Failure?

Market Outlook: Minor 5 Complete versus Minor 3 Continuing (60 : 40)
Market Indexes: Most major U.S. equity futures closed higher after all-time highs in DJIA, SPX

Not me. The market may have failed. It was quite clear to me from the overnight prices that the diagonal sketched out for you on Friday was, in fact, a diagonal. It turned out to be a smaller leading diagonal, not an ending one. Thus, we opened with a small gap up. Not every diagonal is an ending one. (The alternative is that it was a triangle).

A continuation of the five-minute chart is shown below - just as shown in the real time chat room.

SP500 5-Minute Chart

You can see the end of Friday's diagonal on the left. But, then, when you start looking for the companion wave iv, for the gap wave iii, you are left with really only two choices. Either we have had a triangle, and a failure at the high, as shown by wave v? or everything since the high of iii is a very large wave iv, that missed downward overlap by 0.25 points!

If there was a failure at v? then that is the location of the z wave or of wave (v) of the hourly ending expanding diagonal shown over the weekend. In that case, wave v would have had a higher closing high, but not a higher intraday high.

And if it is wave four at the 14:30, low, then there should only be one more wave up.

The market can't have it both ways. It must pick a path. If there is a downward count started, it can only be counted as an expanding diagonal as shown in the above chart. But, then, lower lows are needed. And, if lower lows are obtained, then a wave iv becomes invalidated!

A worse situation occurred in the hourly NQ futures where a downward overlap of a previous first wave did occur.

The charts are getting quite messy and quite ugly. Even the Dow had a "double top" for some reason today. This does not seem like "standard impulsive" wave formation. Something quite different seems to be going on. And keep in mind, even though an upward gap opened up this morning, all of the gaps are to the down side. With today's movement in almost all indexes, there are no gaps above the market! That is some food for thought.

Have a good start to your evening!
TraderJoe

Sunday Sentiments

Here are a few charts to have a look at this Sunday, intended to be more thought-provoking than necessarily definitive. And so there are a few questions to ask oneself.

Proprietary Sentiment Model

Why did the percent bullishness leap by more than four full points last week - in one week alone, and what does it mean for market direction? Is the possibility of a 'revenue neutral' tax reform plan really that bullish for individuals and companies? And has or hasn't the market fully discounted such a tax plan - if it happens - anyway? Isn't that what the supposed 'Trump Rally' was premised on?

NYSE McClellan Oscillator - Daily

Why is the McClellan Oscillator diverging with Friday's new all time high stock prices? While not a highly reliable indicator in itself, the pattern is certainly interesting at this point in time.

Daily Bullish Percentage of the S&P500

Why is the percent of stocks in verified bullish uptrends on point-and-figure charts double-diverging from Friday's all time high prices? This doesn't mean more stocks can't turn bullish, but the statistic is interesting at this point in time.

ES E-Mini S&P500 Commitment of Traders

Why are the number of long positions owned by "large speculative' market players - those that are usually "trend followers" at a new recent high? Meanwhile commercials have switched to net short.

Finally, people ask about the Wilshire 5000. Here is a chart below with a possible count that would synchronize the major indexes.

Wilshire 5000 Daily - Potential Expanding Diagonal

People see the recent August decline, and how it is a larger decline that overlaps other waves and  they tend to 'give up' on counting it. But the Wilshire is the only major index in which waves (2) and (4), as shown, do not have higher b waves and may be considered zigzags allowing the count of a potential expanding diagonal. So, in this case, waves (1), (3) and (5) would all be three-waves in nature.

Now, the information in the first four charts is just that. Information. The potential count in the last chart is an 'intentional effort' to synchronize some major indexes in time. Is this chart and it's message correct? Heck if I know today. But, it appears to be a valid way to count. And, the key point about the Wilshire - like many 2000, 3000 or 5000 stock indexes is that they will likely be "downwardly biased" by the weaker stocks in the index. Meaning, "near a top some stocks must rotate into a more weak position". This evidence can be seen in bullish percentage chart above. That's what would be the 'cause' of the (B) wave in the Wilshire.

Is a bearish view on U.S. equity markets correct at this exact point in time? Nothing is for certain. But the above information gives a rational person something to consider, instead of only letting their animal spirits roam. And, oh, yeah, there sure are a lot of down side gaps, and none currently above the market. All-in-all some warning signs to ponder and hopefully to keep one open-minded and flexible.

Have a good rest of the weekend.
TraderJoe

Did The Bull Market Just End??

So, it can't be denied that the people I first learned anything about Elliott Wave Counting from, Robert Prechter and the folks over at Elliott Wave International, are publishing a count, below, in the Dow Jones Industrial Average which has an awful lot going for it. Since they taught me the most about counting waves, it would be almost criminal not to bring you their ideas, supplemented with a couple of my own.

Here is their overall count.

DJIA Three-Day Chart of Intermediate (5) with count as per suggestion of Elliott Wave International

To which, I will add my own thoughts that I have counted out for you in near real time the possibility of an Ending Expanding Diagonal in the Hourly DJIA and, now, with yesterday's move over 2499, the S&P500 Index, as well. The count from Minor 4 is on the chart below.

DJIA Daily - Count from Minor 4

To be fair, these counts have an awful lot going for them. Here are a Fibonacci-five important wave characteristics noted. 1) The high of the RSI-14 would be on Minor wave 3, and there is a divergence to Minor 5. 2) The lengths of the waves and lack of overlaps work out properly in this context, and in particular wave 5 is nearing the length of Wave 1, and within wave 5, minute wave ((v)) is approaching the length of minute wave ((i)). 3) You can see even just visually that within Minor 3, then minute ((iv)) is a smaller wave in point size than minute ((ii), and you can see the same is true within Minor 5. 4) Although the overall wave does not channel particularly well, there is no escaping the fact that Minor 5 channels beautifully. 5) There are two potential ending diagonals at two different degrees of trend : the hourly has the expanding diagonal shown in red, above, and the five-minute has the contracting diagonal shown in yesterday's post.

From a time perspective, Prechter has done studies showing that an end to the bull market in 2017 would provide a neat cycle top on several degrees of trend. We do find that timing work, at this point in time, quite compelling.

We want to be quite clear that we picked a pretty big bone with EWI when they did not recognize the Primary Vth wave as we did - because the DOW still hadn't channeled yet, on a time scale from 1982 which it has now.

But, there can be no doubt. Five waves up can indeed be counted. Sentiment is running hot as I have shown in previous posts.

So, besides the overall wave not channeling well, here are a Fibonacci three points detracting from this count. 1) the NYSE advance-decline line has recently made new highs; that is usually a sign a bull market is continuing, 2) while you can find alternation between the wave two's and four's, it is not as obvious in shape as it might be. Minor 2 has quite a high B wave, and Minor 4 has a much lower B wave. But, it is true in both of the cases of the fourth waves  that they are shorter in time than their second waves. That would be an odd curiosity, but it doesn't break any rules. It is actually possible to consider that as a valid form of alternation. And, finally, 3) the market has again just made new daily highs, without showing significant weakness.

The major issue I see is that if the current channel breaks down, or if what people propose as wave fours become longer in points than their companion wave two's, then the above count may be dead on the money.

Another minor irritant would be that the waves don't exactly follow The Eight Fold Path Method, but for the very last wave in the sequence - this high up in the order of waves - maybe it is actually indicative of the character of Primary V - to drag everyone into the long side of the market almost without respite or recourse, and not make the 38.2% retracements expected in the fourth waves.

For now, one can only speculate. The key point is I was indeed expecting five-waves up from the February 2016 low, and they may have now occurred. I do not want to ignore the possibility that it may be happening in front of our eyes, especially when diagonals have just been properly counted.

I know that a lot of you will also point to some particular index and point to problems with it. I do understand. Yet, Elliott's work was based on that average of the thirty stocks, and again I just ask that you consider that other averages and the leverage in the futures may be introducing complications due to the number of stocks in the index, the weighting of various sectors and / or the inclusion of derivative products.

So, remain flexible, as I currently am. As an experienced wave counter, I can see this possibility clearly, but I can also see a longer third wave scenario. And I would present that one if, and when, it becomes just a bit more clear - like if the current diagonals do not work out for some reason.

For now, have a very good weekend!
TraderJoe

Supplemental: I am adding this ES futures daily count to show that - counted in this fashion - there are no issues with overlaps or waves which are not the correct size.

ES Futures Daily Count - Can Agree with Dow Jones Count

Wave (iii) is longer than wave (i), and there are no overlaps of wave (iv) with any part of wave (i) or wave (ii). In this count all of wave (iii) is above a line from wave 4 to wave (ii). And, within wave (iii), there are no issues with the overlap of wave iv triangle with waves i or ii. Wave .i is the single first candle up, from wave (ii), and wave .ii is the 50% retrace of that candle shown as the wick. That also means there are no problems with overlap by wave .iv triangle.

Exact Accounting - Part 2

Market Outlook: Still in Minor 3, probably a (b) wave up.
Market Indexes: SP500, DJIA new All Time Highs
Today's Candle: Higher High, Higher Low, Higher Close

Yesterday, we stated we were likely making the last several wave of five waves up within ((C)) of the z wave of a triple zigzag. Today, in a rare special treat, I will provide the chart that was done "live and in real time" in the chat room. Five waves up; wave for wave, on the five-minute chart of the cash S&P500 Index in a contracting diagonal.

S&P500 Cash Index - 5 Minute Chart

There it is, and unmistakable. Wave (v) is shorter than wave (iii), wave (iii) is shorter than wave (i), wave (iv) is shorter than wave (ii) and overlaps wave (i), and each of the waves can be clearly counted in a zigzag.

Wave (ii) had just over a 68% retrace. Wave (iv) had a 50% retrace. The proportions and trend lines are near perfection. The S&P500 Index hit 2,500, and had a slight characteristic throw-over of the upper trend line.

The pattern is there. There is nothing to be made up. Nothing to be contrived. No alternates. No bent rules or guidelines. For this ending contracting diagonal to work, then wave (v) must remain shorter than wave (iii) on Monday, and the diagonal should be fully retraced - below the point marked 0 - in less time than it took to build it. IF the pattern should not work, it's not because the pattern isn't there. It's not because an analyst can't count waves. It's for some other reason, perhaps like a news story. The DOW can also be counted in a similar manner.

Again, what you do with the pattern is up to you. We do think it highly suspicious that the market ended on an all-time high when we have just had two back-to-back natural disasters. That's all we can say for now.

Until later, have a very nice start to your weekend.
TraderJoe

An Exact Accounting

Market Outlook: Still in Minor 3, probably in a (b) wave higher
Market Indexes: Mixed, DJIA & SP500 new All-time High
Today's Candle: Doji

Here is an exact accounting, wave by wave on the hourly chart of the cash S&P500. It is the best I can provide. No wave has changed overall since the bottom. This morning's single wave down of -6 points was likely the C wave of a fourth wave - shown as (4) and in the vicinity of the prior wave 4.

S&P500 Index - Hourly - Cash

I hope the chart really speaks for itself. We are likely now making very, very small degree waves up from (4) to (5) of ((C)) of z at this time (today's new all time after the opening gap was closed makes that quite likely). The waves are getting so small and compressed up here it is truly getting difficult to count them. It is worth noting there is very nice alternation between waves (4) and wave (2) in the current ((C)) wave of z, up.

Hope this helps, and do have a good start to the evening.
TraderJoe

The Dreaded Megaphone Pattern

Market Outlook: Still in Minor 3
Market Indexes: Major Equity Indexes eeked out gains, except transports and utilities
Today's Candle: Higher Low, Higher High, Higher Close

I am pretty much going to let this chart speak for itself. Because, in the Dow Jones Industrial Average cash chart, a wave (v) is now longer than a wave (iii), and wave (iv) is longer than wave (ii), and wave (iii) is longer than wave (i), with wave (iv) overlapping wave (i), but not traveling beyond the low of wave (ii), with all three-wave sequences, then the pattern of an expanding diagonal - or megaphone - may be seen.

This one even has trend lines that look the part! In other words, the wave pattern almost has exactly the right look. If wave (iv) took a little longer in time than wave (ii), it would be perfect.

DJIA Cash - Hourly - Triple Zigzag or Expanding Diagonal (Megaphone)

There is no doubt that the above structure - as shown in black - is a triple zigzag. The issue is this: usually - most often - ending expanding diagonals usually occur 'over' their wave ((iii)). This one occurs inside it's wave ((iii)). So, there are three possibilities now. First, triple zigzag B wave. Second, ending diagonal. Third, leading diagonal. And, usually, the fifth wave (v) of an ending diagonal almost always occurs over it's wave ((iii)).

The pattern is there. The question is what to do with it. We'll leave that up to you. We will note that the ES futures are right up against their upper daily Bollinger Band, but the slow stochastics are now embedded for the third day.

The pattern of the EWO is quite amazing; the peak of wave z, is taller than the peak of wave y, which is taller than the peak of wave w. And the trough of wave (iv) is lower than the trough of wave (ii). This is the usual and customary pattern of an expanding diagonal on any time scale.

The only thing we can say is that if wave (v) were to conclude above the high of wave ((iii)), and there is a quick retrace, then the ending diagonal pattern gains considerable credibility. For this to happen, the downward wave must travel below the start of the diagonal at ((iv)). If this does not occur, then the pattern is either the B wave or a leading diagonal.

Even as I write that last sentence, having a leading diagonal at an all time high in the market makes me gulp, gasp, and shake my head, tsk, tsk. But, I've been fooled before. Let's see how it goes.

Have a good evening.
TraderJoe

New Cumulative $NYAD Highs

Market Outlook: Back in Minor 3
Market Indexes: New SP500 All-Time High, Not So Yet in DJIA, RUT, NDX
Today's Candle: Higher High, Higher Low, Higher Close

Some Elliott Wave web-sites have been calling for the end of the bull market. A major Elliott Wave service did not / was not counting the end of the bull market since Primary IV as a motive wave or typical Elliott Wave structure. Yesterday, we said our count had another wave up in it today. It did. It may have more.

To be objective, I was looking for Minor wave 4 to go immediately to the lower trend line of the channel, either in a double zigzag or barrier triangle. It did not, and I was incorrect. So, let's back up and look at a study we have shown before. That of the New York Stock Exchange Advance / Decline line. This one is weekly from the February 2016 low of Primary IV.

$NYAD Weekly

I have noted numerous times that as long as this index is making new highs, it is not likely that the market has topped yet. I have also noted that the most recent downward wave - no matter it's shape - was a corrective wave. I have also noted that new highs were not only possible, but likely. They did happen - quite a bit sooner than I anticipated.

So now, let's also use The Eight Fold Path Methodology to better define which wave we are in. First, as always, the first step in the process is to determine the time frame that provides 120 - 140 candles on the chart for the wave of interest. That time frame is the two-day chart - which currently has 125 to 127 candles for this wave. The chart is below.

S&P500 Two-Day Chart

Next referring to the position of the Elliott Wave Oscillator (EWO), it is clear where the low of the second wave is. And, it is clear where the low of the fourth wave is. They are circled on the zero line. It is also clear the EWO can be interpreted as being in the fifth wave up. It is green, and above the line, and on a divergence with price.

This count puts minute wave ((iv)) in the vicinity of the prior minuet wave (iv) - wave four of one lower degree. Next, we have drawn in the channel as best as possible. You'll see the current wave is not in a perfect channel, and so, we may still have Neely's wedge working.

And, we said yesterday, we are still working on a triple zigzag in the upward direction. Unfortunately, until we know more, we do not know if the triple zigzag is a potential expanding ending diagonal for wave minute ((v)) of wave Minor 3, or if it is just the minuet (b) wave of minute ((iv)) as a flat. Either of these are certainly possible.  Next, let's put the EMA-34 through the chart.

S&P500 Two-Day Chart with EMA-34

From the EMA-34 you can see that every numbered minute wave is on an opposite side of the EMA-34 for form and balance. So, this count is potentially correct. But, right now minute ((iv)) has only three waves down, and often, not always, fourth waves take a longer time than their second waves. So, the position we are showing for minute ((iv)) may only the minuet (a) wave of minute ((iv)), and this is the minuet (b) wave up.

Again, it is nearly impossible to tell - because of The Fourth Wave Conundrum - which happens at every degree of trend!

Two things are for certain. The first is that "at the present time" the upward triple zigzag is not the suggested length yet: it's fifth wave is too short for an expanding ending diagonal (megaphone). But, and I need to emphasize this, the final wave is not too short for just a triple zigzag. There is a small possibility it could have ended in a contracting diagonal fifth wave of c, this afternoon.

S&P500 Cash Index Hourly Chart & Potential Triple Zigzag

Ideally, according to the above hourly chart of the S&P500 Index, one would want the (z) wave, as currently shown, for (b) or wave v in the expanding diagonal to be longer than 2499 in order to meet the strict definition of an expanding ending diagonal - or megaphone.

The second thing that can be seen is the pattern does not have the right look for an expanding diagonal or megaphone. Normally, in an expanding diagonal, the fourth wave - or the second (x) in this case - would be longer in time than the first (x), which would be the second wave of such a megaphone pattern. So, even if the wave lengths should become correct, the time signature is not.

Bottom line: this could just be the (b) wave of minute ((iv)) to provide better alternation with the minute ((ii)) wave, when it is counted as a sharp and not as a flat. Either way, we are, right now, back in Minor 3.

Well, that's it for the night. You can see why Elliott Wave counting requires a lot of perseverance and the ability to face some uncertainties, because the way waves are inherently structured there are some times multiple possibilities at once. Let's see how it goes.

For now, have a very good evening!
TraderJoe