The Expanding Triangle Idea

Several of us on the blog have discussed the idea of the Expanding Triangle as a way both to make a wave that is deeper in price for a correction, as well as to make a wave that is long-enough in time to be a companion to the Minor A wave, up, in the diagonal Intermediate (5)th wave. The good news now is that there are enough waves to visualize this possibility, using ES daily closing prices in the chart below.

A key feature of an expanding triangle is that each wave should be longer in time as it expands in price, and so far, that criterion is working out. Second, the ⓔ wave of the triangle must do two things. It 'must' both cross the center of the triangle lower again, and it must go on to make a lower low than ⓒ - at least intraday. If the lower low is not made, it would be difficult to distinguish the pattern from a failed flat.

Typically, the waves in an expanding triangle are limited to 150% travel, by rule, which so far has held up.

The advantages to considering this pattern are that 1) it might help provide divergence with the $NYAD, the NYSE advance/decline line before a more final Minor C wave, up. 2) it might be another way to explain to explain the stuttering of prices and very hesitant price drops other than by a diagonal, 3) it might be a way to burn time before the mid-term elections. Note that many Elliott waves end with a triangle in the next-to-last position. This would be that triangle.

The disadvantage of the pattern is obviously the difficulties of trading any triangles with the abrupt starts and stops, the periods of grinding ranges, the sharp drops and the eye-opening retraces that seemingly come out of nowhere.

That said, this is still an alternate at this time. It's a very good alternate. The pattern itself is recognized both in the Prechter & Neely descriptions, although Neely refers to it as a horizontal triangle, and so it should be kept in mind as price progresses to see if the pattern is validated. In the Neely description, though, he suggests that the ⓔ wave can progress to the 1.618 or even 2.618 level. I'm not so sure where he gets the evidence for the extensions and wish he would have provided a live example, or two. I'm not sure if those come from the currency or other markets, but I don't recall seeing them recently in the equity markets.

In any event, this is the second post since Thursday. Have an excellent rest of the weekend.

TraderJoe

Something Would Need to Change - 2

Today the ES futures initially made a lower low overnight, then tried a rally when the cash market opened, but it was both overlapping and muted, not making much progress before there was another sell-off into the afternoon. The daily chart of the ES futures is below. The swing line has a lower low and a lower high.

ES Futures - Daily - Lower Low Candle

Notice that the morning low touched the lower daily Bollinger Band before bouncing away from it, and the close was still below the 18-day SMA which keeps the daily closing bias as lower. Further, the daily slow stochastic is still pointed neutral-to-lower.

The form of the candlestick today might be a "spinning bottom" meaning a doji near the low of a retrace but this implies that the high of candle needs to be exceeded before the low - and there needs to be a significant higher close - for the single candle pattern to be confirmed.

So, if there is a b wave down, it is a 78.6% wave as an expanded flat - which implies a higher all-time high is possible. The odds of higher highs are getting lower and lower, but we are within the range of the algorithm, clearly.

If there is weekend news - or something does change dramatically, the bottom could fall out in the expanding triangle - or other - pattern as we have discussed. Until then, there is a new up (green) fractal as shown.

Have an excellent start to the evening,

TraderJoe

Something Would Need to Change

In the SPY Cash 4-hr chart, below, today made a 78.6% retrace on the prior up wave. While not definitive, that is getting into the when where failure has to be considered. As the chart, shows, the region between today's low and the prior swing low at 675.79 is a significant area of risk. And the CPI report is tomorrow.

Contrary to what might be difficult to discern the close-to-open gap close on this chart is at 677.45, so this is a level worth watching.

On the daily ES chart, price closed below the 18-day SMA, so the bias switched to lower. Price also went down to the 100-day SMA, and almost made it to the lower daily Bollinger Band.

The relevant prior up (green) and down (red) fractals are shown on the ES daily chart below.

From what I can see, no major stock index has yet exceeded the down (red) fractal yet. If it does it would open the door to a topping count. But, often, the Smart Money might start backing out at the lower band. So, we have to treat this area gingerly, be patient, flexible and bide our time. 

We had cited in prior comments we were looking for an expanded flat down. That may have happened as we thought. We just need to keep our guard up for a failure at the high, too. If the down fractal should be exceeded lower, it might open the door to the expanded triangle count - or others. First things first, right?

Have an excellent start to the evening,

TraderJoe

Higher High, Lower Close

Nothing too serious. It looks like the bars up from the recent low are a five-wave-sequence. It was possible to count it that way. But the retrace was quite shallow, so far.

ES Futures - Daily - Higher High & Lower Close

The measured retrace from the high is not even 23.6%. The daily slow stochastic is in over-bought territory. The monthly payroll report is tomorrow morning. It could be a market mover, so we'll just post-pone discussion until we see more in those results.

Have an excellent start to the evening,

TraderJoe

Too Many Waves!

I mean that in a kind way. Markets are allowed to have whatever waves work. Counting them is another issue. The DJIA having broken out to a new higher high forces us to count a little differently - still with an extended first wave xⓘ. That is because some of the recent down waves were longer than other ones, and by degree-labeling definitions, then, they should be larger degree waves. I won't belabor - the weekly chart and count are below.

DJIA (YM) Futures - Weekly - Diagonal, Possibly Leading

The problem is that the Nov 2025 down wave, ((ii)), circle-ii, or minute-ii, is too large for the wave at minuet (b), and for the previous wave at brown ii, so that means it is likely of higher degree. I think the only way that happens is if the entire Minor A wave is a diagonal with minute-ii, circle-ii, as the second wave of the diagonal. It is outlined with blue trend lines. Otherwise, there are too many waves for a motive sequence. The down waves are almost impossibly short waves to be in a typical impulse structure. We could clearly see the impulse sequence within wave minuet (a), and we have labeled those waves i -> v. But now the (c) wave of minute-i, xⓘ, looks like it is a diagonal too, with overlaps galore but always trending higher. It is outlined with brown trend lines.

We don't make this wave count lightly. First, we note that the $NYAD (NY Advance/Decline Line) is at yet a new higher high on Friday. Again, we don't think a major bear market starts while this line is making new highs.  Second, there is room yet for the ⓥth wave to continue higher. Recall, it can be almost as long as the third wave. Third, this count implies that if Minor A is a diagonal, then Minor C should be an impulse wave. Fourth, we have recently commented that the DJIA divergence with the transports was cured with all-time new highs in the transportation index. Lastly, we note that while many of the Mag-7 stocks are having difficulties, the FED's FOMC still has the spigots open - which might counter some decline, provide money for company buy-backs, etc.

So again, we are patient, calm and recognize how long a Primary-sized diagonal ⑤ could take. Meanwhile, we have not even seen a 38% retrace in these waves. Hopefully, such a wave, or larger, would be a Minor B wave. I realize that it is easy to make mistakes counting waves. If this labeling is a mistake, then it is the $NYAD which is providing the false signal. Time will tell. 

This is the second post since Thursday. Have an excellent rest of the weekend,

TraderJoe

Discount Double Triangles

On the ES daily chart, there is an outside day, up, with price tagging and over-shooting the 18-day SMA but eventually closing lower than it, as below.

ES Futures - Daily - Outside Day Up

From the truncation high, there is now a c = a, down, and potentially a c = a up. The problem is we don't know upward movement is over. It could be, and if so, great. If not, we'll continue the count upward since there are only three waves down.

ES/SPY (CFD) - 1 Hr - Three Waves Down

In the downward count, the parallel channel is pretty clear. The measurement of c = a downward is approximate, but pretty close. There are two triangles able to be located, the b wave one, and one for the ④th wave of c. Both would be in the correct place. We said the halting pace of the decline likely meant it could be a diagonal. Today, we were counting upward after the AMZN earnings drove the market lower in the after-market and then price swung around for the cash market session.

We understand other markets made new highs today. ES has not, yet. Today's upward count (in futures and CFD) can be counted like this.

ES/SPY (CFD) - 15 min - Three-waves Up

The wave starts out with a diagonal wave which converts to an impulse a wave, followed by a short in time b wave, followed by a potential c wave which starts when the cash market opens. The measurements are uncanny, at present, but again, we have no confirmation that the wave is over. It is suggested that the a wave, up, has to be overlapped to claim an end to the c wave.

It can be seen on this timescale that the MACD diverges, but this needs to be monitored. If a downtrend resumes, it will likely be in the form of a diagonal due to the degree of retrace.

We remain flexible. The only perplexing item at this time is the failure to make a new on Tues 03 Feb, as it seemed to indicate a truncation. We are keeping this in mind in the count. Perhaps we'll have more on the weekend.

Have a good start to the evening,

TraderJoe

Bearish Engulfer with A Lower Wick

There is nothing yet proven in the wave count. Today, the SPY cash index made a slight new daily lower low while the ES did not (yet). So, the main count is shown below on the SPY daily chart.

SPY Cash - Daily - Potential Diagonal

Note today that the local prior low (purple) was exceeded lower. And the daily alternate is shown below with red labels. 

SPY Cash - Daily - Alternate

Diagonals (or potential diagonals, better said) are always tricky. We will note, though, that the MACD is diverging and that is one sign to pay attention to. We want to give the potential diagonal all the time it wants, but we have certain limits. If the wave-counting stop is exceeded lower, that would be a serious wake-up call. The wave-counting stop is the same in both counts. Given the bizarre differences between cash and futures, we think, if today's low holds, then it would best count as a b wave.

There are currently no cash gaps above the market, but there are numerous ones below the market.

Have an excellent rest of the evening,

TraderJoe