Some new all-time highs, Some not

Market Outlook: Still in Minor 4
Market Indexes: ES Futures, SPY new all time highs; SP500, and DJIA not.
Today's Candle: Higher High, Higher Low, Higher Close

Today's hurricane relief rally produced some new all-time highs as listed above. The ES S&P500 Index futures made a new high - just by one tick; the cash market did not. This tends to limit the number of possibilities going forward. First, let's look at the four-hourly chart of the ES futures.

ES Four-Hour Futures

On the above chart, you can see the marginal new high. The primary purpose of the day's action was to close the gap from September 1st - shown by black circle on the chart. This was accomplished by opening the gap up this morning shown by the red circle on the chart. As we stated earlier, gaps on the futures tend to close more quickly than those on cash. So, now, we have no gaps above in the futures market, and only gaps in the downward direction on the futures chart.

Because of overlaps and the lengths of the waves in the futures at the current time - as well as real time counts from the chat room - we can only claim that the upward wave counts as a triple zigzag, upward. Keep in mind  that once a triple zigzag ends, it is always terminal in one sense or another.

Now, the three-waves down shown as (A), (B), (C) on the above chart can very likely be the minute ((a)) wave of a barrier triangle. This would make sense, since the major indexes did not make new highs today. That would make the triple zigzag upward as the minute ((b)) wave of the same triangle. So, we will post that count on the S&P500 Index Cash Hourly chart, below.

S&P500 Cash - Hourly - Minute ((a)) and Minute ((b)) of Barrier Triangle

In barrier triangles, the ((b)) wave should not make a daily close above the 0 mark. As long as that doesn't happen, then we are still in the barrier triangle. The ((c)), ((d)) and ((e)) waves are shown only for direction, not length of the waves necessarily. The eventual outcome of a barrier triangle is usually a brief, sub-standard length thrust out of the triangle. This is because the market expends it's energy banging up against that upper barrier.

Given the FLAT wave minor 2, the barrier triangle is the only likely alternating count with it. That's why it is the most preferred scenario at this point in time.

As an alternate, it is possible to get a zigzag-x-flat, with the minute wave ((a)) as the zigzag, and today's up move as the "x" wave. But, in that case, it would be best if the cash index did not make the new high.

Only in the case of closing new highs in cash would we conclude that the waves of the triple zigzag are the five overlapping waves of an expanding diagonal fifth wave that ends Minor 3, and that the downward wave lengths were not long enough for Minor 4. (If this later scenario was correct, then there might be downward overlap problems with it that we will look into again tomorrow, but it is the reason this is our least preferred scenario.)

In any event, the count is so sloppy we know we have been in The Fourth Wave Conundrum of one degree or another. On the very short term five-minute chart, one additional up wave in this series seems likely, as the Elliott Wave Oscillator (EWO) on this time scale is sitting right on zero. Such as wave might make a false breakout and fail temporarily. I say temporarily because even a barrier triangle allows for new highs in the cash market.

Well, regardless of where you are, I hope this helps.
Have a good start to your evening.
TraderJoe

Backing and Filling

Market Outlook: Still in Minor 4

There remain no changes to The Eight Fold Path Method chart shown below. Over the last week some backing and filling has occurred - a bit more of which is possible.

S&P500 Index Three-Day Chart - The Eight Fold Path Method

From our experience with The Fourth Wave Conundrum, we know that everyone wants to know what the internal count is. The fact us there are three equally valid ways to count the internals at this moment, and that is what we are working on in the live chat room. It has been tedious, and filled with numerous twists and turns for not a lot of point gain or loss.

Still, overall, I expect Minor wave 4 will touch the lower channel boundary, and the Elliott Wave Oscillator will drop down into the -10% to -40% range of the peak high value.

Regards,
TraderJoe

Vacation Over

Market Outlook: Still in Minor 4, Lower
Market Indexes: Major U.S. Equity Indexes Lower, DJ Utilities Higher
Today's Candle: Lower High, Lower Low, Lower Close

Equity markets as measured by the S&P500 Index closed Friday at 2476, and took off the long weekend. When they returned, supposedly partly because of the North Korea situation, but later supposedly aggravated by the White House insistence on repealing the Dreamer Act, and the prospects for a budget fight, the cash market gapped down at the open to 2466, rebounded about 6 points to 2472, then fell part into the mid-afternoon, reaching 2446 by 1 PM, and then started a corrective looking rally into the close to finish the day at 2458. When you see the Dow's hourly chart, below, you will see it was clearly another case of "open a gap to close a gap".

So that we don't confuse things, we'll start in order from the beginning with The Eight Fold Path Method first. Here is the three-day chart that we have shown here before numerous times.

S&P500 Three-Day Chart with The Eight Fold Path Method

 As you can see the Elliott Wave Oscillator (EWO) is still red, and declining overall. It should attempt to hit +10% to -40% of the prior Minor wave 3 high, and price should still attempt to hit the lower channel - one way or the other.

From last week, we showed you this up count on the cash S&P500 Index, for what counted at that time as an X wave. We had  to wait and see if prices would ever exceed that high, and they did not. So, our counting was dead on and held by that 0.25 points!

S&P500 Half-Hour Chart - Count of X Wave Upward

The above chart is not complete as of the end of the day, but we posted it in the real time chat room to show that wave (1) downward had been overlapped, and later again (not shown) to show that the ((A)) wave had been overlapped eliminating the variations that could have - but didn't - result in an impulse wave upward.

So, since the wave above did NOT retrace 90% (it only retraced) 85%, and three waves down precede it, the best count we have is the (a), (b), (c), (x), (a) ... count: the potential double or triple zigzag lower. In fact, the DOW only has a 78.6% retrace, and we'll show that chart below so you don't think we are playing games with 5%.

DJIA Cash - Hourly - With 78.6% Retrace Only

Remember, for a FLAT, which this is not, the rule is that the 90% level must be made. This didn't make it, so this is not a flat wave. The only good question that a serious Elliottician can ask, is "is it possible that (a), (b), (c) are actually the first wave of a diagonal, with the (x) wave as the second wave with one of those retraces that is characteristically between 62 to 85%?" And the answer to that question is an emphatic YES! But then, such a downward diagonal, which would likely be Minute ((a)), would have to form properly in every detail. So, that hasn't happened yet. Let's see if it does, or if we only get double or triple zigzags, lower.

OK. Now for those of you who read our "Sunday School" post about the overnight markets, this is how we updated that chart in the real time chat room.

ES E-Mini S&P500 Index Futures - Half Hour Chart - Overnight Session

Clearly, from our update, after the b wave flat, we were expecting a c wave up as the opening bell rang. When that occurred, without filling the gap, and when the b wave was broken lower, it was clearly game on for a decline.

Once again, with backing-and-filling, we do expect the lower trend line on the three-day chart to be attained.

For now, have a very good start to your evening!
TraderJoe

Sunday School

Well. Not that kind. In sort of a rarity on this site, I thought I would document the overnight Sunday session of the ES E-Mini S&P500 Futures to see what they have to teach us. The cash market on Friday could barely move 11 points, but like an invisible bear in winter woods, the futures have this funny way of making big kills - yet not leaving any tracks in the snow (in the cash market, that is).

At some point, the seasoned trader must ask, "do the even futures matter?" Well, certainly they mattered to someone on election night because the futures were first down 100 points ($5,000 per contract), and then, after the halt, they were up 100 points, nearly as fast. But, how about now?

Certainly someone sold something in the overnight this Sunday night. The futures were down - at the lows - about 13 points on the supposed news of North Korea's A-bomb test. Hmm. Not even as much as they were down when a missile flew over Japan. A chart is below.

ES E-Mini S&P500 Futures - Half Hour

However, as the chart shows, anyone who "sold the news" and didn't wait for some kind of pull back would be under water (as the term goes). While those who took a chance on the X wave are in small profits.

There are a couple of interesting things to me. The first is just how quickly the market makers are currently able to stop a decline. One down candle per A-Bomb, I guess. Then, secondly - much as I showed on the Russell 2000 futures, there is a perfect diagonal that has formed from those lows. There are five waves up, the fifth is shorter than the third, the third is shorter than the first, the fourth is shorter than the second, the fourth overlaps the first, and they are all three-wave sequences.

Perhaps, that is an 'a' wave up. That remains to be seen by exceeding that high. In fact, I was very interested to see if that high was exceeded by the end of the session, but it wasn't, so possibly a 'b' wave down is forming.

And that is all very interesting, but the real question is, "what, if anything, does it mean for the cash market?". Why are so many (low-volume) trading hours being expended on this price movement, and the overnight still has another session to go from Monday night into Tuesday morning. Finally, we'd like to note that because the futures do trade 'nearly' around-the-clock, when they do form a gap, the gaps tend to fill quite quickly - usually more quickly than in  the cash market.

The reason I raise this topic is I have been questioning for many, many months whether to even bother to count cash anymore. Cash is a 'calculated, non-tradeable average', except in ETF form where it is clouded by the effects of dividends included in the SPY for example. And, if the futures can go down 100 points on election eve, and then right back up on election day, while cash does (gulp!), um, nothing, then of what relevance is the cash market?!

I think it is true that cash puts a damper on the futures market. It is harder to rig the cash market. And, ultimately, it seems the cash Elliott Wave count must work out. But, yet, it may turn out the futures market has some benefits for wave counters that the cash market may not. For example, what would the Elliott Wave count be in cash if the futures gap, above, closed immediately? What would the Elliott Wave count be in cash if futures prices continued to make lower lows? Remember, nothing since Friday afternoon is even included in the cash Elliott Wave count, yet.

As far as I can tell, this is an undeveloped topic - as far as typical day-traders go. Yet, inquiring minds might like to look into different scenarios to more fully develop Elliott Wave theory. One thing we know for sure, is that while Ralph Nelson Elliott did have overseas markets and gaps to contend with, he did not have to wrestle with this topic of the futures. Lucky him?

Have a very good continuation of your weekend, and your Labor Day, if you are in the U.S.
TraderJoe

The Fourth Wave Conundrum - Part 2

Market Outlook: Two Ways to be in Minor 4, Lower; One Way to Be in A Fifth Wave Up
Market Indexes: S&P500, DJIA, RUT, higher; NDX, lower.
Today's Candle: Higher High, Higher Low, Higher Close

The S&P500 had closed on Thursday at 2472. Prices gapped higher this morning on the soft jobs report, and on the "first of the month money" we said was often likely in previous posts. This is the typical new month inflows from pension funds, dividend reinvestment plans, company bonuses, etc. Prices then traded up to a high of 2480.38, and then started a slow fade on some profit taking late in the day, closing at 2476.55.

First, let's look at the big picture. If we take the weekly chart of the S&P, all that prices did on a low volume day like today was "grind" against the 1.618 extension. Here's a chart.

S&P500 Three-Day Chart with Extension

All day, prices just bucked up against that extension, and even given the soft labor report, and the first of the month couldn't bust it (today).

During the day, I set a limit on how I was counting the potential (x) wave higher. The good news is that level was not busted. It held by a quarter of a point. Here is how I was counting the potential y wave of the (x) wave. Remember, it should count as a-b-c to y. Right now, it does.

S&P500 Cash - Half-Hour Chart - Y Wave as ((A)), ((B)), ((C))

You can see the Fibonacci rulers. ((C)) = 1.618 x ((A)), in red, and (5) less than (3), less than (1), in blue. The problem is with (3) shorter than (1) right now, any movement over 2481 will invalidate the count and force an impulse count higher for this wave. Again, right now. It's OK.

Well, so here we are on a long weekend. And the futures will be open many hours when the cash market isn't. I can't guarantee this pattern won't bust. I can only objectively say, "it held today". It's kind of a real cliff-hanger, but it certainly is possible for the market to gap up seven or eight points on some weekend story or some foreign news. It's also possible for it to gap down. My market metrics are not good enough to tell for sure which will happen. Are yours?

And so, we must play the game of wait & see. The only thing we can say, is that - in terms of length - this up wave is greater than 1.27 times the length of the up wave from 21 Aug. That slightly favors an impulse count instead of the double zigzag. But, the EWO has headed lower, and that favors some continued downward movement towards the zero line. And the NQ futures did make a new all time high today, but closed lower. As you can see, not a lot to go on. In some ways, it feels like a game of chicken.

The Dow did fill it's first gap up - as I showed on yesterday's chart. But, while the S&P now has no gaps above, the Dow has one more such gap at 22087.

The two possible down counts for the S&P are (a), (b), (c), (x), with a further (a), (b), (c) to go. Or the 'possibility' of a leading diagonal, if this up wave breaks the ((A)), ((B)), ((C)) shown and turns into a clean impulse. That's because wave (2) in a diagonal must be an a, b, c zigzag from 21 Aug.

The DOW can be counted downward as just ((a)), and ((b)) at this time. The Dow has not retraced 78.6%, yet, but is beyond 61.8%. The problem with counting the Dow as (a) down, is that within the downward wave, there is no 1.618 extension. And so, the downward Dow wave counts better as a zigzag - like the S&P.

But, if the high in the DOW and the S&P breaks, then "most likely" we are into Minute ((v)) of Minor 3 still - one last gasp to finish Minor 3 before starting the larger Minor 4, down.

Even though we are into a resistance area here, people may have their 'opinion'. They may be bullish or bearish. We may break the all-time-high or not. But it's likely few people can conclusively state 'which' will happen, and why, from a wave counting viewpoint. This is the very essence of The Fourth Wave Conundrum.

For now, have a very good start to your weekend.
TraderJoe

The Fourth Wave Conundrum

Market Outlook: Still in Minor 4 Lower
Market Indexes: Major U.S. Equity Futures were Higher
Today's Candle: Higher High, Higher Low, Higher Close

Stocks as measured by the S&P500 Index closed yesterday at 2458. The futures were higher over night, and the cash market gapped up at the open. Prices traded higher throughout the session, with only a five-point pull-back to hit 2475 by 3:30 pm. Then, there was a four-point pull-back into the cash close to close at 2471.

The S&P500 high of the day was high enough to invalidate the potential triangle shown over the last several days. It's a shame, but it does represent the uncertainty inherent in fourth waves, and why I have coined the phrase, The Fourth Wave Conundrum. You are probably tired of hearing it. You just want to know what your Elliott Wave count is, without excuses. So would I. But the fact is that when a person doesn't know what the count is, then most likely the count is that of a fourth wave or B wave.

As I remarked in previous posts, IF the triangle count had invalidated, then the next best count is the a-b-c-x-a-b-c count of a double zigzag, lower. That count is now shown on the Dow chart below. But the S&P500 can be counted in the same way.

DJIA Cash - Hourly - Beginning of Multiple Zigzag

The upward price movement may not be over, and so, we are not certain the (x) wave has ended. The Dow has one gap above (circled red). The S&P filled that same gap today. The Dow did not. And both markets have the gap up open today. The S&P500 made a second new high today. The Dow did not. With the Payroll Employment Report tomorrow, it is possible the Dow's upward gap would fill.

But, upward movement for the Dow appears to be in a channel, so far, and there were a couple of closes on the 61.8% Fibonacci level. And, we note that at the y location within (x), the up wave now consumes more time than the down wave (in hours).

I have tried to show by labeling the Elliott Wave Oscillator what the support for this count is - the natural rhythms in the EWO, and the depth of the movements below the line, or heights of the waves above the line.

During live chat today, I checked out the measurements for a diagonal down for the S&P500 to the 2417 level, but the middle wave is too long for that, by just a few pips, and I won't break the rules. In some ways a triangle would have been a simple count to manage. This one, might be quite a bit more difficult - because of it's grinding nature and the nature of X waves.

Well, that's it for today. Let's see where things go tomorrow, and have a good start to your evening.
TraderJoe

Continued Triangle Count

Market Outlook: Still in Minor Wave 4, Lower
Market Indexes: Major U.S. Equity Futures were higher
Today's Candle: Higher High, Higher Low, Higher Close

The market as measured by the S&P500 Cash Index closed yesterday at 2446. The futures had been higher overnight, then turned lower. There was a very brief dip in the cash market down to 2444, and then prices immediately header higher. By 3 PM, the market reached 2460, and stalled there, closing at 2458.

Because of the brevity of the early morning down wave, and the ability to count another potential five waves upward, we labeled this morning's low as the ((B)) wave, circle-B, of the potential triangle's y wave of the overall minuet (c), and the swift upward move as the potential ((C)) wave, circle-C of y of the overall minuet (c) wave of the triangle. The hourly chart is below to refresh your memory.

S&P500 Hourly Cash

At the end of the day, price came back down to cross back over, or overlap downwards, the w wave of the triangle. This is not yet fatal for the upward count. Blog followers should note whether ((A)) wave up of y gets overlapped in the next day or two. If it does, that would tend to reinforce the triangle count.

There is only marginal evidence (re: breaking of the up trend line from x) that this upward wave is over. But, while upward price movement could be over for a while, we must allow in the short term that one more higher high could be made. The length of the upward wave is currently satisfactory, but price may want to tag that 78.6% retracement level.

When, or if, the (d) wave downward commences, it is not a requirement that it stay above the x wave. It may break that wave low marginally to set a price trap, provided that it remain above (b). Again, if this is a low-volume triangle, then it is doing of it's job of "wasting time and moving price sideways."

Until further notice, the alternate for this count is a double or triple zigzag lower, however, the triangle must invalidate before considering those. Tomorrow is the last day of the month, and there could be some "end of the month window dressing", prior to the first of the month which, this month, sees both the Payroll Employment Report, and possible inflows from mutual funds, 401k's, dividend reinvestment plans, pension funds, and company bonuses.

So, for now, by the price action today, it should be clear to most that even if this downward wave develops as expected, it is still a corrective wave. Price action is overlapping and choppy, and it likely means that at some point, a new high will be made or attempted. Remember, we have shown only the likely direction of the minute ((c)) wave above - we have not attempted to show it's potential length. If it develops, it could be longer than shown.

So, again, stay loose and flexible as the end of eclipse month draws near, and the Labor Day Holiday approaches, as well.

And have a very good start to your evening.
TraderJoe