Wedging, Overlaping and Diverging - Either Way

Here is the daily chart of the cash S&P500 index. As we noted yesterday, a top 'could' have been in place with yesterday's waves. We'd like to better define that.

S&P500 Cash Index - Daily - Overlapping, Diverging and Wedging

We have been noting for weeks the difficulty in counting the up wave as an impulse (because any number of 0 - 2 trend lines have been broken).  We have also been noting the divergence with the new price highs and the daily Fisher Transform Oscillator shown on this chart.

Right now, the cash index, while closing on the low of the day, also closed exactly on the lower wedge trend line you see drawn in here. Today was a rather large red down candle, one of the largest if not the largest of any down candle since the December 24th rise began. But, what we'd like to point out is that IF the 2,765 level is exceeded lower, the Fibonacci ruler shown indicates that the degree of the waves would likely have to change from up to down. Barring that, there is one last chance for a new high - but I'm not holding my breath. And, such a new high could be a failure high or a truncation high, as well.

Caution is the by-word. There was one way to count five-waves down to a new low today, so that must be respected.

Let's see how it goes and take it step-by-step.

Have a good start to the weekend.
TraderJoe

S&P new top; Dow not

Today, as the banks and 'smart money' decided what they wanted to do in relationship to the FED's newest and greatest "easy money" policy, the S&P500 cash index "went over the top" of the prior hourly high. The Dow Jones Industrial Average has not yet, but it could. Towards the end of the session the cash markets backed off ever-so-slightly, allowing the continued drawing of a potential wedge-shaped pattern, as below, which might still be incomplete.

S&P500 Cash Index - Hourly - Potential Diagonal

There is one way to consider the pattern as completed, by including the March 4th high as wave (i). But, the trend lines on that pattern would be skewed, so, with the new higher highs today, I am making a conscious decision to publish the longest pattern in time (knowing full-well it 'might' break down early).

Something else has been added to this diagram. For wave (iii), I think you can see that it is true that it is currently entirely above a line from ((B)) to (ii). But, notice within each of the sub-waves of (i) that you can see that each of the third waves ((3)) are above a line from their respective origins to the respective second waves ((2)). And, the same is even true within wave ((1)) as well, in regards to wave (3).

Hopefully, this helps you in the wave identification process. 

Also, we must note that yesterday's tentative confirmation of the spinning top - as a high - was invalidated in this index, today. I had called it tentative, because even though technically correct, the point drop that resulted was quite mild.

Have a very good start to your evening,

TraderJoe

Pow-ell throws in the Tow-ell

The FOMC meeting results were announced today, and the FED announced several action steps.

There will be no more interest rate hikes this year, and they will complete the balance sheet roll-off at the end of September. Interest rates were kept the same, and the outlook for employment growth was reduced.

If you ask me, the FED is running full-on scared of a recession dead-ahead. Why else would they take such a clear reversal of policy?

The markets started out the day making a lower daily low, and popped on the FED news but did not make a new daily high. Then an intraday retracement began which darn near made 78.6%. The overnight needs to be watched closely to see whether the upward wave invalidates lower.

S&P500 Cash Index - Daily - Spinning Top Confirmed

For what it's worth, today's lower close did provide tentative confirmation of the "spinning top" candle after the Fibonacci 55 days of uptrend we pointed out yesterday. Is the entire move, upward, over? It is too early to say for sure, but the evidence is gathering. The Dow and the Russell still have not made a new high, and today the ES futures did not make a new higher high day, while the NQ futures did. The market seems to be splitting in a way that requires a great deal of attention at the moment.

All-in-all, we'd have to grade the market's reaction to the FED actions as "lack-luster" today. We will also note, this high currently has no unfilled gaps.

Have a good start to your evening.

TraderJoe

FED plays with Spinning Top

What will the FED do or decide tomorrow, at its meeting, and what will it announce in the press conference that follows it?

SP500 Cash Index - Daily - Fibonacci 55

As we had noted in comments section in prior days posts, yesterday was the Fibonacci 55th day since the up trend began. You can see this on the horizontal ruler for yourself, above. It seems fitting, then, that at least some sort of down movement occurred today. 

But, a spinning top is just that - one of several sorts of candles that could indicate a topping area. As a standalone candle it would not mean much, although downside follow through including a lower closing candle tomorrow might provide a better indication of a high in place.

As usual, the powers that be (the banks, the 'smart money') are leaving it to the day of FED meeting to make the determination on what happens from here. Do they do that because they know they can likely maneuver through the volatility better than the retail trader can?

In the Dow, today's candle created overlapping waves, and in the S&P500, it did not. Remember, the Dow has not made a new high since February as the S&P500 cash index has played power forward. Today, the Dow went back down to touch it's 18-day simple moving average (SMA), or it's line in the sand before price rebounded off of it.

This is a good time to start watching the slow stochastics on the daily ES, as well as overlaps on first waves. A price overlap on 2,825 would likely be of some significance.

Have a good start to the evening,

TraderJoe

One Pattern Reasonably Clear

This thirty-minute pattern on the Dow is reasonably clear. But, unfortunately, it too, provides a slippery alternate.

DJIA Cash Index - Half Hour - Reasonable Counts

Because the (A) wave of the triangle starts with a flat, the triangle can also be interpreted as w-x-triangle y. So, the alternate ((1)), ((2)) count is in blue.

Yesterday, I had called out the possibility of a potential diagonal wave,  but I had said that there was a FLAT wave in the making, so it might not be over with. This morning, due to lengths, and with alternation an impulse can now be counted.

S&P500 Cash Index - Half Hour - No Overlap Impulse

Wave ((4)) does not overlap wave ((1)) in the above chart.

TraderJoe

P.S. Because of downward overlap, the Dow's current ((C)) = ((A)) count could be complete with as close a Fibonacci as you will see.

DJIA Cash - Half Hour - ((C)) = ((A))

It would be another one of those "short fours" for alternation, and a break of the channel on an hourly basis should provide increased confirmation.

The SAME Three Waves Down

I have written about this before in the early days of the blog, and during the days when I was making YouTube videos. I am writing this post to re-emphasize the point and introduce some who may not have seen the earlier information. I specifically coined the term, "The Fourth Wave Conundrum" to recognize that when a down movement starts with only three-waves-down, then the number of Elliott wave possibilities explode (to thirteen or more).

During this time, people get "testy" with each other. You will recognize people who just "want to know when this up movement is over, and when the big down waves will begin". Everybody wants to "know what the count is." They don't care how to analyze the waves, they only know they are getting whipped around and their account may be getting trashed. So, they don't care about anything else except who is right, and who's count is going to make the agony end by price starting to trend again.

For that reason I show this schematic. It shows the very same three waves down in red, as they start only several of the possible patterns which can be part of a larger degree fourth wave. Assume the three red waves are from the October, 2018, all time high.

The Same Three Waves Start Multiple Elliott Wave Patterns

By now, if you have followed my work, you know that each of these patterns is possible from the start of three waves lower. So are the expanded flat, a truncated flat, an extended flat, a FLAT-X-Triangle, a FLAT-X-Zigzag, and, yes, even just a simple impulse up to new highs.

Your chances of determining the correct pattern by random chance are about 1 in 13, or less than an 8% chance. Those are not especially good odds. About the only thing I know that can 'help' in this problem is degree labeling and the break of upward sloping trend lines.

But, during this time, be especially kind to your Elliott analyst - especially if it is You! This is the true science of Elliott Wave as few others will take the time to describe to you. Do you have the patience for this? Does it help you in your trading or investing? Maybe so. Maybe not.

The market is just providing you with information. What you do with it and how you use it is totally up to you. Maybe the reason the current up wave is so hard to describe is that it's an "X" wave. They can be really tough. But so can a B:3 wave. And so can wave (ii) in a diagonal. And, clearly there are other possibilities.

This is what the Elliott Wave Principle means by (paraphrase) "sometimes the analyst just has to let the situation clear up".

As of this time, we have not broken the upward sloping trend line from the December 24th low through the March 8th low in the S&P500 cash index. Maybe we will soon. That would be an event to watch for. If it doesn't break, it will tell you "something" about the count.

Have a great rest of the weekend.

TraderJoe

P.S. As I said over the weekend, we have no right to assume upward movement has ended. We just have no "proof positive". We have not broken the lower channel line in the chart below. MotiveWave has no issue with the count shown, and the alternate is shown too.

S&P500 Cash Index - 4 HR - Needs Resolution

The longest correction in time may be the ((b)) wave. A second S&P500 15-minute chart was added below.

S&P500 Cash Index - 15-Minute - Potential Diagonal

Notice the declining AO within the wave. That's a good signature for a diagonal, but it would need to prove itself. Because we have not exceeded the time of (iii), yet, then (v) could go longer as a flat b wave and c wave up to follow, but does not need to.

Out-of-Synch Time-Wise Again ?

Based on degree labeling considerations, I was wondering, perhaps, if the Dow and the S&P are just "out-of-synch" time-wise. It has happened before - maybe it's happening again. I want to preface this post by saying we do not have "proof positive" that the upward movement in equities is over. But, we do have the Dow and the Russell providing a different message than the S&P500 Cash Index. Let's assume for the moment that the upward movement is over, and the 90% level upward in equities is NOT reached, which means the waves since October 2018 would not qualify as a flat.

That would mean that the downward diagonal can be back on the table, and in that case, both the Dow and the S&P500 would be seen as zigzags, upward, since the December 24th low. So, play along for a moment. Here are the degree considerations on the Dow.

DJIA Cash Index - 4 Hr - Close Only

If we remove some of the noise from the charts by just using a line chart, then we see the DOW 'might' be able to be counted as five waves in a channel for a minuet (a) wave, followed by a break of the channel, lower, representing a minuet (b) wave, followed by a re-acceleration upward in five waves for a minuet (c) wave of Minor 2.

Now if we look at the S&P500 Cash Index in the same manner, we might find that the main difference is the nature of it's minuet (b) wave. Perhaps this wave just "takes longer" in the S&P500 than it does in the Dow.

S&P500 Cash Index - 4 Hr - Close Only

In this case, the S&P makes a (b) wave that is much more proportional in time to it's (a) wave than the Dow does. The S&P has 470 more stocks than the Dow. Perhaps that is what accounts for the difference.

Again, there is no proof, yet, that upward movement is over. But, what I am saying is that if the 90% level is not met to qualify for a true flat, then a schematic like this might explain it. Yes, the Dow and the Russell 'could' re-accelerate higher. But those are not the patterns we are not seeing yet in those indexes.

Are there aspects of this count I don't like. Yes! One would be a third wave not reaching a 1.618 extension. But, again, if this is a 'corrective sequence' then that may go a long way toward explaining it.

Have a good weekend.
TraderJoe