False Price Gap

This is the first time that I am really noticing this phenomenon, and I have never really heard of it mentioned before in the equity markets. But I have seen this phenomenon in the Gold market before, but sort of dismissed it as a quirk of the Gold settlement time being at 12:15 pm CT. But, for now, let's deal with the equity market. Below, let's look at this daily chart of the ES futures. As you can see, the latest bar shows a distinct price gap between the prior close and Friday's open. Even Friday's highest price did not close the apparent gap.

ES Futures - 1 Day - Price Gap ?

But, yet, I distinctly remembered monitoring the overnight 15-minute session and noticing no gap in the futures prices resembling the gap shown in the chart above. In fact, here is the ES 15-minute chart from Thursday into Friday.

As you can see from noon Thursday afternoon into Friday morning there is a continuous stream of prices lower - with no gaps. What is creating this 'false gap' is merely the time chosen for the 'closing price' by the CME at 16:00 (ET), and the next day's 'opening price' at 18:00 (ET) the same evening.

So, as prices do trade from the cash close to the beginning of the fifteen minute 'pause period" from 16:00-16:15, and then don't trade from 16:15 - 16:30, for the pause period, and then do trade again from 16:30 - 17:00 (ET), and then don't trade again through the maintenance period of 17:00 - 18:00 (ET), it creates the appearance of a gap on the chart when there is really none!

Again, I had noticed this phenomenon with Gold before - primarily because of the wacky settlement time of 12:15 CT. But I had never seen a false gap created before in equity futures, nor had I heard anyone mention it, so, since I could now demonstrate it, I thought I would bring it to your attention.

And, I have a very big question. Because of the difference in volume during the 'false gap' does it send a wink, wink, signal to the Smart Money computers to try to fill that gap, too? That is a question. We'll see if it gets answered. This is the third post this weekend, and if you have not seen the other two, yet, you may wish to view them now.

Have an excellent start to the evening.

TraderJoe

How Long can they String this Out

With 126 daily candles on the chart of the cash Dow Jones Industrial Average, the count appears to be getting quite mature, but maybe just not quite there ... yet. According to The Eight-Fold-Path-Method for Counting an Impulse (see featured post in the upper right-hand-corner of the main blog page) we should now be in a fifth wave.

DJIA Cash - Daily - In the Fifth Wave

I'll mostly let you ponder over this chart, but as we noted earlier, this week was the first in which the Dow cash and futures both made a new all-time "intraday" high above the May high. That is what is supposed to happen in a contracting ending diagonal. Waves (i) & (iii) usually make new all-time highs to express their motive character. So far, a wave (i) would have. And if it is truly the ending diagonal pattern, then wave (iii) must, by rule, also make the new slight higher high. Only wave (v) in such a pattern is allowed to fail, but, it too, is generally expected to make a new high.

We must note that most of the earlier work on wave counting was done on the Dow - and other cash indexes - before the invention of stock index futures. So, it might be that this chart becomes the easier one to follow in the next several days/weeks.

We will also note the Dow may have tipped its hand on a smaller intraday time-frame, as well. See the chart below.

 

DJIA Cash - 30 Minutes - Lower Low

 

Note that on this intraday chart, the Dow made a new lower low - which the ES futures did not. That tends to rule out a triangle count for the Dow cash. So, this means the Dow has a slightly higher odds of not going over the high on Monday - not for sure - just higher odds.

This is the second post this weekend, and if you have not seen the first one yet, you might like to view it now.

Have an excellent rest of the weekend.

TraderJoe

Chop, Chop - 3

Today was the last day of the month. We supposed because of 'window-dressing' it could be sloppy. It was. With Monday being the first day of the new month - with the possible inflows from sources covered yesterday - it is probable that higher local (if not all-time) highs await. The ES down wave certainly looks impulsive. It may not be.

 

ES Futures - 30 Minutes - Retrace

For that reason, if a second wave, up, does not hold the high, then we suspect the (b) wave might be (or have been) a triangle. We said repeatedly such was possible. For that reason, the alternate labels on the chart refer to that potential triangle. Otherwise, a double-zigzag upward would do nicely for a potential wave ii of a larger (b) wave downward.

That is all.

Have a good start to the evening and to the weekend.

TraderJoe

Chop, Chop - 2

Did today make a believer in the up side out of you? Most of the comments from the previous post indicate it did not. But it sure did one person. He sent me some very 'timely' advice (..not!!..).  During the day prices got up to the 4,423 level and we had pointed out the R2 daily pivot point was at the 4,424 level. Because of the higher high, we eliminated i/ii down option from the chart, and the down wave became the a-3 wave more indicated by the futures than by the cash chart. Prices later fell to 4,395+ in the after hours, and all relevant up waves have been overlapped. This chart only shows the decline to 4,405.

ES Futures - 1 Hr - The Harassment Apparently won't Stop

 

This is just a reminder that tomorrow is the last day of the month, which often, not always, sees some sloppiness in the form of portfolio "window-dressing". And then Monday is the first trading day of the month which often, not always, sees inflows in the form of 401k's, company bonus plans, pension funds, dividend roll-over schemes and the like. Be good, be kind to each other. Have fun, but respect boundaries.

Have a good start to the evening.

TraderJoe

Chop, Chop

Our count remains unchanged - see yesterday's post for the hourly count. We pointed out that a "b" wave could be located nearer the high (..or over it). That is still the case.

Yesterday, we point out that the 'risks were to the high, and the risks were to the low'. We meant that, and while some higher and lower prices resulted, neither the all-time-high nor the recent 27 July low were exceeded in either direction. For those paying attention, today's price movement in the ES futures is still clearly choppy and and clearly in a relatively shallow up channel.

ES Futures - 30 min - In a Channel

In essence, all the market did was 'widen-out-the-risk' today with the green (up) fractal and red (down) fractal showing the market's new likely decision points.  

In a situation like this, again it helps not to forget the many styles of "b" wave that can occur. If it looks choppy down, and choppy up, then it might turn out we are in a triangle. And, it might turn out we are in a flat. Or even, it might turn out we are in a multiple zigzag lower. 

"B" waves are pretty gnarly characters. And, if I am expecting a "B" wave down, that also means that at this time I am also further expecting a higher move up to a new high at some point (..the caveat is unless this wave invalidates on the hourly .. which it is nowhere near close to at this time).

Have a good start to the evening.

TraderJoe

The Inevitable

After counting five waves up to what we think and thought was an (a) wave up, it was likely - based on that and timing studies shown yesterday - that today could be a turn day. Turn-around Tuesday as they call it. The overnight waves were a little intractable, but when cash made a low around mid-day we think we got a handle on it, as per the SPY 15-minute chart below.

SPY Cash - 15 Minute - "Looks like" Five Down

After the 'five-down' price took off to the upside in a nice 62% retracement - so far. It could go farther and take a bit longer if it wants. Still the inevitable happened - just as people were trolling the usefulness of wave counts again.

And, as per the hourly ES chart, below, so far we have gotten only a 23.6% retrace - which seems very substandard and very short in time.

ES Futures - Hourly - Trend Line Break

So, "B" waves of any degree are extremely difficult to count. And while SPY sure "looks like" and "can be" counted like a five - there is some plausibility looking at the futures in particular that the down move is only a "three" and not a "five". Therefore, when counting "B" waves we have to be ready for almost any corrective sequence from a zigzag or multiple zigzag, to a flat, to a combination, to a triangle. And while 23.6% seems small, we recently counted down a zigzag in the form a-b-c where 'a' was a diagonal and 'b' was only a 5% wave! And we know it had to be a three because price exceeded it higher.

Therefore, all we can say is that from here to the high is risk, and from here to the low is risk. The only way we will know for certain whether further movement lower might occur is if the low is actually broken, and even then if only three waves lower are made, then a flat overall could result - or a triangle. And the only way we know about further movement higher is if the high is broken.

Price is still over the 18-day SMA, so the price bias is still up. There are two days now that can count toward the ES futures possibly embedding. And, most importantly, tomorrow is FED day.

So, have an excellent start to the evening.

TraderJoe

Dow Higher High

Today the Dow and its futures finally made that higher high wave upward to a new intraday high. Yay (for some reason)!  Meanwhile, back at the ES futures we were expecting a fourth wave down and a fifth wave up on the hourly chart, and we think we've gotten that. Here out of interest is a two-day chart of the ES futures with some potential Fibonacci timing points.

Tomorrow is Tuesday. No telling whether it will bring the fabled turn-around or not. Meanwhile, back at the daily ES chart (below), prices again hit the upper daily Bollinger Band at 4,414 (this morning) and pushed it out to 4,419 so it didn't hit it at the close.

ES Futures - Daily - Overbought

Meanwhile the daily slow stochastic is in over-bought territory and is not embedded. Again, to paraphrase Ira Epstein (a futures broker), "this is often a place where the so-called Smart Money takes some off the table. And new longs are not recommended over the upper band because the probability of staying outside of that band is about 5%, and the slow stochastic is not embedded".

The above is not trading or investment advice, just a paraphrase of what one commodities broker teaches. 

One can also see that price has again slammed into the upper resistance line from current rallies. I've been doing a little thinking about where the next foo-bah might come from in this market. Something that is relatively new is the concept of a sovereign wealth fund. Here is a definition.

What is the purpose of sovereign wealth funds?

The primary functions of a sovereign wealth fund are to stabilize the country's economy through diversification and to generate wealth for future generations. The emergence of sovereign wealth funds is an important development for international investing.

 

Here are five of the largest (source Wikipedia).

 

China                2.2 Trillion

UAE                  1.4 Trillion

Japan                1.4 Trillion

Norway               1.3 Trillion

Singapore            1.0 Trillion

That's roughly about $7 Trillion; isn't that 'about' the size of the FED's balance sheet? According to Barron's the FED's balance sheet this past week stood at $8.26 Trillion. As the Church-Lady would say, "isn't that convenient?!"

Have a good start to the evening.

TraderJoe