Weekly Degrees

In a prior post (see the post entitled Trillions, June 6th 2020, at this LINK), and subsequent ones, I have contended that we are in a Primary ((B)) wave higher. Since that time, many EW Professionals, pundits and YouTube videos have all but promised stocks would crash. I did not. The most I could see were corrections along the way. For a new over-view of the larger labels in the same context (with daily Elliott Wave labels removed for a moment) let's look at the weekly chart,

ES Futures - Weekly - Degrees

The chart shows that after the Intermediate (B) wave high in February 2020, the decline that proceeded was to a Primary degree ((A)) wave. Why? ..because the decline is too large in price and the whole structure from 2018 is 'too long in time' compared to prior Intermediate waves to be anything less than the higher degree. And now, the chart shows that we are nearing the 1.382 external retracement of the Primary ((A)) wave down.  There are possibly other external retracement levels this wave could eventually make - such as 1.50, or 1.62. The Primary ((B)) wave is marked with a right-arrow (>) to show that the wave is still in progress.

There are two features of this chart to note. The first is the largest correction in Time in the up move since 23 March is marked on the chart, but it is still exceptionally short in time compared to the number weeks of prior up-trending waves.

The second thing to note is that we just had an "outside week up" at the higher end of the chart, and close to external retrace levels. I will only paraphrase Ira Epstein here, "if the low of an outside week up is exceeded in the next two trading weeks, then it constitutes a trap for the bulls". This bar is also over a former weekly wedge line, so it must at least raise an eyebrow.  If price over-throws a wedge, and then trades back within the wedge, it is often a sign the wedge will break in the opposite direction. Just keep that in mind: there is no signal from price, yet, that it has turned.

Before we go to the daily chart, we know that Thursday's put-call ratio reading was again a very low 0.38, indicating very bullish sentiment from an actual market-based measure. It did back off a bit on Friday. Next, let's look at the recent AAII Sentiment Survey.

 

And, we see this measure is approaching local highs as well. My own proprietary sentiment measure shows overall bullishness from professionals, newsletter writers and the public at the highest level since the 23 March decline. It is at 59% bullish, versus 28% then.

With that in mind, and assuming we have prior wave labels correct, it begs the question of whether we will get a larger-in-price (X) wave down on the daily chart. First, here is the four-hour chart of the Dow Jones Industrial Average. A count like this has been unseen on this scale. It is a mess!

DJIA - 4 Hr - Minor B ?

It is currently being counted as a diagonal minute ((a)) wave up, followed by a complex flat, or triangle minute ((b)) wave downward, followed by an impulse minute ((c)) wave upward to a Minor B wave. Within a zigzag wave, the diagonal and the impulse alternate as they should. This may be inside of yet a smaller wedge - as shown. If this count is nearly correct, then, the overall pattern being made on the daily chart could be this one.

Schematic - Primary ((B)) Wave

The purpose of this pattern would be for the Intermediate (X) wave to become longer in time than the Intermediate (W) wave, and provide more correction to it. Right now, Minor B, up, is shorter in price and time than all of Intermediate (W), so this still fits proper degree labeling. Also, if the Minor C wave down occurs as part of an expanded flat, since it will be longer than the minute waves downward (shown as just a,b,c for clarity) this will fit with degree labeling as well.

You'll note the current pattern of variation of the corrections shown: first, the running flat for the B wave. Second the zigzag for the A wave. So, why is an expanded flat being seen as the possibility here? Because if you remember back to the Intermediate (B) wave, up of Primary ((A)), down, there was most-likely a triangle in the middle of that structure. So, it seems unlikely that there would be a triangle in the middle of this structure. I could be wrong, but that's what alternation suggests.

Further, the Expanded Flat and some downward price length, gives the Intermediate (Y) wave up more time to progress further without necessarily making a lot more price progress. For example, maybe a channel would fit around the entire correction instead of a wedge.

Those are some thoughts. Clearly, for any downward wave to begin, breaking of the current 30-minute up channel - explained in yesterday's post - and larger four hour wedge (as shown above) are needed, as are back-tests that fail at the lower channel/wedge lines.

This is the second post this weekend. If you haven't seen the first one, yet, you may wish to view it now.

Have an excellent rest of the weekend.

TraderJoe

Gap Location

Yesterday, we showed the daily chart of the Dow with the Intermediate (W)-(X)-(Y) count inside of the Primary ((B)) wave. In prior comments, we suggested that there may be a triangle in the (Y) wave. If so, it is likely a triangle for the Minor B wave, given its size and some overlap considerations. Below is the cash S&P500 Index showing the same count including the triangle.

S&P500 Cash Index - 30 Min - Up Channel

Assuming the gap is in a wave three location, and if alternation is considered, then that seems to put an upper limit on the minute wave ((v)) of the Minor C wave. If the alternation is that wave minute ((ii)) is a 'sharp' or zigzag wave, then wave minute ((iv)) is a longer-in-time expanded flat - which makes excellent alternation. And so, if that is the case, then wave minute ((iii)) is shorter than wave minute ((i)), and so wave minute ((v)) would remain shorter than minute ((iii)). To do this, it should stay below the 3,852.2 level shown.

The alternate would have to be that (x) is actually minute ((i)), and the current minute ((iv)) is all of minute ((ii)). In either event, no downward wave count starts until price is below the channel and the current wave minute ((i)) location is overlapped. Today, that overlap missed in the cash market by less than 1 S&P point. In some markets (like the Dow) that location has been overlapped.

I would keep an eye out for the put-call ratio statistics when they come out later tonight or tomorrow. Yesterday, they were back down to 0.38 and it will be interesting to see what they are today.

Have an excellent start to the weekend.

TraderJoe

 

Dow (YM) Trend Lines

The Dow Futures (YM) remains accurately on their wedge trend line with the count as it has been progressing. The exact position of Intermediate wave (Y) remains undetermined at the moment.

YM Futures - 1 Day - Wedge

A retrace to the lower trend line is still being looked for at this point. The up wave keeps losing and gaining momentum in a frustrating way as money keeps being created to keep the up trend alive. Parts of the up waves are impulsive, other parts of them are corrective. Further portions of the up waves are corrective waves that look impulsive because of their point gains.

Have an excellent start to the evening.

TraderJoe

Turmoil

Stocks were higher on election turmoil today. This is likely in response to the lower U.S. Dollar. Dollar futures made a new low before  stabilizing a bit. On the daily time frame, the proximity to the 1.382 external Fibonacci retrace, still argues for a count like this. 

ES Futures - Daily - Minor B?

There is nothing that says the up wave is over just yet. We said yesterday that a wave (ii) would have to hold the high. It did not. This could be by plan (perhaps the Federal Reserve or President's Working Group (PPT) is trying to stabilize prices until there is a new administration in place). As with most "B" waves the count is very difficult. The wave structure does not count much like a diagonal as there are many flat waves internally. Earlier in the day we posted a triangle nearer the high. That contracting variety triangle is possible, but so is a barrier variety if this B-3 wave wishes to drag on in time.

At this point, breaking & back-testing the lower wedge line, and breaking below 3,600 would be informative. Be peaceful, calm and flexible.

Have a very good start to your evening,

TraderJoe

Back-testing Channel

Nothing has changed. The channel back-test we referred to yesterday got underway today. It will either count as a-b-c or w-x-y of (ii) - provided the high is not broken.

Trading below the original (solid, black) up channel indicates a loss of momentum. The smaller up wave channel (dotted, purple) has taken more time than wave (i) down, and put a tail on 62% retrace level. Keep one eye on the Georgia election results overnight.

Have a good start to your evening.

TraderJoe

Pre-Certification Jitters and Profit-Taking

Overnight the ES futures (2 hr) ran up to the 1.382 external retracement and hit it with precision in a quite rare triple zigzag - all of which we said was possible or even likely. In the updated chart, below, from the prior post, the Minute ((b)) wave of Minor B appeared to complete at that level.

ES Futures - 2 Hr - Minute ((b)) Complete

The downward wave quickly broke the lower channel boundary, the (e) wave of the triangle, and the 3,714 level which was Confirmation Level 1 (L1) of a likely downturn. The downward wave is longer in price than any of the downward corrections within the channel, and, thus, the degree of wave has likely turned.

In a real treat for those of you who are learning degree labeling, note how the minuet (i) wave stopped just short of 100% the length of the larger degree minute ((a)) wave down - on the left. I have not shown this measurement, you are encouraged to perform it for yourself. This is as it should be to remain a smaller degree wave in the same direction as ((a)), down.

What is shown is the second level of confirmation (L2) which would be below the (x1) wave. As stated before, the final level of confirmation is exceeding the minute ((a)) wave low. Wave minuet (ii), up, is likely in progress. It 'might' back-test the channel, but it should stay lower than the all-time-high (ATH).

Have an excellent start to the evening.

TraderJoe

The Stimulus II Count

Back on December 28th we wrote, that a triple zigzag for the minute ((b)) wave up was possible ...

"From a wave-counting perspective, building on yesterday's post, we said that the minute ((b)) wave of a Minor B wave as an expanded flat, reached the needed 105% level of the prior high in order to qualify for an expanded flat. It appears to have done so as a complex w-x-y wave. So, it has met a 'typical' expectation. But, we can see no reason why - if the market chooses - that the minute ((b)) wave couldn't become longer in time and price as a triple zigzag, perhaps if the larger stimulus is passed. But, let's be clear, it does not have to."

Here is a view of this wave, which is proceeding upwards in a channel currently and is not yet at the 138% external retracement level. The ES 2-Hr chart is below.

ES Futures - 2 Hr - Minute ((b)) Wave Up

 

From the Minor A wave up, there are three-waves down to the minute ((a)) wave. From there, there is a (y) = (w) wave upward, and the red Fibonacci ruler shows how precisely this fits. Following this (y) wave is an (x) wave - likely in the form of a triangle that we also mentioned - which is labeled (x2) for clarity. Thursday's new high confirms the upward movement has not ended yet. The makings of an 'a' wave of the (z) wave are in place, but it could go higher over the weekend.

At present the 'a' wave has found resistance at the mid-channel line sketched in. The most important item to note is that a larger downward move for minute ((c)) does not start until the 3,714 level - or (x2) - is exceeded lower. Again, Monday is the first trading day of the New Year, and Institutions may have to deploy directed cash as required. At some point, jitters over the attempt by Congress to hijack the election, or other moves by the current administration to block progress on a transition, may spark a 'b' wave pull-back, and this may be followed by an Inauguration Relief rally. It's hard to say, but it seems like a plausible scenario.

The minute ((c)) wave down might occur as the new administration gets organized, and therefore stalls, temporarily, and people lock in capital gains profits if the rates are seen to be changed. Minor B is shown as a 'placeholder only'. If this wave is an expanded flat, if can drop much lower than equality with Minor A (going to 1.62 or 2.62 x A, when added to ((b))).

But all of that is in the future: this is just how ((b)) waves work. First is to see if a triple zigzag completes properly. And on that score keep in mind that the 'c' wave of a (z) wave can sometimes truncate.

Thus, the steps in confirming a downward wave in progress for the minute ((c)) wave are, 1) trading below 3,714 to break the triangle lower, 2) trading below the (x1) wave, and 3) trading below minute ((a)). Until then, we remain highly flexible in market opinion.

P.S. This is the second post this weekend, and if you have not seen the first one yet, you may wish to review it now.

Have an excellent start to the New Year.

TraderJoe