Longer in Price, Waiting on Time

The new up wave in the ES 4-hr chart is now longer in price than the potential wave ii. Price is shown by the Fibonacci ruler as exceeding 100% x ii in the chart below.

Both waves (ii and iv) have ten (10) candles up, so we are waiting to see if the pattern becomes longer in time, as well. If so, then the question becomes, "will the pattern hold the high of wave ii?"

And that is truly a difficult question to answer. There are those who will say the downward pattern is corrective - and to a large extent they are correct. It is made up of three-wave sequences. But, this is why we say diagonals (and their cousins - triangles) are patterns which 'must' prove themselves in every detail.

If price take out the high of Minor B by only a "smidge", then perhaps Minor B is extending just a bit to become a triple zigzag instead of a double. Because there are readily available alternates, we remain flexible, patient and calm. However, if the high of wave ii does indeed hold, then it is possible a fifth wave, v, might make a 1.27 - 1.62 x wave iii in the downward direction.

Let's see how it goes. Have a good start to the evening.

TraderJoe

Rationale for 'Daily' Count

Below is a two-day chart of the ES E-Mini S&P futures. Why would anyone say that they are providing rationale for the 'daily' chart and yet show a two-day time-frame? If you have not read the featured post in this blog (entitled, "The Eight Fold Path Method for Counting an Impulse" at this LINK), then you should do so now. The first step in that method is to "Chose the time frame that allows 120 - 160 bars on the chart.") You select the number of candles first; the time-frame is what results. That is done below. Using a one-day chart would provide 244 candles, and that is way too many.

 

ES Futures - 2 Day - Intermediate (W), (X)

I have used MotiveWave for this count to verify the accuracy of the placement of the wave labels and lengths of the waves, and to provide the accurate degree symbols. Other programs make this very difficult. This provides additional confidence in its correctness. Now for the rationale, recognizing that last weekend I provided rationale for the larger Primary ((B)) wave, upwards.

1. With between 120 - 160 candles on the chart, the Elliott Wave Oscillator is plotted next. What can be seen is that there is no higher high third-wave peak on the EWO. This likely means that the up wave - to this point in time, and on this time-scale - is not impulsing.
2. Next, when the daily chart is considered, the minute ((iii)) waves (or circle-iii waves) are in the only locations where a 0 - ((ii)) trend line does not cut off a portion of a third wave. If you are unsure of this count, are a new reader, or just have Elliott Wave qualms, in general, you really should take a daily chart, and try drawing what you see are 0 - ((ii)) trend lines, and see whether they cut off any portion of what you think are your third waves. This is the only way I can find to do it.
   
3. The highest wave on a divergence is the Minor C wave of Intermediate (W). Assume for a moment that Intermediate (W) is "all one wave". As such, it has not yet been retraced 50 - 62% for what would otherwise be a normal second wave retracement. So, we think one will happen, but the FED's early recognition of the need for lower rates, and stimulus efforts from Congress have stalled that decline.
4. Next we placed a Fibonacci ruler at the only location we can find for the current up wave. It is exactly a 1.618 external retrace on the Minor A wave down into the end of October, 2020. The market does seem to be reacting here.
5. Finally, we have degrees to consider. And at this location - as an 'up' wave - minor B is shorter in price and time than it's larger degree up wave, Intermediate (W). Yet, it is "on the order" of the Minor A wave up of (W), and the Minor C wave up of (W), likely confirming that the degrees are similar.

So, that is the major rationale for this count. As a next exercise, we draw a tentative up trend line (dotted blue) through the extremes of the chart. First, we see it is very nearly at a 45 degree angle, and next we see it has really only two touch-points at this location. This trend line becomes important. Initially, price may come down to touch it, and then bounce off of it. However, if price goes down through it, and then back-tests and fails, then it would suggest the expanded flat for wave (X) is underway. That would be accompanied by a significant break of the round-number 3,600.

In last weekend's post (LINK here), in addition to providing the rationale for the Primary ((B)) count, and the daily count, I highlighted that I don't think this Intermediate (X) wave would likely be a triangle because the middle wave of the Intermediate (B) wave of the Primary ((A)) wave down was a triangle, and this would seem like bad alternation. Again, I could be wrong, but this is what alternation suggests.

In Elliott Wave work, a good analysis also indicates where a wave count is incorrect. In this case it is relatively simple. Any higher high above Minor B would likely suggest this scenario doesn't work. Why? Because 1.618 is about the maximum measurement allowed for the "B" wave of any expanded flat. Beyond that, and the wave is likely to fail. This is one of the key benefits of Elliott Wave work. Knowing where one is not correct helps one to be flexible, patient, and calm.

 

Notice I said in Item 1, above, that The Eight Fold Path Method is also indicating where this wave is NOT impulsing - at least at the moment.  That is also one of the benefits of the method, and it's why I rely on it for counting waves.

 

In terms of alternates, the best suggestion would be to replace the Minor A wave at the end if October with the Intermediate (X) wave. The problem with that count is that at this point in time there is no good Fibonacci relationship with this new (Y) wave and the (W) wave. I've tried. I've looked for numerous other counts. This is the simplest I can find. 

If you think you have another count, great! Then show it in the comments via a link and show how you have counted those third waves as not breaking any part of a line through wave 0 - ((ii)). This is the second post this weekend, and if you have not read the first one, you may wish to view it now.

Otherwise and else-wise, have an excellent rest of the weekend.

TraderJoe

Three Waves Each Way - 3

Today, price traveled low enough to contact the 18-day SMA (on the daily chart, of course). The slow stochastic, as of the settle, did lose it's embedded status, with a value of 70 - well below that 80 level. Daily price did settle just above the 18-day SMA keeping the bias up, but weakly so.

On the ES 4-hr chart, below, the green EMA13 did cross below the blue EMA34, in a temporarily negative sign.

ES Futures - 4 Hr - Below Support

 

Price is currently trading below the former Support/Resistance line. Wave iii is currently longer in price than wave i of a potential expanding diagonal, but it is not yet longer in time.  If wave iii makes lower low all it does is move wave ((B)) to the top of the last candle as an expanded flat wave.

Yes, at the moment, there are only two downward zigzags - which still can be seen as corrective. Still an upward count can not resume until wave ii is exceeded higher. This is not impossible. But it - the whole structure in either direction - just requires calm, patience and flexibility.

Have a good start to your evening.

TraderJoe

Three Waves Each Way - 2

Overnight the futures made a slight higher high, in more overlapping waves. Then, in back-and-forth overlapping waves, the futures made a pattern which initially suggested a potential triangle. But our commentary was, "possible triangle or (it might devolve into a..) Flat wave". The triangle possibility hung on most of the day, but eventually, the overnight low was exceeded invalidating the triangle, and a larger downward wave broke several fractals lower. Here is the ES 4-hour chart.

By considering the possible triangle, we did everything we we could to count upwards with the larger trend. Today, the market would not let us, but we had a back-up plan as per the comments.

So, there are still three-waves-down and three-waves-up. Towards the end of the day, price pierced the lower parallel trend line of the recent up channel as it contacted the EMA-34 on this time frame. The EMA-13 is also sketched in for reference. If the EMA-13 should cross below the EMA-34 on this time frame, that would be a considerable negative sign. Right now, we are nowhere near there, so this serves as information only.

On the four-hour time-frame a triangle is still possible, but sentiment remains extremely stretched and there will not be a resumption of an upward count unless price closes above the EMA-13 again. Similarly, price needs to exceed the ((C)) wave low to start a larger diagonal or other wave downward.

In case you did not see this news story from the comments, it is included here again. This new rule might really throw a money-wrench into bank procedures. And anything that bothers the banks can adversely affect markets (here is the LINK to the story).

"The Office of the Comptroller of the Currency finalized a rule on Thursday that Wall Street’s largest banks have strongly opposed since its proposal in November. The OCC’s Fair Access to Financial Services rule was finalized a day after current OCC head Brian Brooks announced his resignation. The rule seeks to require banks to provide quantitative metrics proving the risks that lead them to deny services to potential clients."

Have an excellent start to the evening.

I added the current chart of the put-call ratio when the figures became available after the close. 

Put-Call Ratio - Daily - New recent lows

 

Even after today's downward movement, the put-call ratio barely budged.

TraderJoe

Three Waves Each Way

As far as I can tell at the moment, there are only three waves in each direction, as per the ES hourly chart, below.

ES Futures - 1 Hr - Three Down and Up

These three waves in each direction could be part of a downward diagonal, or part of a triangle that points upward. It is very difficult to say, and the overall point change is minimal. One negative for an upward pointing triangle is the a-b-c of the larger (a) wave of a triangle is usually quite dramatic. This one is quite long, drawn out, and boring.

Further, at the middle of the day today, I asked readers to watch for a potential diagonal due to overlaps in the upward count of the ((C)) wave. That diagonal did play out, and is counted below.

ES Futures - 5 min - Diagonal

 

In the above count, wave (v) is less in price and time than wave (iii), which is less in price and time than wave (i). Wave (iv) is less in price and time than wave (ii), and overlaps wave (i). Note the wave degree markers in this chart are for illustration and chart clarity only.

We can't know for sure if the diagonal is leading or it is ending. A clue will be if the high is exceeded before the low. However, there is a fair probability the diagonal is ending, so another clue will be the speed of any decline.

Have an excellent start to the evening.

TraderJoe

Lower Highs, Lower Lows

After making very overlapping waves in the overnight, the ES futures this morning made a lower daily low. Cash followed suit. Both cash and futures overlapped the wave (i) location. The hourly ES futures are shown below.

ES Futures - 1 Hr - Lower Low

So, the issue now becomes whether or not there is a triangle at the lower left. If there is, there are ways to count downward. Diagonal and impulse possibilities are available. Neither would be correct if price exceeded the current wave (v) high, though.

If, however, the 4 Jan low is the low of the pattern, there might be a way to add in 'an additional wave', meaning this long drawn out choppy wave could be a fourth wave with a further higher high to come. It can't be ruled out at this point as there are insufficient downward overlaps.

Further lower lows - before a higher daily high - would tend to rule in the impulse or diagonal downward.

Have a good start to the evening,

TraderJoe

Lower Highs

In the Minor B wave scenario we posted over the weekend, leading to a potential Intermediate (X) wave, down, it is possible to see the Minor B wave as having ended at Friday's high. Today, there were lower highs (at the purple arrows). But, convincing lower lows are needed. In the SPX 30-min chart, below, the wave degrees have been downgraded one degree, reflecting the Minor B scenario.

During the day, there were five half-hourly bars that closed below the lower channel boundary. But, a convincing close below wave (iv) and overlap of wave (i) would still provide better confirmation of a larger down wave. There has been no downward overlap to this point.

I have seen some waves in cash where an upwards ending-diagonal fights its way along a lower trend channel boundary, so that would seem to be the best upward alternate at this time. Still, such a diagonal wave would have to stay inside the 3,852.2 level. 

If the market only begrudgingly makes lower lows, then perhaps it is trying to make a downward diagonal. So far, the downward waves have been slow and choppy.

If there is a gap direction tomorrow, it could help provide some clarity. Meanwhile, this is a good time to remain calm, patient and flexible.

Have an excellent start to the evening.

TraderJoe