Core PPI and FOMC Minutes Tomorrow

Prices as measured by the ES futures contract traded higher until about noon today, then began to roll-over a bit. We showed the SPY 30-minute chart below, a few times and noted the pop over the wedge and the measurement of c-5 = (1.618 x a-3) + b-3 target as the Fibonacci ruler on the right shows.

Prices overshot the target a bit, and then came back down to it. In doing so, prices broke the lower up trend line a bit and closed there for several half-hours but did not yet make greatly impulsive moves lower.

With the PPI, FOMC Minutes and CPI in the next few days one might expect some volatility and/or impulsivity lower. If so, keep an eye on the prior iv th wave which is at the 62% retrace level. If that gets broken, then it may be possible to revisit or exceed the lows. However, now is not the time for expectations or heroics in front of these reports until their content is known and understood. Rather, it's time for patience, calm and flexibility.

The lack of downside impulsivity and speed (so far) continue to suggest that if prices move lower, they might do so in an expanding diagonal. I have not completely ruled out the nested count lower (1,2, i, ii..) but in that count downside progress would likely have been more definite. Still, I may put it back on the table depending on any downward movements.

Have a good start to the evening,

TraderJoe

If Not iv, then 'b' ? A Further Analysis

Five things seem wrong about counting the current down wave impulsively. Even though as per the EWO on the prior 2-hr chart of the SPY (see LINK), it certainly looks like a wave iv signature, it might be a wave 'b', instead. The five suspect items are listed below.

1. There's the funny business with the difference between the futures rollover contract chart, just the current month contract chart, and cash. The futures rollover chart has that higher high which can't be a second wave (see the first chart below).
2. The Dow and the Russell have overlapped downward; the NDX & S&P have not. The indexes are not acting consistently - we know because of the magnificent seven.
3. The latest downward wave is longer than the first downward wave in the ES. So, it should not be the subwave of an impulse (see the second chart below). Even given that fact, the daily Elliott Wave Oscillator is lower and not diverging.
4. Looking at the move from the top, several of the segments do not look impulsive. They did not start with decisive breaks and long candles to the downside. They were grinding.
5. Then, there is the weekly channel consideration.

This suggests two likely possibilities:1) It's only going to be A-B-C down of the larger wave 4 up in the alternate, or 2) we are in an expanding diagonal lower. Let's look at the charts.

Chart # 1 - SPX v ES Rollover - Counting Mismatch

As the chart shows the ES futures roll-over chart with the higher high would prevent counting a second subwave (as from yesterday's chart) as ii on 14 Sep. We pointed that out in the comments of prior posts. With this in mind, the next chart shows the longer wave downward wave than the first, and the lower Elliott Wave Oscillator (EWO).

Chart #2 - ES Roller-over Daily - Longer Wave & Lower EWO

As we said, several of the segments from the highs do not look impulsive. Given that, it may be possible to count the segments as a-b-c's as below. This might suggest the market is making a diagonal lower IF new lower lows are made.

Chart # 3 - ES Futures - Daily - Counting as a-b-c's

Then, there are the weekly channel considerations. As we have shown before, the best bullish alternate is that the fourth wave, 4, of an upward weekly channel holds in this index - as in Chart # 4, below.

ES Futures - Weekly - Channel Considerations

So, the three channel considerations are these:

1. If the channel breaks lower, it will be a very large, recognizable symbol of lower waves. Thus, it would likely initiate a third wave lower. The way this could happen from here is if the ES is still in the third wave of a diagonal.
2. Glenn Neely in Mastering Elliott Wave indicates that rarely, if ever, do impulse waves travel in an exact channel. It is usually zigzags that form in that manner. Recall, too, in the preferred count that wave C is still less than 1.618 x A. Our observation in the Eight-Fold-Path-Method states that usually the extended third wave would hike its head above the channel in an up move. That did not happen above.
3. Third - while not of critical import - it is worth noting that there is reverse alternation in the above wave. Wave red 2 would have formed as a Flat, and wave red 4 would have formed as a multiple zigzag. While not proof positive, usually large impulses form with the sharp second wave and the sideways wave as the fourth wave (unless a triangle forms). A triangle is temporality being ruled out for this wave because the downward wave seems to be a double-zigzag. Triangles usually start with a violent single zigzag. The down wave is just not very violent or speedy at all.

So, we will continue to watch for any signs of renewed selling near the 18-day SMA and the prior upward support/resistance zones. And, in particular, we will look for signs of the new lower low and downward break of the weekly channel. 

Why and how might this happen? While I don't delve much into fundamental analysis, perhaps the larger downward third wave would be created by poor earnings reports from the multinationals because of the higher dollar. We are about to go into earnings season. Then, after the third wave is made lower, a fourth wave up in a diagonal might coincide with the typical year-end rally. So, it is worthwhile to keep an eye on earnings this quarter as a further sign.

Have an excellent rest of the weekend.

TraderJoe

EWO (Elliott Wave Oscillator) Back to Zero

On the 2-Hr chart of the SPY Cash Index, below, the EWO (Elliott Wave Oscillator) is back peeking above the zero line. This is the time when the fourth wave survives its test, or the wave loses its shape.

We were fully expecting the EWO to come back to the zero line and had written about it previously. So, it seems for downward continuation wave iv should either end here or try to hold the 38-50% Fibonacci retrace on wave iii. As noted in the chart, this wave can fail at this location since it is potentially an ending wave - if it wants.

We'll see how it goes. Have an excellent start to the evening and the weekend.

TraderJoe

Weekly Dollar Index

The weekly chart of the U.S. Dollar Index is below. There are five minor waves (1-5) down to an Intermediate (A) wave on the left. There is then an expanded flat for what is likely an Intermediate (B) wave.

Notice how the B-3 wave of the expanded flat exactly back-tested the upper down-trending channel line of the Intermediate (A) wave.

(B) waves can be stinky. There can be counted three-waves up to the alternate (B) wave shown in red. But, there can be more waves added on to make a fuller five-wave impulse Minor C wave up in (B). The first target of the 1.618 extension of A-3 on B-3 has been met near the 50% retrace mark. But, if the wave extends, it could make the 2.618 extension shown near the 61.8% retrace mark.

The Payroll Employment Report is tomorrow. Time to start watching closely. Have a good start to the evening.

TraderJoe

A Local Fourth Wave Remains on Track

In the comments for prior posts, we showed this SPY 2-Hr chart. It remains on track for a local fourth wave. The EWO is not near/at the zero line yet.

SPY Cash - 2 Hr - Wave iv due?

As the chart indicates the fourth wave - at this point - can be either of a running triangle or an expanded flat. It's The Fourth Wave Conundrum, meaning there are lots of variations of sideways three-wave patterns, and it happens at every degree of trend. The lower (b) wave is still something of a downside omen, and prices are still expected to contact or get nearer to the EMA-34 on the upside (note there are not 120 candles on this chart).

Have an excellent start to the evening.

TraderJoe

And For Cycle V - By Degree Labeling

So, it seemed the best thing to do now was to revisit Cycle V five and see if anything changes. I spent hours again going over the count. I tried every possibility of extensions I could (x3, x5, x1). I further specifically tried getting the all-time-high to be part of Cycle V. I could not get it to work as the wave is too long compared to other waves. The good news is that the overall interpretation has not changed - at least using the log scale on a monthly chart over the 13-year period. It turned out that the only extension I could get to work was the x1, the first-wave extension. Here is the chart.

DJI Cash Index - Monthly Log Scale - Cycle V Count and Following

The only correction I had to make was to wave x①. Unless interpreted this way, the Intermediate degree waves within Primary ③ are too long in price and time. I tried the expanding triangle count again in 2020. That did not work either. Note specifically that Primary ② is less than a 38.2% retrace - as shown by the Fibonacci ruler - which, as you know, goes along with the x① count. The Fibonacci rulers for waves ③ and ⑤ are shown on the left of the chart.

So, we are where we are. Many people are looking for price to 'go-over-the-top' again. The chart shows "we've already been over the top". The Dow is within limits for an expanded flat Ⓑ wave, after the SuperCycle [III] top. 

If there are three-waves down from the Ⓑ wave top, then a diagonal wave downward may be in progress. It might turn out to be either a contracting or an expanding diagonal. If the mess of a structure from the high is a 'five' then price might impulse lower. If the RSI makes a lower local low, then it may confirm a lower high in August 2023.

Stay tuned, and have a good start to your evening,

P.S. This post follows on directly from yesterday's historical review. If you have not seen that post yet, you may wish to read that one, as well.

TraderJoe

For the Life of Me ..!

Degree labeling may yet help solve another problem. You know if you're an Elliott analyst and concerned about degree labeling then one market problem stands out above all others: the 1929 - 32 'crash' is simply 'too short in time' to allow a smaller degree wave to take place from 1966 - 1974. The 1929 - 32 crash wave took only 3-4 years. Yet, 1966 to 1974 is 8 years. Then too, the 2000 - 2009 correction is nine years. Again too long. Something is grossly wrong for degree labeling definitions to be satisfied. 

Now, it is true that Elliott may have considered the waves to 1942 as a thirteen-year triangle. But there is insufficient evidence in the DJIA for a clear triangle. Still, a thirteen-year structure would certainly explain that eight-year time sequence from 1966 to 1974, and the nine year sequence from 2000 - 2009. These later sequences would be of smaller time degree. But is this correct? No, I don't think so. There isn't sufficient evidence in the record of the DJIA to claim that a true triangle formed. But I did develop this unique and simplified explanation that may account for the time sequences. It is shown in the chart below. Again, I have never seen this explanation before, and as far as I can tell, it simplifies all the degree labeling sequences. Here it is.

What IF Elliott was off by only two waves?!! What, if instead of a triangle, the 1942 wave is that last part of a "Running Second Wave" - a failed double-combination? In other words, label it as cycle W-X-Y. Such a running second wave would presage the truly huge and historic SuperCycle wave [III] to follow. Isn't that what running waves are supposed to do - show extraordinary market strength - or weakness - to follow?

Without this explanation Cycle Wave I (which is supposed to be a sub-wave) is longer in log price than its larger degree counterpart wave in same direction: SuperCycle [I]. But with this consideration, Cycle I is shorter in log price than SuperCycle [I], and it is shorter in time. Then, and only then, do all the other corrections also work out in terms of degree labeling as well.

For additional evidence, look to the peaks of the RSI indicator. And, oh! by-the-way, there are 126 yearly candles on this chart, to boot! And here's a bit of magic - you now know why the Dow had to poke it's head above that 1,000 level in 1973! It needed finish off a fifth wave! Further, this makes wave SuperCycle [II] at least 33 - 40% as long in time as wave SuperCycle [I], instead of only 10% as long in time. Much, much better!

So, SuperCycle [IV] may come back down to the log channel. And it may take a very, very long time to do so. It's a fourth wave. But, first, we must confirm that Cycle Wave V does not contain a triangle and that Cycle Wave V is not ending as an ending diagonal. It is not necessary to form a triangle within Cycle V, or for Cycle V to end with an ending diagonal, but such waves certainly could form given the scale of the move. There are still ways triangles and diagonals could form at the top! We will try to keep you aware of them while the daily bias still remains lower. If the daily bias flips to higher, that would be a first warning that a triangle or diagonal might be in the works.

I, for one, am happy to have this long-standing mystery solved. It's not in the books folks. It's not on other people's web-sites. But it just may be the result of a long-running curiosity and continued, persistent application.

Have an excellent rest of the weekend!

TraderJoe