Fives or Not ?

Are we trying to count by fives in the upward direction or not? That is the very basis of the Elliott Wave Principle. The Eight-Fold-Path-Method tries to better quantify a chaotic and non-linear wave form by always examining the time frame that looks for between 120 - 160 candles. (If you have questions, see the post in the upper right-hand-corner of the main blog page under the Purpose and Ground Rules). This chart has been shown several times in the past. The bar count is currently up to about 153 two-weekly candles.

The chart is of the S&P500 Cash Index using just the Zigzag indicator to provide accurate wave termination points and illustrate the overall form of the wave.  The RSI indicator and the Elliott Wave Oscillator (EWO or AO) are shown and are currently diverging. The distinctive fourth wave signature can clearly be seen with the EWO briefly dipping below zero before quickly rebounding.

Although it is possible to count a top here long-time readers of this blog will understand that one objection to doing that is the NY Advance/Decline line is at an all-time high this week and last. Few, if any, true bear markets have started in this condition - with the advance broadening out and little divergence seen.

Countering this, though, is the NASDAQ Advance/Decline line which is diverging.  And, remembering that it was the "A.I. trade" that largely built this wave segment, one could wonder if just a few high-tech stocks were largely responsible for the advance, what will happen if they seriously decline? And, we're not even entirely convinced every Mag-7 stock has topped for good.

With that in mind, the Principle of Equivalence says to be patient, be calm, and be flexible as the market overlaps in this area. As the red arrow towards the end of the price series, above, indicates we could easily see a deeper drop for a B wave, before a final C wave advance that provides more in the way of divergence.

The bottom line is 1) we are attempting to count-by-fives, 2) it is possible we are topping now, but we question only how likely that is at this time, and 3) therefore no amount of downside will provide a surprise to us as the risks continue to mount and mount.

Just remember, if we are attempting to count by fives, then this up wave, when over, would be (5) of ⑤ of V of [III] with [IV], ahead, and [V] after that. If you would like to see the difference between counting by fives, and not counting by fives, you should have a look at a fairly recent free NeoWave blog post at this LINK. I have learned a lot from Glenn Neely, but it's very hard to say Elliott would agree with his counting technique.

Have an excellent rest of the weekend,

TraderJoe

Just A Couple of Notes

On the SPY Cash 4-hr chart below, it is possible that the last wave up is a truncation. That is because it 1) counts better as an upward wave, 2) it is still inside the lower trend line, and 3) it did retrace over 78% of the prior up wave. Today's wave is the one that broke the more pertinent three-touch trend line.

As you probably know, today's up movement after the open did not close the gap shown by the blue bar. So that down gap is open as is its companion up gap after the first of the year. So, too, is the gap after 17 Dec still open, and many others.

As far as a downward count, I'm just counting as a tentative a/i for the moment until there is a meaningful upward retrace, a potential lower low, and/or a more definitive channel to work with.

Have an excellent start to the evening,

TraderJoe

It's Not My Fault ...

It's theirs. In the 1990's I invented my own proprietary sentiment indicator and have religiously updated it every week for which the data was available. Luckily, the data source I used remained stable over that time, so no changes were required to the formulas or to the data sets used. Here is what the weekly data show in the chart below.

For 2026, the Weekly Bullish % now stands at 64.8% bulls, across a wide swath of investors from professionals to newsletter writers to small investors. It was not higher at any point in 2025. This level took a big 3-point jump in this past week, which is no small feat. And, in pure simple terms, investors as a collective group are now more bullish than they have been at what is labeled the "B Wave High" which is the 2007 stock market top, before the 2008-9 debacle. Can this measure go higher? It can. People can feel what they wish. And, certainly, sentiment is currently lower than the 68.9% registered at what is labeled the "Minor Wave 3 High" - just before the peak in 2018. Can sentiment go there? It can. Can it go higher than that? It can. Still, it should be clear from the data comparison that we are reaching rarefied air and that risks continue to abound.

Along with a simple percent bullishness, there used to be a sentiment indicator called The Magazine Cover Indicator, which was said to fire when a number of prominent magazines (Time, Newsweek, Barrons, etc.) featured bullish stock market stories on their covers. Of course, most of these magazines have now gone from print to on-line presence, both reducing the effectiveness of their impact and of that of the indicator. Still, we will note that the Time Magazine 2025 Person of the Year, was, of course A-I, as below on its cover.

And you know that just recently, possibly as a result, the A-I stocks (or a lot of the Mag7, anyway) have been flailing and not yet making new highs along with the rest of the market. How, could it be worse than this? 

Easy. 

Below is just a mere sampling of what you can see when you scour social media even slightly and think about what you are seeing and what they are presenting you with.

Apparently almost everyone is now a self-styled investment guru willing to teach you how make money in stocks or avoid fees, or how to live a comfortable retirement life. No problem, right? The kids in the upper left and lower left lived through major bear markets, right? Not.

So be cool. Be cautious. Be patient and be flexible. In the words of some of the old-timers on Wall Street, 'the boat is getting a little heavy on one side'. It's not my fault. It's theirs. I'm just showing some evidence. It happens almost every time. People get excited when they win or make a lot of money. And the opposite will be true at a bear market bottom.  Sentiment will decidedly go the other way - like the 25.3% bullish in the first chart which occurred at or near the "C Wave Low" of the 2009 bear market bottom.

And to be fair, there is a problem with sentiment. It often precedes a top (or a bottom). That means that even though opinions are getting stretched right now, it doesn't mean people will head for the exits tomorrow. But, like a passenger strapped in on a jet airplane, while you don't want to prematurely open the cabin door and jump, you might just want to amble around the plane a bit - like if you're surveying where the lavatories are - and at least check out how many exits there are, where they are located, and how they operate without being obvious, of course. Because nobody likes a fidgety seatmate. Right?

Tomorrow is not scheduled to be a cash stock market session as it is the MLK Holiday, although there may be some futures trading hours. Have an excellent rest of the day, weekend and holiday. 

TraderJoe

A Couple of Wedges

As we have shown over the last several days, the ES futures currently appear to be wedging in an up trend. It is difficult to say that a wedge is over until key lengths are exceeded lower.

Yesterday's break of the initial wedge line still looks like a three-wave affair. So, the lower wedge line has been redrawn. Two key lengths to watch are the lengths of the 02 Jan down leg, and the 18 Dec down leg. Only if these are exceeded might it possibly have downward implications.

GOLD (futures GC) have been wedging on the two-hour chart, and the wedge was recently broken lower. Key lengths need to be monitored here, too. A GC 2-hr chart is below.

Have an excellent start to the day.

TraderJoe

Lots of Things

A lot of things are going on the ES daily chart which are worth pointing out. The first is that the daily slow stochastic has (at least temporarily) lost its embedded status. Along with this, price has struck the 18-day SMA, as below.

ES Futures - Daily - Line in the Sand Hit

Another observation is that the swing line indicator with today's lower low has turned lower. Two items to confirm are 1) whether the close remains below the 18-day SMA, and 2) whether the daily slow stochastic remains below the 80 level or not.

A further item to note is that the daily Bollinger Bands are curling in and beginning to wrap around price.

From an Elliott Wave perspective, can the diagonal be over? Yes. But can it also form a diagonal with deeper legs - like 62% or more - as we pointed out earlier? This is also possible with currently about equal odds.

Have an excellent start to the day.

TraderJoe

A Rare Bird

The chart below, the daily chart of the ES futures (roll-over contract) shows where one old Wall $treet adage comes from. That adage is, "IF the bears have Thanksgiving... then the bulls will eat Christmas dinner." As you can see from the chart, prices declined before the typical third week in November (although Thanksgiving was a little later this year on the 27th instead of the more typical 23 - 25th). Then, they rallied into Christmas.

And prices continued on with the Santa Claus rally into the New Year. Hopefully, the turkey was not undercooked, or half-baked! Keep in mind, it is pretty rare to get an eight-month rally without so much as a 38% retracement.

But now, the Christmas ornaments (the red & green fractals) can outline some of the risks involved in this up wave. Yes, the wedge can get wedgier. But, the down (red) fractals can break, too.

Have an excellent start to the evening,

TraderJoe

The Risks are Piling Up

The OHLC version of the chart in the prior post for the weekly ES futures is below. Yes, there are ways that higher highs can be made. But the risks are piling up. Even a 38% retrace shown is almost 1,000 ES points from here. And deeper retraces are certainly possible.

Besides retrace risk, there is also the risk that the entire upward movement is over. If the up wave sequence is an A,B,C instead of the five waves shown, then there is a (likely lesser) risk that Intermediate wave (4) could be undercut.

For the short term, it is suggested to pay close attention to the 18-day SMA, and whether price closes above it or below it on a daily basis.

Have an excellent start to the evening,

TraderJoe