Still Very Dicey

Today we were counting in the upward direction both because - as we noted and often note - today was the "first-of-the-month" inflows expected from pension funds, 401k's, company monthly bonuses, dividend reinvestment plans, etc., but also because there was the potential for the fourth wave (iv), up, of a downward contracting diagonal possibly being formed. A reminder of that pattern is on the ES 4-hr chart, below.

Price today traveled upward - a lot! During the day, we noted that price had traveled back to the 18-day SMA, 'the line-in-the-sand' on the daily chart - and them some. We also noted that for the contracting diagonal to remain valid, price would have to stay below 3,914.75 or else wave (iv) would become longer than wave (ii). Price got to 3,912 before traveling a tad lower to settle at 3,900.00 in a nod to the "round-number" people.

It turns out that from this level price can still make a new low, down to 3,763 provided the up wave does not invalidate first. Will the pattern maintain it's integrity? We're really not that clairvoyant - we just count & measure waves, and see if they fit typical Elliott Wave patterns. However, we did place a Wave-Counting-Stop (WCS) at today's high, as if the 3,915 level is broken, the pattern would have to be something else.

Critics of Elliott Wave patterns could hardly argue though that these 'deep retraces' are not typical of what is expected in diagonals. Each of the two retraces is over 78.6% of their prior down wave. Students of the patterns might ask, "if the 78.6% level is fatal to a pattern, then why did the wave labeled (iii) make a new low?". It's retrace wave was in excess of 78.6%.

We do see from the above chart that the EMA-34 is still pointed downward, and has each of the numbered waves on either side of it for good form and proportion. Beyond that, analysis seems to be of little merit, and we must wait to see what occurs in the overnight. Traveling below 3,880 before making a new high might be more telling.

Have a good start to the evening.

TraderJoe

Still the Larger Count & Reasonable Alternates

The ES 2-day wedge count remains the primary count until we see something that does not fit.

ES Futures - 2 Day - Count

In previous posts we have shown how all degree labels 'fit like a glove', down to the most recent Minor B wave and how it remains shorter in both price and time than all of the Intermediate (X) wave - it's most recent higher degree down wave. Now the question remains whether or not a downward wave will overlap the Intermediate (W) wave (at the yellow dotted lines). If it does, then there is a slight possibility the waves can be numbered as (1) through (5) instead of (W) through (Z).

According to measurement calculations a 100% x (X) down wave can still overlap at 3,570 with room to spare on the (W) top of 3,587; again this is if the wave intends to make a contracting diagonal. But, this measurement is to the A wave of (X), not the C wave of (X). If measured from the C wave of (X), then downward overlap with a shorter wave than (X) simply can not happen in the ES.

However, in the Dow futures, there is 'currently' nothing preventing downward overlap with a less than 100% wave from the C wave in it's (X) wave, as Illustrated below in the potential alternate.

Dow (YM) Futures - 2 Day - Plausible Alternate Diagonal

The issue with this alternate as a diagonal is that it does not 'look' very contracting. It simply has less of the 'right look'. Such a pattern would also clearly invalidate below 28,806. And so, this leads me to think another plausible pattern is that the Intermediate (X) wave is not over yet, and might look like this.

Dow (YM) Futures - 2 Day - Plausible Channel Alternate

This construction might allow the Primary ((B)) wave to extend further in time, and still allow for a roughly 25% 'bear market' if interest rates rise. In this case, relative to degree labeling, Minor B-3 is still shorter in time and price than the larger Intermediate (W) wave, and the C-5 wave, down, would be shorter than all of Intermediate (C) to the 23 March 2020, low. In this count, clearly the Minor A-3 wave down can be allowed from a 'price' standpoint. The issue is whether it can be allowed from a 'time' standpoint. More work remains on that point, so stay tuned.

Have an excellent rest of the weekend.

TraderJoe

Very Dicey

Here's a quick update. The wave counting is very dicey. Monday is the first day of the month with possible inflows.

Keep your eye on any stimulus progress over the weekend. Have a good start to it!

TraderJoe

Lots of Uncertainty and One Objective Item of Many

Without lower lows and lower highs, or higher highs and higher lows there is lots of uncertainty in the count. That will be addressed in short order from comments earlier today. But here is one objective item (of many you might chose).

NQ Futures - 1 Day - Close Below Band

The NQ futures closed the day below the lower Bollinger Band for the first time since the end of October, 2020! Can they continue lower? They can. One target might be the green 100-day moving average also shown on the chart. Closing below the band 'might' be the first step in a true breakdown lower. Still, a lower local low was not yet made.

Now to address the uncertainty in the ES count, this comment was posted earlier in the day..

"I'm sure you have lots of questions at this point. I do, anyway. That's because an awful lot depends on whether we take out the lows or not. I can currently find several ways to count.

ES Futures - 4 Hr - Possibilities

If we count the triple-zigzag upward yesterday as an expanding diagonal, this 'could be' the deep retrace of the diagonal, only. If we count the triple zigzag as just a triple zigzag it could be (x)? If it can be counted as a-b-c, up, some evidence on the 4-hr chart, then it could be (ii), of a contracting diagonal downward.

One item of interest is the 'speed of the decline'. That wouldn't seem to fit too well yet with a continued expanding diagonal, and might better fit with a contracting one, as an 'a' wave down, if an upward count is disrupted.

Bottom line, highs or lows must be broken to better determine the count. And there is a lot of 'algo risk' between 3,800 and 3,900."

So, the uncertainty remains going into the settlement. But even in this index, the daily bias has temporarily turned lower with a close below the 18-day SMA. And, a lower local low was not made, yet.

Have a good start to the evening.

TraderJoe

DOW's new high

Here is a chart I did earlier in the day on the Dow futures (2-day interval).

Dow Futures (YM) - 2 Day - Higher High

Given the higher high it is possible the Dow is extending towards the (Y) = 0.618 x (W) level. We said in many posts that such a thing was possible. The Dow futures (YM) settled at 31,958. The chart was done before the settlement. For those counting the potential five-wave contracting diagonal, at 32,445 the futures would completely become incapable of forming a contracting diagonal because a fourth wave down, (4) - if (X) were (2) - could not remain shorter than wave (2), and overlap wave (1) or (W) in this case, and that would break the 'rules' for a contracting diagonal.

Neither the NQ nor the ES futures yet closed over their prior all-time-high.

Have a good start to the evening.

TraderJoe

H & S Target Met

Yesterday, we were counting downward, showed the potential Head & Shoulders formation on the ES 4-Hr chart (also below), and suggested there was possibly a very difficult diagonal forming in the downward direction. After the H&S target was met near 3,800 - 3,810, then prices began a spirited rally. The H & S level attained 3,804 was also at the 50% retracement of the entire prior up wave we showed as minute ((i)) through minute ((v)) below.

ES Futures - 4 Hr - Five Waves Up and 50% Retrace, so Far

The upward count is correct in form with five waves including a triangle fourth wave. Now, it is a question of whether they are minute degree waves to Minor C, or minuet degree waves to minute ((i)). As far as I can tell there is nothing in the wave sizes to rule out a further extension of the Minor C wave, and it was clearly indicated this could happen. Prices do need to get over the top for that count to occur.

If prices continued downward, it would likely be as a diagonal. If they don't, the choppy move can be counted as an a-b-c correction. Clearly, the 3,800 level has to be breached lower to continue a downward count.

The NQ futures have a much deeper wave traveling downward to almost breach the 01 Feb low, but they didn't. They also pierced the lower daily Bollinger Band and then rebounded into it. The ES did not touch or pierce the lower band. Neither chart ended the day with the slow stochastic in over-sold territory.

Have a good start to the evening.

TraderJoe

H&S Activated

Over the weekend, a couple of us made the case for a potential head & shoulders pattern on the ES 4-Hr chart, and we indicated that breaking the fractals at 3,880 might set it off. Today, the market broken those fractals below the four-hour alligator indicator, and - as well - the following observation is to be noted on the daily chart.

ES Futures - Daily - Lost Embedded Stochastic

 

As you can see, the daily slow stochastic lost its embedded status, and price immediately and price went down to contact the 18-day SMA, 'the line in the sand'. This may well set up 'the battle for the 18-day SMA'. I will also note that price overlapped the prior January high on the futures.

On the cash chart, the best pattern we are able to count is that of a potential contracting diagonal. If it completes properly tomorrow, there could be a rebound in prices following it, and then lower lows. Here is the cash chart as we counted it, so far, including the proviso that such a pattern 'must' complete properly to be valid.

From an EW perspective, it almost seems as if there is someone purposely trying to make the waves a difficult as possible to count. I mean this wave starts out with a leading diagonal micro ((A)) wave which was itself a real bear to count. I know why this is happening. The powers that be have a vested interest in not letting anyone else know that a turn is possibly coming. They are trying every strategy possible to hide a 'five-wave-structure'. So be it.

Patience, calm and flexibility are still required as we attempt to detect if there is pattern completion, and a retrace that remains below the all-time-high.

Have a good start to the evening. 

TraderJoe