Pre-election Rally

On the daily chart of the ES futures, yesterday we said price was in a risky area for new naked shorts based on the position of price relative to the lower daily Bollinger Band, and the daily slow stochastic being in over-sold territory. Today illustrates why that guideline exists. Whether just a 'snap-back rally' or heading toward a reversal of the daily down trend, prices headed higher and stayed there most of the day. This price action, with a higher high, also - at least temporarily - reversed the swing-line indicator to the upward direction as shown below.

Perhaps the objective is to fill the yawning cash gap left on the SPY index, or perhaps it is to fill the overnight futures gap shown above as the red circle. In either case, price has overlapped upward (overlap warning L#1). And what remains to be seen is whether the two up (green) fractals at the high hold or break. As of this time price has not yet recaptured the 18-day SMA on the upside (see yesterday's chart).

If both of the up (green) fractals break it will end the down trend temporarily. Based on the length of time of the 3rd wave to the September high, we said this wave down could be the 'c' wave of a Flat and showed the possibility of red wave 4 at a non-overlapping location.

One of the difficulties of counting Elliott Waves is one often has to wait for a wave that does not go over a local high, and then wait for a wave that breaks a recent low. This is all part of The Fourth Wave Conundrum that happens at every degree of trend.

Let's see what information the election results and the FED meeting, reported on Thursday this week instead of Wednesday, delayed because of the election, provide.

Have an excellent rest of the evening,

TraderJoe

ES Futures LL, LH, LC

Today was a lower low, lower high and lower close making a swing-line down trend continuation for the time being, as per the ES futures daily chart, below.

ES Futures - Daily - LL LH LC

Today was also the third consecutive daily close below the lower Bollinger Band. This does tend to lower the odds to about 2-4% of the next close being below the band (not impossible - just lower odds).

Price is currently pushing the lower band down which might start or continue a more impulsive movement. And if this occurs the next target would be the combination of the roll-over contract gap and the 100-day MA (green crosses) which are in nearby locations.

Typically, with price along the lower band, it will either break down decisively, ride the band lower for several days or quickly decide to reverse to back inside the band. With such uncertainty of being under the band typically only 5% of the time, it is no wonder that the Smart Money often takes at least some profits here on their short positions from under the 18-day MA (red line), even if they decide to let some ride. 

But make no mistake, there is nothing bullish on the chart until/unless price closes back above the 18-day MA again. Taking profits is not the same as going long for the large sums involved in Smart Money positions.

The daily slow stochastic is over-sold and so it is a warning to the retail not to initiate naked new shorts here. If the daily slow stochastic is to embed it might start with a breakdown bar, but that - and its follow though bar - are not in evidence yet. This is not trading or investment advice. It is just a different way of saying what broker Ira Epstein says as follows: "Would I ever tell a client to put on a new short under a daily Bollinger Band? The answer is a plain, 'No. Not ever'."

You may have also noticed that some futures brokers are tightening up margin requirements ahead of the election and possibly the FED meeting. This is also likely thinning out volume a bit.

Have an excellent start to the evening,

TraderJoe

The Dow is the one to worry about

From a wave-counting perspective, the Dow is the one showing the most stretched wave count, and it is the one to worry about going forward. Still within the context of an Intermediate wave (3), the count for an overall contracting diagonal is just about as full as it can get. Let's go over some reasons why below the weekly chart that follows of the Dow (YM) futures.

First of all, we said that if wave W wasn't divided into two waves, ⓐ and ⓒ, then current wave X (or alternative wave 2) would be longer in time than the prior higher degree wave in the same direction - Intermediate wave (2). This would seem to be a violation of degree definitions.

Second, within Y, minute ⓐ is equal to the minute ⓐ within W. And, still within Y, minute ⓒ equals its minute ⓐ at present.

Third, Minor Y is longer in time than Minor W. So, either the two waves are of the same degree or Y is one degree higher. Right now, I contend they are of the same degree.

Fourth, Minor Y is within 1.618 times Minor W. This is really up against the limits of a double zigzag in terms of price length.

And Fibonacci Fifth, the alternation pattern within the corrective sequence would be ⓒ of Y is an expanding diagonal whereas ⓒ of W is a contracting diagonal.

Yes, this is a bit of a bizarre pattern, but - make no mistake - it represents continued fiscal and monetary expansion pushing asset prices higher and higher.

Price has currently returned to the parallel shown. It is possible we can construct one bounce higher towards 44,000, but the risks are considerably more in relying on that than the reverse - that the current expanding diagonal higher will be retraced in less time than the diagonal took to form. And should price return to trading inside of the parallel, it will tend to indicate that the up move is expiring.

Have an excellent rest of the weekend.

TraderJoe

Lower Low Day

Unless you checked really closely you might not recognize that today in the daily ES futures was actually a lower low day. This keeps the swingline headed in the downward direction for the present.

Today's close was also lower than the lower daily Bollinger Band, making two consecutive days in a row and lowering the odds of the next close below the band to about 3 - 5%. The daily slow stochastic is in over-sold territory currently. However, not too much is impossible with prices and it they do decide to give way, lower, the next interim targets are the futures roll-over gap on 16 Sep and the 100-SMA which are just about at the same location.

We'll have more on the Elliott Wave count on the weekend. For now, have an excellent start to your evening.

TraderJoe

Lower BB Target Met

Earlier today we wrote that the first target of the lower daily Bollinger Band was met this morning and that there were lower targets, as well. Price did pretty well bust the 78.6% retracement level for a potential triangle, but a triangle can't be ruled out definitively just yet. Price did come quite close to the second target of the 08 Oct lows.

It looks like the EWO/AO is trying to make a fourth wave signature (or worse), lower. This is possible still maybe as a Flat wave (or 'just barely' as a triangle until we can rule it out). The approximate equal odds alternate is that we have topped in the wedge-shaped 5 count shown previously.

The Fibonacci ruler is shown, and anything below the 38.2% retrace also would rule out the triangle. Also, the overlap warning is showing overlap of the first up wave in the sequence. So, exceeding that lower would be highly suspect. Interesting the futures roll-over gap is right at that 50% retrace level, too.

Let's see how the night goes with AMZN and APPL earnings after the bell. 

Have a good start to the evening,

TraderJoe

Nothing in Stone - 3

The ES daily futures today had their first close in a while below the 18-day SMA, closing at 5852 vs 5,857. This changes the closing bias to lower. It ups the odds that price is making a triangle, a flat, or something more lower. Note, the daily chart automatically adjusts for the 4 PM settlement, and not the trading close. More on this below the chart.

Meanwhile, the ES 30-min intraday wave-counting-screen analog below shows that price was hugging the lower intraday Bollinger Band in the late afternoon. The result so far being that neither GOOG, MSFT or META earnings really jacked up prices today except for a few hours.

Also notice late in the day price closed the trading session at 5,845, below where the official settle is shown. Price closed at the S1 daily pivot slightly below the lower band, and there was a cross of the 18-period SMA under the 100-period on this time scale.

We suggested one intraday count on cash in the comments for the prior post, and it may be a part analog of what this structure may be morphing in to. More bars are needed to see if a complete structure forms.

Have an excellent start to the evening,

TraderJoe

Nothing in Stone - 2

The ES futures had an inside day up, on a gap, with a higher close than Friday, but closing below the high to possibly make a Doji candle. The Doji would require a confirming candle lower, even for the c wave of a potential triangle or Flat.

ES Futures - Daily - Inside Day Up

There were no intraday counts from me today because there were no contributions from others. I'm perfectly happy just trading my own account. 

Have an excellent start to the evening,

TraderJoe