Threatening - But Not Yet Imminent

When looking over the Dow daily chart, there are several examples seen in the prior high on Jul 6th where one can potentially count a diagonal. However, none of those diagonals came to pass - they were not fully retraced in less 'time' than the diagonal took to form - and, in fact, there has been a higher high since. This usually happens when the potential diagonal is part of a sickening "b" wave upward. Regardless, we now know they were not diagonals. So what does this mean? Well, I think it helps to back off and look at the Dow futures daily chart, as below.

Dow Futures (YM) - Daily Close - Parallel

As the chart shows, the wave up from the April 2025 low parallels extremely well. This is supposed to mean the move is corrective, unless the price gets substantially over the upper parallel. As of this time price has not even reached the parallel. And, as the saying goes from the Elliott Wave Principle by Frost & Prechter, "A line drawn from the start of A to the end of B, with a parallel copy placed on the end of the A wave often shows the end of the C wave."

Now clearly that does not work every time. That is, in part, what the Kennedy Channeling Technique (KCT) is about: when a wave bursts through that upper parallel, that is when a third wave can often be identified.

But, here again, this is only a tendency of the KCT, too, because sometimes a C wave is 1.27 x A, or even 1.618 x A, depending on the circumstances, and then prices peek up out of the channel and then revert.

Nothing works all the time, and again, this is almost always a situation with odds. Last night I was playing tile rummy, and the first thing you do is draw tiles numbered with integers from a pool of 100 tiles. You draw twelve tiles. So, that means roughly from the pool of integers, one should expect six even and six odd tiles from a well-mixed set of tiles - which they were. What did I draw? Fully 11 odd tiles and only 1 even tile! Can you imagine the odds of that? Yet, the low odds event did occur - sure as I'm writing this.

So, even though the Dow looks like it might want to lead down first after some further potential upside - just like it did in 2000 - that does not mean it's a 'lock'. As of yet, the only alternation in the chart above can be stated as "long A, short C". One might have hoped for "Impulse A, and Diagonal C", but that is not on the board yet. It could be. So, I retain that option if things drag on & on.

In the meanwhile, just like a view of the weather radar, one has to say the potential severe storm that is several states away is "threatening, but not yet imminent". It could get rough, soon. So far, it hasn't.

Have an excellent rest of the weekend.

TraderJoe

CoD

This is a Friday morning Chart-of-the-Day (CoD), the SPX500 (CFD) 30-min intraday wave counting screen (IWCS). After a pop up on the dismal Payroll Report, with traders hoping for a rate cut, the up wave could not sustain the fourth wave of an impulse and instead lost the embedded reading of the intraday slow stochastic (black circle).

SPX500 (CFD) - 30 min - IWCS

When that occurred, price returned to the intraday 18-SMA and also overlapped the prior wave downward, with a longer wave in price than the prior down wave. Since then, price has popped again in whippy volatile trade. This seems to suggest that price will either make a triangle or a fifth wave expanding diagonal upward.

Comments for this blog remain on moderation. Have an excellent rest of the day.

TraderJoe

Based on the Wave Sizes Alone (i.e. Degree Labeling)

I wasn't a big fan of the triangle sketched out earlier in the comments for the prior posts. So, after the heat of the battle, I took a step back to weekly chart, and the following count occurs to me that it can not be ruled out.

SPX500 (CFD) - Weekly Close - Looking for Minor C

Based only on the sizes of the A and B waves, that is, based on degree labeling alone - it can not be ruled out that Minor wave C will be a contracting ending diagonal. We all know the (b) wave went essentially nowhere and had different forms in different markets. This might be a reason why.

Price is making higher highs which is also a potential sign of a diagonal or something larger upward. If this is what should wind up occurring, it would also be one of the trickiest waves of a lifetime. I will also offer the caution that this is still hypothetical and very risky.

Have an excellent start to the evening,

TraderJoe

The Ups & Downs = Be Flexible

Here are two scenarios for the current wave movement. The upward chart is first. Triangles are a pretty 'typical' pattern and often happen before the ending sequence of a wave. As such, it has slightly better odds than the downward pattern.

The purpose of the above the triangle is to still better equalize the wave travel downward between wave (e) of the potential triangle and the second wave circle-ii, minute-ii. The Elliott Wave Oscillator (EWO) is still in range for a fourth wave.

The second scenario is high risk & lower odds. It is that a downward diagonal has started without a really large downward reversal candle. With the three-waves down that we analyzed in the prior post, the down movement would likely have to be a diagonal, and it has a pretty strict invalidation limit.

It merely assumes that the triangle has already occurred as there IS a potential wave four and weak wave five signature on the EWO. The triangle is also a bit skewed and that increases the low odds of the pattern. But, it is what it is. Lower odds, but possible. One thing to like about the second pattern is that the equalization between minute-ii, circle-ii & minute-iv, circle-iv is that the equalization has already occurred.

So, just be careful, flexible & patient until something begins to take over the count. 

Have an excellent start to the day.

TraderJoe

The 'Exact' Number - 2

As readers of this blog know, the 18-day simple moving average (SMA) is something of a demarcation, a "line in the sand" between a daily closing positive bias and a daily closing negative bias. On Thursday and Friday the ES futures played around on both sides of that line, with Friday (in the extended hours) closing below it, or in the regular settlement, probably just about on it. But the ES 4-hr chart does have another exact point of division between two counts, as shown in the chart, below.

ES Futures - 4 Hr - Location of Expanding Diagonal Invalidation

That point is 7,563.50 and above it an expanding diagonal lower would be ruled out. Should it not be ruled out, and the expanding diagonal continue lower, then that would put a truncated top on July 15th, with the expanding diagonal lower as the first wave in a lower sequence. 

However, if the 7,563.50 point is taken out, higher, then The Principle of Equivalence, says "consider other options", and one such option is shown below. That being the case, we need to ask, "do we know literally anything about this wave sequence, or is it all guesswork?"

Well, were are as certain as one can be that there was an overlapping expanding diagonal downward that completed on Thursday, as shown in the chart below, numbered ➀ - ➄ from what is shown as wave b to c. And that small degree expanding diagonal lower was already exceeded higher in less time than it took to form - a true diagonal.

That would leave a very large running triangle as the middle structure, and cause the whole count to be a-b-c, down. And such a structure could still be a leg of a triangle that is eventually still pointing upward - as a larger (c) wave down. That is because, if the prior wave, the (b), up, of the triangle was the complex leg, then this leg down should be a simple zigzag - which it clearly can be formulated to be, even if it is ugly.

This is part of the essence of The Principle of Equivalence. A portion of it alludes to being very careful when only 'three-wave' sequences are involved. It helps stems the "fight or flight" instincts we are all prone to and urges some degree of caution, patience and flexibility until the wave count clears.

And, when you have a single point of departure between two counts, that patient wait becomes a bit more tolerable. Yes, the market knows you just want to make a profit. The ambiguity in the counts is one of the market's very survival mechanisms so that it can't be clearly read and it avoids having all traders on the same side of the trades.

IF we get only an a-b-c, down, is that necessarily the end of the down move? No. But it would likely mean that any further down move is happening by a larger diagonal. And, if the market hasn't been brutal enough, already, I don't personally relish even larger sized whippy waves, especially in three-wave sequences.

Well, it's simple. That's a large extent of what we have available now. There is some significant probability Monday will be an up day due to "the first-of-the-month-money", but I have seen it fail on rare occasion. So, unless you have some much better market metrics, you might want to wait just a bit to see what the next few days bring and/or tread ultra-lightly to see what the market might be saying.

Have an excellent rest of the weekend,

TraderJoe

Back-test of Line in the the Sand

In the SPX500 (CFD) Daily the up movement overnight and this morning is back-testing the 18-day SMA or "the line in the sand", as in the chart below.

Locally, the swing line could turn up, but needs a close above the 18-day SMA. The daily slow stochastic is curling up. One might watch the local fractals for clues. There are still both up counts and down counts. 

Have an excellent start to the day,

TraderJoe

Good Brakes

Yesterday, we pointed out three options for local price movement. The NQ futures made a new daily low today. The ES futures did not. I don't know if you had the money to stop the ES futures from declining through the lows today, but somebody did. Twice! The exceptional number of double-bottoms is getting very suspicious. The ES/SPY (CFD) 1-hr chart is below.

SPX500 (CFD) - 1 Hr - Double-Bottom?

With the higher local high around noon there is now the possibility, not the certainty, of sub-waves ① and ② of a third wave, iii, upward, as these waves are currently shorter in price & time than the larger degree waves i and ii, the prior higher degree waves in the same directions.

There is nothing definitive that rules out further down movement at this point, and it is still possible that the (e) wave could be a triangle itself.

Have an excellent start to the evening,

TraderJoe