Continuation of Channel Count

The ES 2-hourly chart is below, continuing the count that was shown on the weekend. The count is both very mature and it is full of risk.

This count provides alternation between wave ii and wave iv. Elements of risk include 1) there was not yet a new higher high today, 2) today broke a closing only line on the ES 4-hr chart, and made a back-test of it (interested readers should verify this), 3) multiple RSI divergences are shown on this timeframe, 4) a wave structure this steep in so few days could wind up in a final diagonal, a final triangle or even a count failure, and 5) we have noted the current news risk several times already.

So, for now, a wave-counting-stop (WCS) has been placed below today's low.

Have an excellent start to the evening,

TraderJoe

There is No Emergency; Stay Calm

Unlike others trying to sell subscriptions, newsletters and trading services that try to get your emotions going so you will buy their products & services, we have always just urged calm and an educated approach to try to count waves in the best spirit of the wave principle as aligned with the rules. If you would have listened to every time a major EW service 'screamed from the top' with suggestions to go 'double-short', 'or max short', the market would have proved them wrong and your account would be the worse for it. Part of staying calm is to actually take the time to review the information at hand. There just aren't that many pieces of available data on which to make a judgement, but one should not throw away the key ones by forgetting to consider them. The chart below is an example.

Daily Put-Call Ratio Five & Twenty Day Moving Averages

This chart shows the 5-day (blue) and 20-day (red) moving average of the equity only put-to-call ratio (symbol $CPCE on Stockcharts.com). And one can see that the 5-day (blue) made a new yearly low during April. OK. But now the 20-day (red) has not only made a new yearly low, it has also made a new three-year low. That means for about a month of trading days options players have been aggressively purchasing more calls than puts. And more so than in the past three years. So, it is becoming clear there are more players on one-side of the boat (as they say).

Keep in mind this is a market-related measure. It is timely, and it is not subject to the wave counting techniques of an individual or company. It simply is what it is.

Am I urging you to do anything with this information? Well, nothing more than put this information arrow in your information quiver as you make decisions.

It is much like the fact that the daily ES (and the weekly) are bumping up their upper daily and weekly Bollinger Bands - like in the daily chart below. More arrows for your quiver. 

ES Futures - Daily - Bollinger Band ~95% of the Time

The chart is only telling you that the odds of closing outside of the band are about, roughly, nearly only 5% of the time. This is a statistically based approximation founded on the standard-deviations from a moving average, adjusting for market volatility. It's not exact. Nassim Nicholas Taleb, author of The Black Swan, would argue with the loose statistics involved and blow them out of the water as not properly accounting for the market's tendency to make 'fat-tailed distributions'. OK. I get that, too. But when used as a 'rule-of-thumb' the algorithm does a good job of containing the market 95% of the time or more. The algorithm doesn't regard the market as an 'emergency'. You shouldn't either. And if you combine it with knowledge of what Ira Epstein determines as "the strongest market technical signal", that of the embedded daily slow stochastic - also shown above - you might avoid some pre-mature market signals, too.

If you want to be a trader that FOMO's in and out of the market, then listen to the subscription services and the financial news networks for recommendations (as opposed to just for information) and let them make up your mind for you. You'll be like a weathervane snapping back & forth in the wind.

But if you want to make more confident decisions, then learn to do the work for yourself. Learn to count. Review the few indicators the market has of sentiment, and of momentum-strength and make your observations in an organized and documented manner. Practice counting. Maybe put some of your counts out in public to get feedback on them (from a counting viewpoint).

Or don't. The only difference between traders and investors is their timeframe. Maybe investing is better for you. Maybe some of both. But I thought an investor was supposed to "buy low & sell high". The market is making all-time highs, not recognized bear-market lows.

Have an excellent rest of the day.

TraderJoe

For the First Time

Long-term readers of this blog know that for about the last five years the favored wave count proposed has been the Contracting Ending Diagonal (CED) to end Cycle V of Supercycle Wave [III]. We have posted; we have showed chart after chart. But, this week, for the first time you can actually see on the monthly log chart all of the Minor waves that may be involved in the Intermediate waves to make up the Primary waves. That is because this current wave, if it is correct, would be the Minor C wave in the count.

I don't know about you, but it is gratifying to me to see it. It is much better than repeatedly calling for tops that don't occur. So, here it is. On the chart. And Intermediate wave (5) is currently shorter - in log format - than is Intermediate wave (3) so the count has some merit. The invalidation of the Minor B wave did not occur, so this marker will be removed from the chart.

The next marker is the invalidation level of the pattern which is above 8,513. At that price wave (5) would become log longer than wave (3). And that would simply break the 'rules' for a contracting diagonal.

The price action this week actually feels like a throw-over. It's been gappy, non-stop, and very, very news related. Further, price is nearing both the upper daily and weekly Bollinger Bands, where the Smart Players often take some profits off the table.  The technical indication on the monthly chart is that the PPO is diverging as the market is making new highs. The technical indication on the two-weekly chart is that the Elliott Wave Oscillator (EWO or AO) is diverging at these new higher highs after having signaled the fourth Intermediate wave (4) by dropping below the zero line with the requisite 160 candles on the chart. (Interested readers of this blog should verify this finding on the two-weekly chart).

So, this count is on track at present. But it could invalidate. It hasn't yet. But if it does, then the Elliott analyst just moves on to the next most likely pattern. As we have covered before this would be the expanding ending diagonal. But, right now, the subdivisions of those waves just don't add up in this pattern. Maybe they will at some point. They just don't now.

So, we are faced with this staring at this chart and wondering, "Hmmm?". It isn't yet a great idea to act on this uncertainty. The first confirmatory indications would be 1) significant reversal candles, 2) filling of up gaps, and 3) price closing below the 18-day SMA. Maybe this would be accompanied by a covering news story. Maybe not.

For now, it is enough to see the picture and to wonder, "just how in the world did this get here"?

Have an excellent start to the evening,

TraderJoe

A Key Item

Here's a simple thing to watch tonight and tomorrow. Does the daily chart of the ES futures wind up losing the embedded slow stochastic or not? Already, it is wobbly and below 79.

ES Futures - Daily - %D less than 79

One key is tomorrow's close. If the %K, the red line of the lower indicator above, remains below 79 then it is possible a quick trip back to the 18-day SMA might occur. And recall broker Ira Epstein's caution that IFF the embedded reading is lost on the close tomorrow, Tuesday, the only way to get the reading back is if both numbers are over 80, again, on Wednesday, the next day after losing the reading. Otherwise, the slow stochastic would have to go through the whole three-day process of embedding again (assuming the market does not move substantially lower and prohibit that).

Tonight & tomorrow to gauge progress on that front one might also watch The Intraday Wave-Counting-Screen, shown below, which was created to be a more responsive guide on the ES 30-min chart.

Right now, things are sideways below the intraday 18-period. So, the short term is fighting with the long term a bit.

We addressed the EW count in the comments for the prior post. While a fourth wave became a little less likely with the down movement this morning, it was not ruled out. And a fourth wave triangle is still a possibility as we only counted three waves down. Trading above the R1 level tomorrow might indicate a triangle pattern is kicking in. But we are also keenly watching for downward overlap as we showed in the comments. So far, that hasn't happened yet.

And once again we are in a newsy market. So, give it the caution it deserves to help avoid being whiplashed.

Have an excellent rest of the evening,

TraderJoe

A 'Possible' Leading Indicator

I'll just post the daily chart of SPY (cash) versus HYG - the Corporate High Yield Bond fund, and pretty much let it speak for itself.

The recent data is one of the larger divergences we've seen in a while, and one can note how it 'generally' has been tracking the index. So maybe what we are getting now is a 'leading' indicator of the risk appetite of the smartest money - and we'll see this week whether the huge divergence gets repaired (and HYG rises), or whether it is acting as a valid warning for SPY to begin at least a retrace sometime this week to react to account for the potential mood change among the whales.

Market technical oscillators (such as MACD, slow stochastic, etc.) tend to be a bit lagging. This is a search to find a slightly better true 'leading' signal; meaning that - to be useful - its turn should come slightly before that of the equity market without being too premature.

Have an excellent rest of the weekend.

TraderJoe

Friday of Distrust

Unlike so many Fridays before - when the market was saying it was supremely confident - and the machines would literally jam the market to a Friday closing high - this Friday was different. The market was confident enough to make a new intraday high of 7,300 on the ES futures, primarily from the 'first-of-the-month' passive inflows, as we had clearly suggested, but it could not hold on to that level. And when word got around that a new truce proposal was advanced to the U.S., but was disliked, price actually sold off into the close. What? Price actually sold off on some mild profit-taking on a Friday?! Well, kiss my grits. The daily chart of the SPY cash index is below, reflecting the close.

As shown in the prior day's comments, we think we are counting a fourth wave very high up in the wave count until proven differently. Clearly, there is no outside reversal bar, yet, nor is there a lower low confirming candle yet. We outlined the options from The Fourth Wave Conundrum and cited that after only three-waves down there were a lot of options. But then the news broke making the upside less tenable than the downside.

So, in the chart above there is a trend line of interest that should be watched closely to provide more information. Are higher highs possible? They are. Can the price structure fall apart if some really adverse news is announced? It can.

Once again, I am taking things very gingerly. As of about 4:30 pm the ES futures are still well-above the 18-day SMA with an embedded daily slow stochastic. So, the price bias is still up along with one of the strongest technical market signals, the embedded slow stochastic. Until these situations change one must respect where the market is, but clearly with a skeptical eye.

I may have some further information on EW counting options later in the weekend.

Have an excellent start to the evening.

TraderJoe