They Don't Like It

I'm talking about two indicators. I'm not a real big fan of indicators but do use the Elliott Wave Oscillator as a guide in wave counting. In this post, I'm primarily referring to two indicators - the RSI or Relative Strength Index, and the PPO or Percentage Price Oscillator, although the price is shown using the Zigzag indicator just for clarity and accurate terminal points.  The first chart clearly shows that the RSI does not like this up wave. It is currently diverging.

The second chart below shows what the same chart provides in terms of the PPO oscillator.  It is also diverging at this time.

Both charts seem to be sending the same message. In terms of these indicators, "it's time". The contracting diagonal, if it is one, should end soon. It is hard to ignore such a message. But keep in mind these are log scale charts. They 'just barely' work on the ES/SPX, although they work better on the Dow.

Looking at the recent action, we must still be incredibly flexible and allow two possibilities for a Minor C wave. The first one is shown in the ES 8-hr chart, and the trend lines tend to indicate a diagonal may be in progress.

We note this chart can be interpreted as three-wave sequences. There is now overlap. Price is along the lower trend line. It could break it a tad but must not go beyond 6,835 in order to keep a diagonal going. Yes, it is also possible to get a nested wave sequence up, if price does not go below 6,385.

But this second ES 8-hr chart shows another alternate for an upward diagonal. This one would have truly wild swings with at least a 62% retrace for the second wave.

The Principle of Equivalence requires that we cool our jets, try not to be over-reactive, and look at reasonable potential alternates provided that degree labeling definitions are not compromised. 

Still, one of the problems with an impending bear market, where the majority of the shorts have thrown in the towel is not to get caught on the "Slope of Hope", playing for up waves when they don't arrive.

So, we are still just patient calm and flexible. We see clear alternatives. We will watch for them. But the risks are piling up (in terms of what the RSI and PPO are saying), and we don't want to ignore them.

Have an excellent start to the New Year.

TraderJoe