Warsh-it

When I needed my clothes cleaned because I got them muddy as a young kid, I would ask my mom to wash them. Apparently, when something is muddy in the Midwest (particularly 'round Ohio, Indiana and Illinois) you ask to have them warshed - well you say it that way. The wave counts are currently a bit muddy, maybe the meeting tomorrow can help make them cleaner again. The hourly ES futures are below.

It looks like - at the moment - there are three waves down from the high, but they currently count best as two zigzags, starting with the diagonal "a" wave we pointed out yesterday from the high.

Of interest, the second wave down is 1.618 x the first. And price got under a prior overnight low. I'll be a good boy and not suggest that it means that upside & higher all-time highs can't happen. I won't suggest that maybe the ES & SP500 will truncate. I did not say that. You did not hear that. Being over 78% it could still be the fifth wave. With an FOMC meeting tomorrow a lot could happen. And much could happen over-night. I would keep my eye on that overlap warning level, and on the 18-day SMA which price is still above.

Today was an inside day. A day of rest. Have a good start to the evening,

TraderJoe

Risky Business - 2 (Why It Can't Be Any Other Way)

Today did not take out the risk area proposed in cash or either sole ES futures contract (JUN or SEP), but it did exceed it in the roll-over contract (SEP stitched to JUN on the volume roll-over-day). The risk area could be history in the next day or two - especially with a FOMC meeting coming up. Or it might hold. But the odds favor the former.

Any number of people complained about the ugliness of the market movements today, and how ugly structures are made or typical technical levels broken just to trick the public into different counts. I want to tell you why it has to be so. Think of it like this ... I do.

Hint: You are Not Dressed in White

Look when - as a trader - not an investor, you sign up with a brokerage firm, they know everything about your finances - which is all they care about. They could care less about whether you're a Moving Average Trader, or a Breakout Trader, or a Range Trader, or an Elliott Wave trader.  Not relevant.

You sign up (if with a futures firm) and you must agree to the following conditions: A) a Clearing Firm will clear all of your trades - that means they know which trades you put on and where you put them on in the market, and where you take them off. B) They know the size of your trade. Did you just trade one micro at the market? Did you trade 10 E-mini's on a limit-entry? Regardless, they know. C) They also know your margin - and in fact, display it back to you in real time (big hint: they are tracking it!). They are required by law to track it, so you don't wind up in a margin call. D) They also know historically when you trade. Do you usually stop trading at the close - possibly because of margin? Do you usually stop trading at 11 pm so you can get some sleep. In short, they know. They know you. E) Your brokerage agreement also specifically states that your brokerage firm may take trades against your position. Really? You heard it. And if that isn't bad enough, F) Your margin may be swept by the brokerage firm, so that they can earn interest on the balance or use it otherwise. Listen to that again: let's say you go short a futures contract. You post the margin to do it. The clearing firm sweeps that margin balance to your brokerage, and the broker can use that money to trade against you.

Your money being used against you. This is just as long as they segregate your funds for the brief reporting period at the end of the day, so they can account for what is yours and what is theirs (they robbed from you). All of that became clear in the MF Global bankruptcy and following settlements.

Now can anyone tell me they signed a brokerage agreement that says, "This Brokerage will not keep a historical record of their client's activities over time."? Well, certainly not. The brokerage might need that information to defend themselves in court. And what says they won't store such data to build a profile of you - including your typical risk tolerance? Is Bob ok with a $1,000 loss usually? Does Janet usually bail at $450 in the red?

Do you get the picture here? Look at how much information they have about you. Period. Now ask yourself, "what do you honestly know about them?" Do you know what trades are on Blackrock's servers? Not a chance. That is proprietary information. Do you know what Megacap company is going to do a buyback, on what date, in what size & what time of day? Not a chance. That is proprietary information, too. Do you know how much money Goldman allots to the "closing buy-back" that usually lifts the market at the end of the day? Not a prayer. More proprietary information. (Although this is a documented fact that their customers once publicly complained they were not keeping a big enough balance at the close to keep driving the market to higher highs). Oh, and let's not forget the FED & the Treasury. Do you know when the Treasury is going to force a change in currency spreads to work a balance issue? Do you know exactly when the FED is going to reverse-repo somebody out of a problem?

They know. You don't. They can usually trade on it and mange it. They have the size and the capitalization to give them flexibility. You most assuredly don't know when. And if you did, you probably don't have the size to manage it.

Now look, nobody - but nobody - can manage this market & economic complexity without computers, and probably without A-I. We know there are so-called market-making algorithms to handle the trades. We already know Blackrock is using A-I. You think they're doing it to feed your account?

See, if you're a trader, you actually signed up for this. It's all part of the Ponzi scheme. They win, and if you place enough trades over time, you will probably lose. You might have good weeks, good months, but it is hard to beat their track-records with the information they have and that you don't. And it is legal that they win. There wouldn't be a brokerage business if they couldn't.

So, you think I'm done with this rant? Heck no. I've only hit the tip-of-the-iceberg, above: the legal stuff. Never, never, never doubt there is illegal stuff being done to you, too. Besides Congressional insider trading, and possibly higher, I'll give you one other example.

I'll never forget when Gary Gensler, then Chair of the Securities and Exchange Commission came on a TV interview and admitted, shortly after the pandemic, "look, during Covid, I had to literally call these several hedge fund managers up and tell them to stop texting each other with 'trading ideas' that would be otherwise be considered as 'market manipulation' as we were keeping a record of it at the SEC." They stopped. Did anything become of it? Never heard of any prosecutions as a result. But they had already done it!

They have to keep the music playing. The game must go on. One OTHER small problem is most of us can't see the nano-trades. In today's market, algorithmic trading accounts for roughly 70% of ALL trades, including the High Frequency Trading but other arbitrage & similar schemes, too.

All I can say is "the prices are in the waves", the trade details are not, except a bit with volume. So, if it were me, knowing the above, I would trade like there's a robot facing me, saying "Go ahead, punk. Make my day."

Have an excellent rest of the evening,

TraderJoe

 

Risky Business

In yesterday's post, I said the area between Friday's high and the all-time high in the ES futures (or CFD) was a "risk area". A daily CFD chart is shown below. The cash market has not even opened yet. The Dow futures and the Russel futures are at new all-time highs. That suggests that if the risk-area gives way in the ES futures, then a very non-proportional count like the one below has to be considered.

Because a potential fourth wave, red circle-iv did not downwardly overlap, even though it is exceptionally disproportionate looking, the rules say it can be considered. Further (x) is shorter than circle-iii, up, so it works by degree labeling there, but how about that (y) wave down? It would be longer than minute-ii, circle-ii, the previous wave of one higher degree. And that is likely a violation of degree definitions. So, it's either 1) a second wave up still in the ES, or 2) this or 3) we'll have to later switch to a diagonal structure if a new higher high is made.

The problem is the (y) wave down can be counted as three-waves to a new low in the futures. It can not be in the cash market (SPY).

In the ugly fourth wave count above, circle-iv, then the fifth wave still is restrained by 7,607 as it would otherwise become longer than circle-iii, which would break the 'rules'.

So, things are getting good & ugly at near a top. That's the way they're supposed to be. A second wave in the ES has not broken yet. It could. Risk is risk.

Have an excellent start to the day.

TraderJoe

The Main Event

Like some fake prize-fight, which may be fixed or not, this is the Elliott Wave count on the ES/SPY (CFD) on the 8-hr timeframe whether I like it or not.

ES/SPY (CFD) - 8 hr - Minor C Wave Count

It's a count with an extended first wave. The RSI is diverging at each new peak. Wave ii up does not come close to a 38% retrace, and that is one key to an extended first wave count, as this is. Further, waves ii and iv show good alternation on the way up. The timing of this first down wave a/i was perfect such that a fifth wave up, v, did not exceed the length of the third wave up, iii, as it is shorter than the first wave. Why would that happen if this wasn't the local count?

The test will come either this week or next as to whether we make a new low or not. It depends on how much time the b/ii wave wants to take.

There is lots of thin structure that can be retraced below the market (free-fall zone?).

The reason the first down wave is currently labeled as a/i is that it is always possible for a wave-set lower to start out with a diagonal, either as an overlapping 5-3-5-3-5 or 3-3-3-3-3 or as an impulse, and the market will have to be watched for clues.

I honestly think if there was a good local alternate, there would be something wrong with the lengths of the waves at the moment, and I just don't see it. The count does have a clear invalidation, and that would be if there is a new all-time high in this index or the ES futures.

Given the above, this makes the distance between b/ii and the all-time-high a clearly definable "risk zone" when the phrase risk-reward is thought of with the reward possibly down to the B wave low.

Well, if there isn't a good close-in alternate, is there a longer-term alternate? The answer to that is "yes". We can suggest two possibilities if Primary ③ becomes longer than Primary ① in the chart, below.

ES Futures (Roll-Over Contract) - Monthly - Alternates

They would take the form of the impulse or the expanding diagonal. But we will deal with these more in upcoming days if needed.

For now, enjoy the rest of the weekend, and get some rest.

TraderJoe

Borrrr....roar...oarrrr...ing!!

My blog is boring (and you thought the market was boring). People might be asking themselves, "why don't you follow the NASDAQ to count your Elliott Waves?", or "what's wrong with the Russell 2000?", or "why don't you follow some hot stocks to show what people are thinking?" Well, here are some cold facts just for you to consider in the form of a three-block chart of daily volume. The top chart is SPY, the middle chart is QQQ, and the IWM is the bottom chart. 

SPY, QQQ, IWM - Daily - Volume Peak & Average

I'm not sure how well you can read the chart (please expand to fill the monitor if you can), so I'll provide the salient facts below.

Tradeable                   Peak Volume              Avg Volume

SPY                            164.16 MM                  53.78 MM

QQQ                           116.27 MM                  48.24 MM

IWM                             99.62 MM                   29.68 MM

Clearly, in terms of volume, the SPY is hands down the winner with both greater average volume for the one-year period studied and greater peak volume. These are simple facts. Hopefully they are not up for dispute.

And Ralph Nelson Elliott suggested that the purpose of the Wave Principle was to help assess the overall level of mass psychology in the markets.

So, this suggests using the tradeable that has the widest following, the widest participation. And that is hands down the SPY and its counterpart the ES futures at the moment to best gauge overall technical sentiment regarding equities. 

Please don't hear this wrong. It doesn't mean that the NASDAQ is not important or that the MAG10 didn't really create a significant price spike in the market. But what it does mean is that if one excludes the major tradeable from consideration, then one is losing 53 - 54 million votes per day. Why throw those away from your bullish or bearish read on things?

And let's say one was solely focused on the Russell and its ETF or futures for trading. OK. But then one is losing roughly 102 million votes per day, a number of votes far outweighing the constituents of the index being followed if one is trying to use wave theory. And with so many fewer votes, it means that a large trade in any one stock or by any one operator can have a more sizeable influence on the price level of that index.

Folks. Elliott was an accountant. How Borrrring!!!! is that. But he understood averages, and he understood weighted averages. And he used the averages to smooth out the spikes of emotion and ego that rule the trading world. For him, it provided an edge.

For us, it means that if we try to use Elliott on an individual stock, or a sub-market index, we need to be aware that we may be getting less than the full picture and probably are getting less than the full picture. 

Think of it like people voting with their money to buy something or not. And, oh, yes, it sure is sexy when the App crowd decides they're going to do a short squeeze on a certain stock. But how often do such individuals know 1) when to get in, 2) how far, and 3) when to get out. Sure, they may play it by ear and strike the big one. More power to them. Or they may not, and they may be one of those that got in later and got hung out to dry - either by price - or by the regulators for market manipulation. 

Either way, it's not Elliott. Elliott is boring.

Have an excellent rest of the evening,

TraderJoe

Time, Time, Time ...

...see what's become of me. With no apologies to Simon & Garfunkel - who certainly don't need mine - the purpose of this post is only to note the time relationships between the down wave and the up wave in the ES/SPY (CFD) 2-hr chart below.

As of right now, there are only roughly half the number of up bars as down bars. And strictly speaking that's ok, but slightly lower odds. Often times corrections take as much time or more as their motive wave counterparts. So, in the comments for the prior post, I outlined some ways that this correction - which certainly looks like a Flat - could extend in time as a multiple flat or a Flat-X-Zigzag.

Predicting such is horrible stuff, and the market could always decide that the downward pull of a third wave (C wave, or not) is simply too great for now and a next wave could break lower at nearly any point. Keep in mind, today's up wave was made on news and sometimes those form weaker waves because only the pros/bots/machines get to react other than retail stops being hit.

Nonetheless, I do think the presence of the Flat wave - whether it continues or not - with its lower "b" wave argues more for a follow-on wave lower than an immediate return to the high. This is all a game of odds, and the Flat tilts the odds a bit in favor of a continuation wave lower.

Looking at today's daily bar, it was an outside day up with a close still below the 18-day SMA. Also, it is the second bar after the outside day down on Tuesday, so a trap was not set for the bears. But being an outside day up, it's low should not be taken out within the next two sessions or it would constitute a trap for the bulls.

The daily slow stochastic is still over-sold.

Have an excellent start to the evening,

TraderJoe

Meanwhile ... back on earth

I realize everyone is focused on Friday and a certain IPO that is about to transpire. But, here - back on earth - the debt clock is about to register $40 Trillion.

And look whose logo is in the lower right. I could have sworn that when the debt was only $35T, a certain POTUS hired a certain CEO to get the debt down through reduced government spending. Gee, what happened, it 'mysteriously' seems to have gone up by roughly 12 - 14%?

So, let me get this straight, people are just gonna schlepp their money over to a huckster who was hired to correct a problem & didn't? OK. That shows truly great skill and demonstrates both acuity and integrity, right? Yeah, right (not). If I were applying for a CEO job, would that "previous employment" section show up on my resume? I'll bet he still got paid for it. You gotta think. Let me see, would I trust this guy to get me to Marz? Um ... since his A-I has been trained with all the earth data known to man and monkey there is no way I'd trust it on the Redd Planet.

So, what's up? It's pretty simple, the guy is just selling you something to make him rich(er). He doesn't care if its SpaceChex, Teslex, RobotEX, Cutex or Riddex. Just buy something, please! As long as it has an "x" in it. It's what every carnival huckster does, and it's completely legal.

Am I jealous of this guy? Well, a bit envious? Not quite. It's hard to be those things when you're just tired of being taken... and taken...and taken by a few with little concern for their peers. And you "are" his peers. You just won't say so. You'll just stand there gawk-eyed and not do a darn thing about it. Do what? Like enforce anti-trust laws and deconcentrate corporate wealth though business law and the tax code.

Ah, well. Not to worry. Why should one worry? Ask Ray Dalio who is trying to help people see what is coming. Search YouTube and watch one of his recent videos if you haven't already.

Meanwhile, back on earth...

Have a great start to the evening,

TraderJoe