How You Can Tell - 6

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher; RUT lower
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

The S&P500 closed fairly positively after another roller-coaster open. The market as measured by this index had closed yesterday at 2,726. With the futures higher overnight, the market gapped up to open +7 points higher, at 2,733, and traded up to 2,737 in the first thirty-minutes. Then, a slow, steady grinding decline began that closed the opening gap, and traded down to 2,723 which was the 38% Fibonacci retracement level. Then, beginning at about 13:30 ET, a somewhat spirited rally brought this index to up to new highs at 2,740 by 15:30. The last half-hour brought both an overlapping decline downward, and a closing rebound, to the 2,739 level.

Between yesterday and today, on the S&P500 5-minute chart, we were able to count most of five waves upward although there can be another new high. The rationale has to due with that " overlapping decline downward" we noted above, that you can see in the chart below - which was published in the live chat room.

S&P500 Cash Index - Two Day Five Wave Rally

Readers of this blog may recognize the overlapping structure of a potential 5th wave as an ending expanding diagonal. The overlapping retrace of this wave would be wave (iv), and it would have overlapped the small internal wave (i). As such, it is already longer than it's wave (ii). In order to complete an ending expanding diagonal, then, it's wave (v) should become longer than it's wave (iii) - which is the rally to 15:30 - and it should thus make a new high.

There is quite the 'base' or bull-flag provided by wave 4. And wave (iv) of 5 may have only back-tested that base. If that is correct, then the (v)th wave of 5 could be quite aggressive, and maybe have a parallel drawn off 3 as a target (i.e. the upper daily Bollinger Band?)

With the payroll employment report tomorrow, if this should not occur, then the rally ended at the location shown with a sub-par interior fourth wave and a down movement has started. With daily prices currently above the 18-day SMA, then there is a positive bias which favors the former scenario a bit over the latter.

S&P daily prices are still within the trend lines shown in yesterday's post. It "feels" like a triangle, but it might not be yet.

Have a very good start to your evening & stay patient, calm and flexible in the chop.
TraderJoe 

How To Tell - Part 5

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Lower High, Lower Low, Lower Close - Neutral Candle
FED Posture: Quantitative Tightening (QT)

Last night on the Gary Cohn announcement, the ETF's turned lower before the futures ever opened. Then, the futures gapped lower at the open and traded down to 2,680. As a result the market as measured by the S&P500 cash index, opened lower and traded down to 2,702. A mid-morning rally occurred, and drove the cash index back up to the 2,724 level, but did not fill the gap. Then around 10:45 ET, prices began declining again, hitting the round-number resistance at 2700 twice, and making a marginally lower low. When they couldn't break through 2,700 an afternoon rally began the turned prices all the way positive, filling the opening gap in the process.

One might have thought this would have been accompanied by very heavy volume. But, according to my figures this was one of the lightest volume volume days for the futures at less than 600k contracts, and only 3.3 billion on the NYSE (according to the WSJ).

As the chart below shows, while the S&P500 has not defeated it's declining tops line yet, the Russell futures certainly have. The Russell futures today conjured up the 78.6% retracement level.

S&P500 Cash Daily - Versus - Russell 2000 Futures

The count remains up for grabs per The Fourth Wave Conundrum, the EMA-34 remains essentially flat, and it is beginning to depend on "which" market you'd want to try to count now.

Is revisiting the February highs possible? Sure is. Is revisiting the March lows possible? Sure is. Could triangles form in all markets to equalize the counts? Sure could. Could markets form a structure like an ending diagonal? Sure could.

There are lots of possibilities. Have a good evening.
TraderJow

How You Can Tell - 4

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

There was not much new today. Prices, as measured by the S&P500 cash index, opened at a slightly higher high, and then traveled sideways to lower all morning and afternoon. All-in-all the S&P500 Index closed up about +7 points, and the DOW up about +9.

In terms of the daily chart, price is still living between these two daily trend lines.

S&P500 Cash - Daily - Between Trend Lines

We just note a couple of things: The Russell 2000 Futures had a relatively stronger day and actually breached the down-trend line shown. Secondly, the EMA-34 has gone as flat as a pancake. Third, the S&P500 cash stopped just short of retracing 61.8% of the recent down move from the end of February to the beginning of March.

The trend lines are still tentative. There's no magic here. We are still in The Fourth Wave Conundrum. Every one will ask, over & over again, "What's the count?", "Here's my count, is it right?" There is no telling without more waves.

Have a good evening. I wish you one with as little stress as possible. Remain patient, flexible and calm.
TraderJoe

How You Can Tell - 3

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Today added some evidence to the still potential triangle count in the S&P500 Cash Index, with the higher high candle. By no means, is it a done deal.

Prices, as measured by the S&P500 Cash Index, had closed Friday at 2,691.25. The futures initially gapped down about -13 points on Sunday night, then traded high enough to close the gap down open, and then turned lower for Monday's opening. As a result, the cash market opened down around -10 points to open at 2,681 and traded lower yet to 2,675 and stopped there - all the while respecting an up trend line from Friday's low.

Then, around 10:30 am ET, the market turned around and traded higher once again, breaking Friday's high. Although close, they did not break Thursday's high, and closed at 2,721, up about +30 points.

Additional follow-through to the upside is needed for the deep triangle count. A break of the daily downtrend line from the highs would further support the "DEEP TRIANGLE" count presented Sunday, or something more bullish higher. A break of the daily uptrend line from the 09 Feb low, would be more evidence for the "SHALLOW TRIANGLE" count, or something worse to the down side.

Have a good evening.
TraderJoe

How You Can Tell - 2

There are any number of people who want to count the up movement from February 9th as a "five wave movement". And, "on the surface" it's looks like there are five non-overlapping waves - even though my published count differed greatly. In fact, I had showed how the a wave up, shown below, counted best as a wedge-shaped non-overlapping impulse. That chart may be found at this LINK.

So I decided this morning to look at the whole up wave using The Eight Fold Path Methodology and to let it be the arbiter. Here is the chart that results.

SP500 Cash - Half Hourly - The Eight Fold Path

If you have studied The Eight Fold Path Methodology, you can see instantly that many of the elements of that method are missing. With 140 candles on the half-hourly chart (well within the required 120 - 160 candles), then the SP500 30-minute chart is the applicable time frame for this "wave under study."

1. First and foremost, there is no higher momentum in the middle of a "third wave". This is critical as a third wave does not have the right momentum measurements on the Elliott Wave Oscillator (EWO or AO in this chart).
2. The move does not channel well at all.
3. The b wave, or what would be the fourth in an impulse is much larger in point size than the potential second wave ending at the end of the day on 13 Feb. Usually, they are similar.
4. If you draw an initial channel surrounding 9 Feb and 13 Feb as a lower channel boundary, no wave exceeds the upper channel boundary - which would be characteristic of a third wave.
5. The call of an "a" wave up from 9 Feb, resulted in calling an 'exact' turn for the "b" wave. This refers to the same chart in the link above.

No, from everything I can tell. This is not an impulse wave up, based on a specific, objective, and predefined methodology. It has neither the right look, nor the right momentum measurements for an impulse. Further, such a count has already caused another web-site to improperly diagnose the nature of the wave, and be surprised with the recent price weakness.

So, that should help eliminate some of the options. The best alternate to this count is that b is .a of a flat, and c is .b of a flat. Then, Friday's down move is .c of the flat.

P.S. Another dead give-away: where is the 1.618 x 1 wave?

Hope this helps.
TraderJoe

How You Can Tell

In Thursday's post, we said the market could make one more wave down to burn off the overnight excess. That did occur on Friday, with the S&P500 opening gap down and trading down to 2,647 before reversing 44 points to end the day at 2,691. Quite the intra-day move, demonstrating our overall theme of the volatility at this point in time.

Still, I said in Thursday's post, "As I spoke about in my YouTube video, A Critique of Elliott Wave for Trading, it's at times like this while the market is mid-range between a major all-time high and a recent significant low that people want to know what the wave count is." 

So, we're going to show you some of the most likely scenarios and try to help show you how to tell the difference between them! Let's get started.

S&P500 Cash - Daily - Two of Four Scenarios

Impulse

In the first scenario, favored by Elliott Wave International, by the way, wave Primary [5] ended at the January high, and there have been five waves down to wave (i), in an impulse down to the Feb 09 low, and three-waves up to (ii) which is just beyond a 62 - 70% retracement of the down wave. Simple enough. But, how can you tell if this scenario will actually be the case? Remember Neely's guideline that no part of a third wave should exceed a line from 0 to (ii) ? Well, that would apply here. If the downward sloping trend line is broken, and especially if full daily candles are printed above it, that would severely limit the likelihood of the downward impulse case. One might also note in the cash market that we should now be in a third wave down (iii), and it did not start with a gap. This is some of the evidence that says to 'respect' this count, but not to close one's mind to all others.

Deep Triangle

The second case suggests that only Minor 3 ended at the high, and there are three waves down to a Minute (a) wave of a triangle. Further, while the Minute (b) wave of the triangle retraced 62 - 70%, a deep triangle often retraces 78%. So, this count suggests we have had the a, wave up of the minute (b) wave, and the b wave down has taken the form of a FLAT. Then, a c wave up, in five waves, would finish the Minute (b) wave at the 78% upward retrace level. After that, a long and complicated Minute (c) wave down of a triangle would continue. 

The objective of this count is simply to take more time as it deepens the triangle. For this count to be the case, an uptrend line from the Feb 9th low, to Friday's low must hold. As we have commented in the past without a triangle a Minor 4th wave is too long - longer in points than Primary [4] at the February 2016, low.

S&P500 Cash - Daily - Scenarios Three and Four

Impulse Up 

The third scenario would say the three waves down to the Feb 09 low are a-b-c of a completed wave Minor 4. This scenario however, is slightly less favored because Minor 4 in absolute points traveled would be greater than Primary [4] to the 2016 low, in length. Once again, that would seem to violate degree labeling. None-the-less, there is a possibility the upward waves since Feb 9th are five waves of a minute (i) wave up. and it is possible we have made only the a wave down of minute (ii) as shown above. The objective of this count is to get the c wave down to extend minute (ii) to a 62% retracement on minute (i). It is short of that retracement at this time. And, yes, such an impulse, if it does form, can truncate.

Shallow Triangle 

This fourth scenario says that after the Feb 9th minute (a) wave of a triangle had formed, the upward retracement that was 62 - 70% of the (a) wave down was sufficient to form a triangle's minute (b) leg upward. Then, there should be a symmetrical minute (c) wave down to a similar 62 - 70%, which is not complete yet. Only the minuet a wave is complete, with minuet b & c to go. Similar to the very first scenario, the upper trend line again must hold, at least until the minute (c) wave down is fully formed - precisely because it will be a triangle trend line. Once the minute (d) wave of a triangle forms, then the (d) wave may form it's own anchor point for the (b)-to-(d) trend line.  

The Fourth Wave Conundrum

These then, seem to be the most common alternatives in true Elliott Wave Theory, and how you can tell them apart as they are forming. Even though we appreciate the real nature of The Fourth Wave Conundrum, we would rather leave you with some guidance on the various wave pattern possibilities as opposed to leaving you with nothing. Remember, we don't provide trading or investment advice.

The clear difficulty here is that the downward, and upward waves 'can' be counted in two fashions. This is clearly not always the case. But it is now. More waves are simply needed to clarify their momentum, catalog their distances traveled, and clarify their third wave nature from the size and positions of any gaps created.

Hope this helps, and have a great weekend!
TraderJoe

 

The Jury is Still Out

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

I just finished a tour of jury duty, so pardon my pun. It was on my mind, and I'm sorry I could not post over the last few days. But, the phrase aptly applies to current market environment.

As I spoke about in my YouTube video, A Critique of Elliott Wave for Trading, it's at times like this while the market is mid-range between a major all-time high and a recent significant low that people want to know what the wave count is. In one way, the answer is easy: today we were able to count five-waves down live in the chat room. Here is that chart, using the ES E-Mini S&P500 Futures - Half Hourly, as the cash market was closing today.

ES E-Mini S&P500 Index Futures - Half-Hourly - Five Waves Down

But, five waves down does not necessarily clear up the larger wave count, for sure. The five waves down could either be a minute ((i)) wave down, or a sub-minuet c wave down or a minuet (a) down. It depends if the market is still making a triangle in a Minor 4th wave, or whether the market has topped in a second wave or truncated. I 'think' it is the former, the triangle, but am also very open to the latter.

One issue with today's initial 586 point down day, was the advance-decline ratio at the lows was about 1 to 1.8 or only 1,069 to 1,893 which is not very impulsive. Usually 1:4 or more is getting into the more impulsive levels.

So, if we are in a Minor 4 triangle, then today could just be the c wave of a FLAT (b) wave, with a further (c) wave up to come to the minute ((b)) wave high of the triangle. Or it is the minuet (a) wave down of minute ((c)) of the triangle. To continue with the triangle, the market would eventually have to clear the 2,735 level, and then, likely the 2,790 or previous high on the above futures chart. 

Yes, this is The Fourth Wave Conundrum. The purpose of the c wave of a (b) wave would be to generate enough bearishness for the triangle upward to continue AND to waste more time. We are fine with these reasons. Potential triangles take time! The purpose of a minuet (a) wave, down, would be to start the minute ((c)) wave down of the triangle. Since almost all markets exceeded a 62% upward wave, which could be the extent of the minute ((b)) wave, then we are also fine if the minute ((c)) wave down also makes a 62% retrace to the down side.

Currently, the ES daily is below the 18-day SMA and so has a negative bias. But, it also went down to the 100-day SMA and bounced off of it And, while one more lower low is possible in this down wave to burn off the over night excess, the best judge of positive and negative bias will be the 18-day SMA, "the line in the sand". One item of concern is that, as shown on the chart, the EWO did not make a divergence yet with about 105 bars on the futures chart, above.

This is still a very good time to let the wave count shake out if you have uncertainties. There are plenty of reasons to be uncertain at this time. Take it easy. I'm glad that one jury is in, while another one is still out. Have a very good start to your evening.

TraderJoe