Most Wedges

Most wedges - so the theory goes - break around the 80% mark if they are going to break. Applying this rule-of-thumb to the SPY daily closing chart, shows that this closing price wedge may have broken around that level.

SPY Cash - Daily Close - Wedge

To apply this rule, you extend the proposed wedge trend lines to the apex and use a Gann Box to subdivide the linear length of the wave. The red up arrow shows where the 80% mark is located. While this chart doesn't prove anything, the closing back-test of the wedge is certainly interesting. The reason that nothing yet is proven is that while there are lower closing highs, there are not lower closing lows. There certainly could be, but we remain flexible, calm and patient.

The Elliott Wave count remains highly uncertain at this point. IFF (if and only if) there are lower lows the February high can be Minor A, minute ⓑ of a large, expanded flat, or minute ⓓ of an expanding triangle as we have discussed on this blog earlier. The answer to that puzzle will likely depend on the extent and internal count of any potential downward movement.

And IFF there is a downward count started then it might be starting like the following, meaning it would be great if it started with an impulse wave per this hourly chart on the SPY cash index.

SPY Cash - Hourly Close - Impulse Started?

The current wave count down is highly dependent on the Monday trading hours, which could be a mix of war news and the regular monthly passive inflows impact on the market. For example, it could be there is a complex wave ②, up, which is building or in place. So, we need to see what things looks like when the cash market opens.

Until then, have an excellent rest of the weekend,

TraderJoe

New Fractal Break Needed

A lot of words could be expended, but - at present - the reality of the situation on the ES daily futures is that a new fractal break is needed.

ES Futures - Daily - Compressing

Right now, the pattern is compressing. It could break up as a triangle, or it could break down as a diagonal.

We're just giving things lots & lots of time to play out. So, calm, caution and flexibility remain the operative themes until the market gets more directional.

Have an excellent rest of the evening,

TraderJoe

Three-Wave Sequences

Tonight's market has a small gap down (shown as a red circle), which may be related to re-imposition of the 15% tariffs after the Supreme Court invalidated prior tariffs imposed. This is seen below on the ES 30-min chart, the intraday wave counting screen.

ES Futures - 30 min - Potential Diagonal

The up waves prior to the gap down count best as three-wave sequences. So, since there is a possibility of an upward contracting diagonal (either leading or ending), then the measurement on the right shown at 6,877.50 becomes important. That is because, below that level, a fourth wave of a contracting diagonal would become longer than its second wave.

Then, if a fourth wave holds, the fifth wave should not become longer than the third wave.

Let's keep an eye on the levels and remain flexible, patient, and calm until the market gets more directional.

Have an excellent rest of the evening,

TraderJoe

Some Rejection

US equity prices as measured by the ES daily futures made a higher high day today as in the chart, below. Prices got up very near to the 18-day SMA where they formed a triangle that we warned about in the comments for the prior post. The triangle was a barrier triangle and, often, these have a mediocre thrust out of them - because of the energy spent by the market to bust the barrier (or so the theory goes). This one did.

ES Futures - Daily - Some Rejection by the 18-day SMA

Regardless, prices experienced some level of rejection near that average and backed off a bit. If this up wave, so far, is a three-way sequence, it suggests placing a wave-counting-stop above today's high.  It's not that higher waves can't be made, but it would well mean there needs to be a different count applied whether it remains a three-wave sequence or somehow morphs into a five-wave-sequence.

Prices have closed below the 18-day average for four consecutive days, only meaning that the daily bias is still lower.

Have an excellent start to the evening,

TraderJoe

The Expanding Triangle Idea

Several of us on the blog have discussed the idea of the Expanding Triangle as a way both to make a wave that is deeper in price for a correction, as well as to make a wave that is long-enough in time to be a companion to the Minor A wave, up, in the diagonal Intermediate (5)th wave. The good news now is that there are enough waves to visualize this possibility, using ES daily closing prices in the chart below.

A key feature of an expanding triangle is that each wave should be longer in time as it expands in price, and so far, that criterion is working out. Second, the ⓔ wave of the triangle must do two things. It 'must' both cross the center of the triangle lower again, and it must go on to make a lower low than ⓒ - at least intraday. If the lower low is not made, it would be difficult to distinguish the pattern from a failed flat.

Typically, the waves in an expanding triangle are limited to 150% travel, by rule, which so far has held up.

The advantages to considering this pattern are that 1) it might help provide divergence with the $NYAD, the NYSE advance/decline line before a more final Minor C wave, up. 2) it might be another way to explain to explain the stuttering of prices and very hesitant price drops other than by a diagonal, 3) it might be a way to burn time before the mid-term elections. Note that many Elliott waves end with a triangle in the next-to-last position. This would be that triangle.

The disadvantage of the pattern is obviously the difficulties of trading any triangles with the abrupt starts and stops, the periods of grinding ranges, the sharp drops and the eye-opening retraces that seemingly come out of nowhere.

That said, this is still an alternate at this time. It's a very good alternate. The pattern itself is recognized both in the Prechter & Neely descriptions, although Neely refers to it as a horizontal triangle, and so it should be kept in mind as price progresses to see if the pattern is validated. In the Neely description, though, he suggests that the ⓔ wave can progress to the 1.618 or even 2.618 level. I'm not so sure where he gets the evidence for the extensions and wish he would have provided a live example, or two. I'm not sure if those come from the currency or other markets, but I don't recall seeing them recently in the equity markets.

In any event, this is the second post since Thursday. Have an excellent rest of the weekend.

TraderJoe

Something Would Need to Change - 2

Today the ES futures initially made a lower low overnight, then tried a rally when the cash market opened, but it was both overlapping and muted, not making much progress before there was another sell-off into the afternoon. The daily chart of the ES futures is below. The swing line has a lower low and a lower high.

ES Futures - Daily - Lower Low Candle

Notice that the morning low touched the lower daily Bollinger Band before bouncing away from it, and the close was still below the 18-day SMA which keeps the daily closing bias as lower. Further, the daily slow stochastic is still pointed neutral-to-lower.

The form of the candlestick today might be a "spinning bottom" meaning a doji near the low of a retrace but this implies that the high of candle needs to be exceeded before the low - and there needs to be a significant higher close - for the single candle pattern to be confirmed.

So, if there is a b wave down, it is a 78.6% wave as an expanded flat - which implies a higher all-time high is possible. The odds of higher highs are getting lower and lower, but we are within the range of the algorithm, clearly.

If there is weekend news - or something does change dramatically, the bottom could fall out in the expanding triangle - or other - pattern as we have discussed. Until then, there is a new up (green) fractal as shown.

Have an excellent start to the evening,

TraderJoe

Something Would Need to Change

In the SPY Cash 4-hr chart, below, today made a 78.6% retrace on the prior up wave. While not definitive, that is getting into the when where failure has to be considered. As the chart, shows, the region between today's low and the prior swing low at 675.79 is a significant area of risk. And the CPI report is tomorrow.

Contrary to what might be difficult to discern the close-to-open gap close on this chart is at 677.45, so this is a level worth watching.

On the daily ES chart, price closed below the 18-day SMA, so the bias switched to lower. Price also went down to the 100-day SMA, and almost made it to the lower daily Bollinger Band.

The relevant prior up (green) and down (red) fractals are shown on the ES daily chart below.

From what I can see, no major stock index has yet exceeded the down (red) fractal yet. If it does it would open the door to a topping count. But, often, the Smart Money might start backing out at the lower band. So, we have to treat this area gingerly, be patient, flexible and bide our time. 

We had cited in prior comments we were looking for an expanded flat down. That may have happened as we thought. We just need to keep our guard up for a failure at the high, too. If the down fractal should be exceeded lower, it might open the door to the expanded triangle count - or others. First things first, right?

Have an excellent start to the evening,

TraderJoe