Late Night Reconfiguration - Still Likely Lower

Unless you were able to follow the comments from yesterday, you might not know that last night was "burning the mid-night oil" when tariffs were announced on Mexico. The problem became that waves were now becoming too long in time, and in price, with smaller and smaller retracements. Here's the ES 4-Hr chart, which is being used so that it contains prices from all-hours trading.

ES E-Mini S&P500 Futures - 4 Hr - Nested 1-2's?

This chart was actually developed and posted last night. Because the next wave down from 2 / B is actually longer in time, but not yet in price, than the first wave down as 1 / A, then these waves must be of the same degree. Of that there is no doubt, and I wrote about that in yesterday's post. 

But, now we see at red ii, that the wave is not longer in time than the prior blue (ii) - as might be expected of a fourth wave - if this were a roughly equal C wave. And that is a problem. A big one. Therefore, until we know more the primary count is 1-2-3 in the downward direction. It is 'possible' a 1.618 wave will form downward, and Monday could see additional price slide. The alternate must become and remain an A-B-C count lower. Note: The degrees posted on this chart are simply for 'relative' wave counting information. Actual degree labeling is pending evaluation.

Prices are still in the channel, above, and the daily MACD is still below the zero line, and the daily Elliott Wave Oscillator does not have a divergence. The Russell 2000 has had it's 18-day SMA cross lower under the 100-day SMA in a bear cross.

On the daily chart, ES prices are still pushing down on the daily lower Bollinger Band. The NQ and ES futures have their daily slow stochastic embedded to the downside. The Russell's slow stochastic has been embedded for several days now. Crude Oil fell more than another $3 today, and that is signalling some kind of slow down in the economy, too.

The message here is that while there may be pull-backs and backing-and-filling, all it may take to send stocks sliding is a lack of buyers: a so-called buyer's strike.

So, as always, take care, be flexible and be patient.

Have a good start to your evening and to your weekend.

TraderJoe

Perhaps Degree Can Help Again

Today, the Russell 2000 made a new lower daily low, while the S&P500 and Dow did not. Here is a four hourly chart of the Russell because it can help answer some questions.

Russell 2000 Futures (RTY) - 4 HR - Potential b Wave or Diagonal

There is no doubting that the Russell has made a diagonally shaped wedge (bullish falling wedge?) as of the end of the day. In doing so, the wedge counts best as all-three-wave sequences. And this wedge is shorter using the measuring ruler than the first wave 1, down. So, while this wave could qualify as a newer sub-wave i of a larger trend based on price, alone, it can not do so based on time. The wave takes longer in time than wave 1, therefore. Interestingly, based on time, it may also not count as a b wave - precisely because as a lower degree b wave can not take more time than the first wave.

Therefore, the only way to count this wave and maintain adherence to degree requirements is this way.

Russell 2000 Futures (RTY) - 4 HR - Waves Must Be of the 'Same' Degree

Think on the implications of this and we'll try to work more on the other indexes. This is just the first one that made sense. These first three waves (a)-(b)-(c) may be the start of a larger diagonal. We'll have to see.

Have a good start to your evening.
TraderJoe

Care Still Needed

The Dow and the S&P did gap downward today, and continued lower. Yesterday, we showed this potential head and shoulders topping pattern. It is possible to consider this pattern as 'activated' since prices filled the gap shown by the black circle on the left, and then only returned to the underside of the neck line.

DJIA Cash Index - Daily - Lower Low Day

But, since the ES daily index stopped right on its lower daily Bollinger Band, with the daily slow stochastic in oversold territory, and our measurement showed today's price decline stopped at a 1.382 times the May 16th up wave, it is also possible to consider this more extended version as an 'almost equal'  alternate.

DJIA Cash Index - Daily - Expanded Flat Potential

Counting the internals of the down wave since May 16th provides little in the way of confidence in which form it will be. So, care is still needed, as is paying close attention to the overnight futures.

Have a very good start to your evening.

TraderJoe

Care Needed

Although this still may be holiday-light trading, care is needed because the S&P500 did something a little unexpected today. The Dow did not. First, here is the Dow on the half-hourly chart. The second wave, 2, did indeed take a little more time - as we posited on the S&P chart.

DJIA Cash Index - 30 Minutes - Expanding Diagonal and Wave 2?

The Dow - as can plainly be seen had an exact 62% retrace of its expanding diagonal with a higher high (C) wave today. Its (B) wave counts like a triangle. The S&P500 did not make the higher high. That being the case, it is possible to see the S&P as having failed again at today's high. This is not necessarily good news for the market. Now let's look at the Dow's daily chart.

DJIA Cash Index - Daily - Head & Shoulders

To be clear, I rarely call head and shoulders patterns. But I also don't call inverse head-and-shoulders patterns like many were doing at the recent failed breakout above the high. The issue is I'm thinking if we break the daily lows, above, a lot of technicians will begin calling this pattern.

It bears watching - and there are other ways it can develop, such as a larger right shoulder. So real care is needed, and so is attention to the overnight futures for a few days.

Since the Dow never made the higher all time high - just as I expected - it may be that the Dow is providing the clearer Elliott Wave count. Perhaps the Dow is more trade-war dependent and the variety of stocks in the S&P500 is simply causing that index to be harder to count.

Have a great start to the week.

TraderJoe

Have A Super Weekend

Very short post for you today. Try to observe the parallel structures, and the time sequences. It is just about as long from (i) to b, down, as it is in the entire down wave to (i).

S&P500 Cash - 15 Minutes - Likely Count

Also, try to observe the patterns of alternation shown in the cash market. These are really quite helpful in deciding the count. The downward count in the futures market is slightly different to (i).

As noted yesterday, the flat wave in the S&P500 cash index prevents the count of a downward diagonal, or its cousin, the triple zigzag in that index.

Within the double zigzag downward to b wave .y = .w almost to the pip. Notice, too, that the last wave iv was at the same location as the prior wave .iv to a very close approximation.

Have a great weekend.

TraderJoe

DJIA has the pristine count

The count below on the Dow Jones Industrial Average, 15-minute chart, is very clear in form and structure. The problem is it has two interpretations.

DJIA Cash Index - 15 Minutes - Expanding Diagonal or Triple Zigzag

Notice how - as an expanding diagonal - each of the waves is longer in price and time than the prior wave. Wave (v) is longer than (iii) which is longer than wave (i), and wave (iv) is longer in time than wave (ii), and overlaps wave (i) without traveling beyond the end of wave (ii). Notice also, that each wave is a zigzag, and how exceptionally deep the retracements are. This is probably where the authors of some books get the deep retracement look to diagonals. Sometimes and in some indexes it definitely does occur.

So far, all well and good. Then notice the classic signature of the expanding diagonal on the Elliott Wave Oscillator below the pattern. Notice how wave (v) is deeper than wave (iii), which is deeper than wave (i), and further how wave (iv) is higher than wave (ii) and does not form a divergence. This EWO signature is one of many to commit to memory. But it helps!

So, here's the problem. Because, by definition, the expanding diagonal has three downward zigzags in it, it can not be ruled out from the simple three zigzag pattern. Duh. It is one of the patterns which is its own alternate. The only way we will tell is if the high or the low is exceeded.

The reason I showed you side-by-side the count of the S&P versus Dow yesterday, is the the S&P would somehow have to be counted differently. By the rules the flat wave shown yesterday in the S&P could only be a "b" wave structure and not a fourth wave. But ...

During the comments in the previous post we noted that the S&P500 did, indeed, travel to 90% the length of it's May 13th down wave. This (and a three zigzag pattern instead of a diagonal) makes a potential flat wave possible in the S&P500, if the market needs to spend more time in a second wave. That is absolutely not a requirement, but it often happens. The Dow, it turns out, at this level, did not make the 90% mark. So now we have a "split decision". If the Dow makes a higher high than the origin of the above diagonal, it might have to be counted as w-x-y instead of as a simpler a-b-c, with x as this downward triple zigzag. Time will tell.

The bottom line is while the prior prediction of taking out the low of S&P 2,832 came to pass (in a hurry!), it can not be definitely stated whether the upward correction is over or not. The Russell 2000 is at the 138% mark to the down side of it's prior three up waves. So, it may try to make an expanded flat. And, the long holiday is upon us which means the futures can travel lots of places in the light volume.

Tuesday's cash open gap, and whether than gap fills or not, will therefore help set the direction. This is one of those times  to enjoy the time off and let the market provide a clue.

Have a great start to the holiday weekend, and keep one eye tuned to see if any important news should occur.

TraderJoe

Truncation Lives Another Day

Overnight, the futures were lower. They never made a higher high than yesterday during the session today. And so the potential truncation we discussed yesterday lived on to tell its story another day. The updated chart is below.

S&P500 and DJIA Cash Indexes - 15 Minutes - Truncation and Failure?

It was pretty clear to me from the overnight action, that the S&P500 futures (ES) had made a leading expanding diagonal lower - charts of which were posted in yesterday's comments. That wave is labeled as blue i, downward, in the chart above. Then, in whippy pre-holiday action the market spent the rest of the day in correction. The opening gap was filled. Lower lows were made, and then there were five waves up on the report of the FED meeting minutes.

So, the truncation held, but so did the .a wave wave of the correction, potentially making .c of a second wave ii. That means cash S&P might have both a truncation and a failure to deal with. And this is after making only "three-waves-up" in the flat correction, so far. If so, it speaks pretty clearly that there should be additional down side price movement to come. We'll have to see for sure, but at the end of the day there were some pretty serious price overlaps on the part of both the S&P and the Dow.

This would suggest that the 2,832 level - at least - on the S&P500 should be exceeded lower in the coming days.

Have a good start to the evening, and a good start to the long weekend - if you have already started a vacation.
TraderJoe