Triangle - What Triangle?

Several weeks ago, I indicated that I saw the possibility of a triangle near the top in US equity indexes. For days and days price required that I bide my time - while many of you asked, "where is the triangle? where is it? I don't see it?" Why did I wait? Because the mood at the time was so incredibly bullish that 8,000 was due in the SPX that few others could foresee their prized index declining so far in so few days. People would have called me out of my wits. So, I just waited until you can now see the potential triangle, plainly and in full view. The best way to see it is on this chart of the weekly NDX, below. It may not be what you expected. It is a potential expanding triangle, not a contracting one.

NDX Index - Weekly - Last-Chance Triangle

You'll note that the wave count in this chart is shown in red. That is because it is still an alternate count. Why is it an alternate?

Well, first, this downward leg currently meets the EW 'rule' for an expanding triangle that this down leg remains roughly 150% of the prior down leg, or less. Regular readers of this blog and students of the EW should perform that measurement for themselves. I have. So that 'rule' is so far met. But it could easily bust next week depending on what the Smart Money decides to do with prices closing beyond the lower daily Bollinger Band on Friday. And beyond that, the NQ100 futures have already overlapped the prior wave 1, up, in the roll-over contract as clearly annotated on the chart.

So, there's a bit of judgement here. Is the minor futures overlap to be allowed, or did price already top at the Ⓓ wave position like the S&P500 may have?

One interesting note is that in Mastering Elliott Wave, Neely indicates in several places in the book that the fifth wave up after an expanding triangle might not completely make a new high. More so, it is not likely to. Here is just a clip from that book to illustrate the point.

Expanding Triangle Schematic

In fact, Neely states the 'rule' that the (upward, in this case) breakout of an expanding triangle is always shorter than the widest width of the triangle. So, this would suggest another price failure should the pattern even complete properly.

So, whether this pattern comes about or not, we have some waiting and measuring to do to see if 1) the e:3 wave becomes longer than 150%, 2) whether cash NDX overlaps downward, 3) whether there is a real attempt at another five-wave rally.

Thus far, Friday's price movement was not all that encouraging. It certainly seemed like more consolidation. But we offer the possibility of this wave formation for completeness including an attempt to analyze the odds. And they seem, "fairly low at this point, but not impossible". And IFF it occurs, it might have something to contribute to the other indexes. And if it does not occur, you have the criteria to be able to measure and judge for yourself at your leisure. We'll have to see. Meanwhile, we need to follow the local technicals.

With that said, have an excellent rest of the weekend,

TraderJoe