnbc.com/2026/01/25/minneapolis-shooting-government-shutdown.html
TJ
GOLD (GC Futures) 1 -Hr: just fyi - price taps 5,030 and is nearing a fifth wave as shown on Friday. Not trading or investment advice. Daily bias still up until it isn't, and the daily slow stochastic is still embedded.
ReplyDeletehttps://www.tradingview.com/x/YWRGiLJG/
Daily chart, above, is behind a bit.
TJ
SPY cash 4-hr: the cash close-to-open gap was finally filled, blue box.
ReplyDeletehttps://www.tradingview.com/x/EP30oXLF/
Last night's diagonal was ending, and it's wave-counting-stop was exceeded higher.
TJ
Do you know why Neely does not try to count in fives?
ReplyDeleteHe got very concerned with the issue of 'speed' at one point in his career. He decided a new trend could not begin unless the move was decidedly faster than a previous one - whether from a bottom (which 'often' happens in a V bottom) or at a top. As a result of this he invented new patterns to explain why this 'speed' relationship was not holding. That's the best I've been able to clean from his writings and his videos. In short, he made speed a 'rule' which Frost & Prechter did not. TJ.
DeleteA new post is started for the next day.
ReplyDeleteTJ