How Degree Labeling Helped with a Real-time Call

Some people are perplexed by degree labeling. Here is how degree labeling helped make a real time judgement call today. If you look at the longest & strongest wave down from this morning's high, one is very, very tempted to call that a third wave. Here is the ES 5-min chart.

The problem was this: today there was no way to count off the top as a diagonal because there were flat waves for the numbered waves which is not allowed. Further, in the wave sequence for wave three, the first sub-wave would have been larger than the original first wave down. This seems to violate degree definitions. Let me illustrate.

Notice how wave ① would have been longer in price than the higher degree wave i which would violate the definition of degree. No, the above chart is incorrect! This is the way the count was resolved - again in real time.

The above chart is correct. It is what allowed me to suggest that the fourth wave location at 38-50% of the incorrect wave three might bust.

Look it over. It's the extended fifth wave count.

Have a good start to the evening and the weekend.

TraderJoe

Sketchpad Exercise

The ES 4-hr chart in this sketch has about 120 candles on it. The count could work for cash and for the lead month contract (Dec futures only, not the roll-over).

Between yesterday and today there were only three-waves-up as we showed. We don't know upward movement has ended, but we did get downward overlaps today as per the comments in the prior post.

In this count, an alternating wave 4 might prove to be a flat or an expanded flat wave. Wave iii of 3 occurs on the trough of the Elliott Wave Oscillator (EWO) as per The Eight-Fold-Path Methodology and wave v of 3 occurs on the divergence. It looks like the EWO is making a bee-line for the -10% to +40% area of the indicator panel. A retrace for wave 4 beyond 50% would be suspect.

Remember, the daily slow stochastic is still embedded and the daily bias remains lower.

Have an excellent start to the evening,

TraderJoe

Odds About 40:60 Higher v Lower

Right now, it is a fairly even situation. The Principle of Equivalence tells us to be patient, calm and flexible until 1,2,3 is proven to be A,B,C. What makes the odds so split can be shown in the daily four-block of the US equity markets, below.

As you can see, the Dow (upper left) and Russell (upper right) have already overlapped their first waves up. They are the weakest. However, the NQ 100 (lower left) and the ES futures (lower right) have not done so. It's a pretty split call but the Dow and Russell are disqualified from a further impulse upward.

Meanwhile, back on the weekly chart - as a reminder - the alternate count is shown in red, below, on the close-only chart of the ES futures.

The alternate is still alive in the ES. If the down wave ended in this neighborhood (200-day SMA), then a fourth wave, 4, would have alternation with a second wave, 2. The fourth wave has reached 38.2% retrace in 120 weekly candles. It could go lower.

Some factors that make this the alternate are 1) the up wave, 3, did not make it to a 1.618 extension. Not fatal, but of note; 2) the daily bias is still lower with an embedded daily slow stochastic; 3) prices are still in a down channel and would not really alter the count unless they closed up over the red ⓑ wave shown.

Since we are talking about a marketplace in which we are the small unknowledgeable players, I suppose a lot of the waves from here will be made by the Smart Money and the machines, particularly with the law makers as insiders on how they see the government funding bill going. They will probably broadcast their intentions only to other large money players when it suits them.

Other items that remain conspicuous in their absence are 1) the lack of a well-defined triangle before a market high, and 2) the lack of an ending diagonal sequence in anything but the DJIA to end the prior wave, and 3) the lack of an ending diagonal at Primary, Cycle or SuperCycle level to end a larger fifth wave. There is a way one could be made but price has to defeat that red ⓑ wave, higher, first.

Have an excellent start to the evening.

TraderJoe

Down to Lower Parallel

The ES 4-Hr chart shows a wave that is down to its lower parallel. As shown, the second down wave c / -i is shorter in price and time than the first down wave. Thus, it may be counted as a subwave lower as well as a completed c wave.

Again, we are showing the count this way because the roll-over contract can not be counted any other way.

At the end of the day the daily futures again closed below the daily Bollinger Band. This is where many traders get most bearish, but to paraphrase Ira Epstein "the odds of staying outside of the band are only 5% of the time. The Smart Money - if bearish - will try to come back in at higher prices inside of the band." Readers of this blog should plot the futures as was done yesterday to verify the slow stochastic is still embedded, and Ira's calculation of the slow stochastic went embedded for the first time today. The regular calculation did so yesterday as I showed.

Some features of the ES 5-min chart, below, are these: 1) three impulsive waves lower, 2) a large triangle fourth wave lower, 3) an ending contracting diagonal fifth wave lower. And this was followed by..

... an expanding diagonal wave higher. One should watch this formation carefully to see if the low holds, and/or if it morphs into an impulse higher.

Readers of this blog who are newer to Elliott Wave analysis should study the above chart, particularly to observe the alternation and styles in the downward wave. It was precisely the presence of the contracting diagonal lower at 15:20 that prompted me to reiterate Ira's warning about selling "new" outside of the lower band at exactly that time.

These things are possible when Elliott Wave is studied in detail. Have an excellent start to the evening.

TraderJoe

Lower Low Day & Turn-about

Overnight and into the early morning, the ES futures made a lower daily low. Prices then swung around with five-waves-up, and then a drop, and then another higher high.

ES Futures - Daily - Lower low & embedded

The turn-about after the lower low can be part of a fourth wave. More importantly, price is still sticking to the lower daily Bollinger Band on the way down, and today - as of the cash close - the regular calculation of the daily slow stochastic has embedded. If Ira Epstein is correct - that the embedded stochastic is the strongest signal in technical analysis - then under certain circumstances the Smart Money may be willing to sell rallies.

As you can see from the Fibonacci ruler, price has not quite gotten down to equality with the prior down wave yet.

I'm still waiting to see if the hourly SPY makes a solid fourth wave up, and then a lower fifth wave down. So far, today may have started that fourth wave higher.

Have a good start to the evening,

TraderJoe

Rollover Vs Dec Contract Only

The December ES futures contract must be where it is, regardless. But how things got here are interesting. Here is a side-by-side comparison of the roll-over contract versus December only.

ES Futures - 4 Hr - Rolled Over Versus Single Month Contract

The price differences were wild.

Have an excellent rest of the weekend.

TraderJoe

"Nothing Bullish on the Current Chart"

Over the last several days, we have been writing about how the ES futures had a downside bias because prices were closing below the 18-day SMA. The same occurred today. The daily bias remains lower. But then, too, today, prices closed in the lower quartile of their daily bar for the second day in a row. Ira often defines this as a downside breakout. Further, prices are pushing the lower daily Bollinger Band downward and outward. As we discussed yesterday and, in the comments, price has also broken both of the prior daily down (red) fractals, lower. In short, there are lower lows and lower highs.

This is all to say, "there is nothing bullish on the current chart". So, now, in recognition of the break of the prior lows, we can assign labels to the 18 Aug low and the 01 Sep high. But, because price has not broken the upward channel yet (see chart at this LINK), then we must maintain our objectivity and assign completely equivalent labels. This is just in recognition that a fourth wave could form at the lower channel boundary as a a-b-c wave down. These labels are to be read identically. That is, "It is the same as "a", as it is as "i" at the low, and it is the same as "b" as it is as "ii" at the high.

As price begins to move through equality below the 4,310 level, then we may gain a preference for one over the other. But not just yet. And one shouldn't care. If price moves lower, it moves lower. It could move through equality to 1.618 or 2.168. The count will become more apparent.

Right now, our job is just to try to utilize the downtrend, given the inevitable bounces.

Have a good start to the evening.

TraderJoe