Can it Parallel (Approximately)?

Just keeping it simple tonight. Our first job is to find whether an impulse can form a parallel, as in the ES 30-min chart below.

ES Futures - 30 min - Can Fourth & Fifth Waves Form in a Parallel?

If it can, and if a fourth wave forms properly, followed by a fifth wave, then it seems like an attack on the prior low is possible as well as re-visiting the lower daily Bollinger Band.

A step at a time here. The longer term will take care of itself, for the moment.

Have a good start to the evening.

TraderJoe

Clear Overlapping Wedge in ES Futures

For the last couple of days, we have been trying to count an up wave. Looking at the hourly ES futures, it looks like the pattern currently is that of a significantly overlapping wedge, with three zigzags in it, like the one below.

With three zigzags, the mind must remain open to the possibility of a diagonal. But, if it is just three zigzags, with price remaining below 4,102 then it might be the second minute wave in the nested count. Keep in mind the retrace waves, or (x)'s in this count are not 62% or greater. Thus, the triple zigzag is preferred at this time. The alternate is more probably a leading diagonal rather than an ending one.

The volatility is high, and price action today was whippy on an interview by the Wall Street Journal with FED Chair Jerome Powell.

Having lost the embedded daily slow stochastic, the market may be trying to target the 18-day SMA.

Have an excellent start to the evening.

TraderJo

Nesting?

The cabal that is running the financial markets (the Federal Reserve, the large banks, the exchanges, the Treasury, and the large hedge funds) are using A-I against the retail trader. A-I just means Artificial Intelligence, and it is really nothing more than a computer and a sophisticated set of algorithms that monitor account balances in real time and have a goal seeking procedure to limit trader profits. If you have been trading for many years, you've heard it expressed as 'maximum pain'. In Elliott Wave terms, let's call it a point of significant uncertainty in the wave count.

You are at a disadvantage. Why? You don't have access to everyone else's position to know minute-by-minute what they are doing. The Exchanges do. The Clearing Firms are charged with knowing your balances and insuring margins are met at all times. In Arby's terms, "they have the beef".

If you are a frequent reader of this blog, you know by now, that one of the algorithms used is the daily Bollinger Band and the relationship of price to the 18-day SMA. Ira Epstein's (Broker with the Linn Group) videos explain this concept on a daily basis. The evidence is clear, frequent and cogent. Friday, prices bounced off of the lower daily Bollinger Band. Is that a surprise, especially after a Fibonacci 89 days of decline? 

From an Elliott Wave perspective, we were attempting to count a wave upward, within limits and, so far, it has held. Why didn't it bust? We don't know yet. It still could bust on Sunday or Monday. Like many, we know that, at least temporarily, some trader sentiment (like AAII, and to some degree put-call ratios) were getting a little stretched. So, there could be more rally. 

Then, from an Elliott Wave perspective what is one to do? Yes, like many on our Thursday post we showed how you can count two sets of five Minor Waves down. Could they be (A)-(B)-(C) and done? Well, that is 'possible'. But we also noted how the market could make a true extended third wave down, and we simply want to show some measurements that will help confirm or deny it in the ES 8-Hr chart, below.

The first item to note is that the Elliott Wave Oscillator is on both a local and daily low. That, by itself, is not definitive. Some C waves do not end on a divergence. So, the bottom is labeled ALT: C. Next, we look for the largest correction in terms of price in the decline. In the nested count, that must be the second wave, labeled 2. We note that it just barely exceeds a 38.2% retrace and note how it could be located at a prior fourth wave, minute ((iv)), circle-iv. And this, coupled with degree labeling definitions, gives us an objective measurement. IF the downward wave is to further accelerate in a nested pattern, then it must remain shorter in price and time than wave 2. That means - as an absolute limit - a minute ((ii)), or circle-ii, wave may not travel beyond ES 4,102 - as shown.

Importantly, we note that minute ((i)), circle-i, does not have to be done at this location, particularly if the expanding diagonal potential we were tracing out on Friday comes to pass. But it could be done. Yet, the first minute ((i)) in wave 3 could be as long in price as Minor 1 is long. It is nowhere near there. We also note that the Thurs-Fri up wave in only in three-waves at this time. Why not five? Could minute ((ii)) be over? It could, but we do not know, and this is the significant uncertainty referred to above. 

For now, we note the EWO on the 8-hr time frame is on green bars. And second waves can do some wacky things like form a double zigzag, instead of just the single zigzag we have now. And this points to another thing to watch. Minor 2 in the nested count is a maximum of nine 8-hour bars. And this suggests that if the if up wave passes ten eight-hour bars (or the price limit noted above), then the nested count is likely not working.

If this seems complicated, let's boil it down to its ultimate simplicity: over 4,102 or more than 10 8-hr bars in the making and a nested minute ((ii)) wave is temporarily off the table - at least by degree labeling definitions.

How simple is that? Have an excellent rest of the weekend.

TraderJoe

Embedded

I listened to Ira's video last night and, regarding the argument of expoential vs. regular moving averages for the daily slow stochastic, he said, "the ES futures were on the verge of embedding". He was careful to say they did not actually embed. Today, the daily slow stochastic did embed, as per the daily chart, below.

Further, whereas price did not make it to the lower daily band yesterday, it did today. It also pierced the daily declining parallel lower. Then the futures bounced to form a doji candle near the close. The wave count is being a bit of a pain right now. At one point during the day, we got either 'five-waves-up' in the form of a diagonal or a double zigzag, and then the low of the diagonal (or DZZ) was exceeded lower. So, that might have the "(b)" wave of a larger expanding triangle wave in an hourly count like the one below.

We do not know if a legal expanding diagonal will form, or if the three waves down, so far, only represents an intractable overall larger ((b)) wave. What separates the two counts at this time is trading over the minute ((ii)) wave.

We do note that a diagonal is possible with the embedded reading. An perhaps, such a diagonal would get the market more over-sold. That is, note where the RSI finished the day today, "middle of the range".

Have an excellent start to the evening.

TraderJoe

Hard to Argue With

On the ES daily chart (and more clearly using the ES 4-Hr chart) it is hard to argue with the count of another five-waves-down, falling a couple of ticks just over equality with the Jan to Feb, 2022 drop, as shown on the daily chart below. However, the couple of ticks are enough to currently make the waves of the same degree.

ES Futures - Daily - Just a Smidge Over Equality

The down wave includes a 1.618 third wave, shown, and a non-overlapping retrace for a fourth wave as a sharp that alternates with a flat second wave. Should the market retrace and give way again to lower local lows, then the clear alternate is shown on the chart as alt: 1, alt: 2, and alt: ((i)) of a larger declining wave. (Note: there is a gap in this wave in the daily ES which 'could' make this a third wave, giving some significant credibility to the red alternate count). In the alternate count, a new second wave alt: ((ii)) may not trade above the high of alt: 2.

On a four-hour chart, with 180 candles, the EWO diverges at today's low, but, by-all-means, it is not very convincing yet. Further, upward counting should not begin in earnest until/unless price started printing full candles over a trend line drawn from black Minor 2 to black Minor 4.

On this chart, the daily slow stochastic has not embedded yet. And while in over-sold territory, there is nothing bullish on the chart at this time. There is not even a daily higher-high bar since wave minute 4. Thus, the daily swing line is still headed lower, and price has again tried to attack the lower daily Bollinger Band but did not quite make it there today.

Also of interest, the daily fractals are acting as they should to help define terminus points of waves.

Have a good start to the evening.

TraderJoe

Make-Or-Break Day

Today is likely a make-or-break day between a potential "B" wave count and a larger impulse count down. First, a review of this morning's daily chart (before the inflation reports tomorrow) shows a lower low day. This has the potential to continue the swing-line in the down direction. 

ES Futures - Daily - Lower Low day

However, one should note the lower low is made against the lower daily Bollinger Band, and this is "often a place where the so-called Smart Money is taking profits from short positions. They may let some of their positions ride lower, but they are likely coming out of at least a portion of their trades." Certainly, to paraphrase Ira, "no new short positions should be opened under the lower band." (This is not trading or investment advice - just a paraphrase of Ira's guidelines.)

Shorter-term, looking at the ES 2-Hr chart, below, we see several items: 1) there is now an approximate c = a, down, 2) the short term downward parallel has been breached to the upside, and 3) last night's down wave currently has a low at the 1.382 external retrace level of the up wave.

ES Futures - 2 Hr - Measurements

So, this is why today might be a make-or-break day. If the market cannot muster even a "(c) wave up" to complete a flat or expanded flat wave, it may be in significant trouble. We'll be watching the inflation report tomorrow with interest.

Have a good start to the day.

TraderJoe

Follow the Procedures - 2

Elliott Wave counting does not reduce market risk to nothing. If it did, there would be no market. But having clear, defined procedures helps reduce the additional risk posed when a trader's emotions further cloud the market picture. One such clear procedure is the use of the Bill Williams' Alligator and fractals on the daily chart. Another clear procedure is the use of Elliott parallel trend channels to help define whether momentum is with or against the market. Below is the current situation with Willams' daily Alligator and fractals. (This is an update from the "Follow the Procedures" post at this LINK which did provide a valid five-waves-down sequence).

The last week's daily market action created a daily down (red) fractal at the May 2 low. It also created a valid up (green) fractal at the May 4 interim high.

We note that on Friday, the market held off making a new low below the 2 May down fractal, but it clearly did come within 90% of the low. This measurement allows a Flat wave to form legally and possibly revisit the May 4 high. However, at this time, the up fractal at that location is below the upper limit of the gator at that level. Therefore, if that fractal is exceeded upward, it might only be a trap fractal.

Similarly, if on Monday the market is inclined to continue making lows, then it is still possible to form a larger flat or expanded flat wave.  Why the focus on a flat wave? First, the volatility index while still at a very whippy level of 30 did back off from higher levels on Friday. Here is the chart of the daily VIX.

If the VIX continues lower, then it could easily retrace to support at the 18-day and 100-day SMA. This would likely represent a concomitant increase in US equity prices.

A second reason is that since the 29 March high there have been 20 downward days to the low, but only three up days since to the 5 May high. This seems very disproportional in terms of time at this moment. So, a flat wave could extend this correction further in terms of time.

A third reason is a bit more straight-forward. If we look at the ES 1-hour chart, below, we see some of the local parallel channels.

As of Friday's close, we could only count three waves up, and a similar three waves down. So, first one needs to ask the question, "why can't we count five-waves-down as of the end of the day?" Next, we need to watch the upper trend line of the most recent down parallel to see whether it holds allowing lower prices or whether it breaks higher on Monday. We might know this answer before Monday's opening bell.

Yes, there clearly are ways the B wave of a flat can extend downward - which would involve breaking the prior daily down (red) fractal. But right now, such further downward movement is not in evidence. And such is the way that risk is maintained in the market even in the face of a reasonably well-described wave count.  It is the very structure of corrections (flats, expanded flats, zigzags, combinations and triangles) that often expands this risk within limits.

Clearly, the above structure looks like a traditional head & shoulders top - which would provide a clear downside wave-counting target. But, at this time the five waves down needed to activate and follow that count are difficult to find.

Further, there is a new five-wave-sequence upward (:5) without a new low yet. So, while we clearly see the possibility of more daily downside waves eventually, we need to "think globally" but count locally.

Have an excellent rest of the weekend.

TraderJoe