Today Changes Things a Tad

Market Outlook: Likely Long Term Top Identified, Now likely in Minuet (ii), up
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Yesterday, we counted five waves down to a ((5)) = ((1)). That is not what's changing. Today, there was a brief three waves up, that crossed up over the upper channel down trend line, from the fifteen minute chart, shown yesterday, and then lower lows that did not, as yet, fill a gap on the hourly S&P500 chart shown below. From a time standpoint, that three waves up early this morning was simply too brief to be a whole correction. So, we called it an a wave up. Then there a down wave that appeared as a "three" which we called a b wave. Without filling the hourly gap, the market sported quite the rally, upwardly overlapped wave (i) down, again, and then gave a bunch of it back in the last hour.

Not to worry, we again advised readers on line and commenters, not to begin upward wave counts until or unless the prior wave ((4)) high was exceeded. It wasn't.

The problem was this: the lower lows of today, even if they are the lower b wave of a FLAT for a minuet second wave have bearish implications. I don't want them too. That's how they work.

Further today I was able to find a 38% Fibonacci ratio, in time, to the prior up wave sequence, that I counted as ((A)), ((B)), ((C)), up, for you in near real time, which makes it just long enough for the minute ((ii)) wave in terms of time. The lower lows for today ruled out many of the possible patterns that could have been considered yesterday. So, if you look along the top of the chart, you will see a timeline which provides 38.2% to the high, versus the length of the previous entire minute ((i)) diagonal down.

S&P500 Cash Index - Hourly - Minute ((ii)) Confirmation

Because the up wave as minute ((ii)) is 38.2% as long as the diagonal (see the 38.2% flag at the upper right), and because it made a near exact 62% retracement, it can be a valid second wave. We have fallen well out of the up channel for minute ((ii)), the minuet (b) wave of minute ((ii)) is broken lower, AND the EWO is currently making new hourly lows.

That likely means that after minuet (ii) completes upward, if it does, that a strong minuet wave (iii) will occur downwards. The target for minuet (ii) would be the prior wave iv. Again, there is no upward counting unless today's a wave high is exceeded.

Today, the only difference in the hourly chart above is I have changed the degree labels from what I used when working quickly to their actual Elliott Wave degrees as best I can tell at this point. Overall, I would expect the five minute waves ((i)) through ((v)) to add up to a Minor 1, or Minor A that will break the February and April, 2018 lows in the S&P500 and the Dow.

I know a lot of people were asking why the October low 'couldn't have just been the C wave of a running flat fourth wave'. This is more evidence why. It certainly doesn't have the beginnings of a look of 'five waves up'. Just the opposite. So, I hope the explanation I provided earlier at this LINK made sense to you.

Be careful out there, and have a good evening.
TraderJoe

Lower Lows

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Yesterday's three waves down as ((A)), ((B)), ((C)) converted to ((1)), ((2)), ((3)) down, as today there were a lower series of lows. Not to worry, we had warned readers and commenters, not to begin any up count until or unless the high of ((B)), now ((2)), was exceeded higher. It wasn't.

Here is  the S&P500 15-minute cash chart, so you can follow along.

S&P500 Cash Index - Fifteen Minute - Impulse

With the first new low, we were able to rearrange yesterday's potential barrier triangle, to a "running triangle" preserving the proper degree labeling on the chart. This allowed (5) < (3) < (1).

We also gave instructions for re-drawing the potential down trend line from the FLAT wave ((2)) to the new wave ((4)) high that occurred today. As a result, there was excellent alternation with a long in time wave ((2)) flat, and a short in time wave ((4)) sharp. Then, there was another lower low, and it appears to be a fifth wave at approximately ((5)) = ((1)).

Looking at the EWO signature on the 15-minute chart, then currently you have (3) of ((3)) on the low of the EWO, ((3)) on last night's and today's continuing divergence, and ((4)) above the zero line. And now five down ((5)) would be on another divergence.

Sounds like The Eight Fold Path Method to the tee. As of this time ((5)) = ((1)).

The key to the count was uncovering the running triangle or else a) the wave degrees would not have worked out properly, and b) the implications of a "running triangle" with a lower B wave are bearish. And it projected today's lower low.

Prices have not broken 2,700 yet, and there are now several possible counts depending on whether that is broken or not. We'll have to simply reserve judgement until that does or does not occur. To avoid some questions the biggest possibilities are:

1. We have seen the top of minute ((ii)); and this is the first impulse down; need to break 2,700 for that.
2. We have seen only the c wave of a larger ((B)) wave flat, and (c) of minute ((ii)) up is yet to come; need to hold above 2700 for that.
3. A retracement occurs and fails, and we go back to the 2,600 lows as a FLAT. Then a final (c) wave up of minute ((ii)).

Those are very hard to sort out at this time. Additional waves are needed.

Have good evening,
TraderJoe

((C)) wave Down to 78% Retrace ??

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Saturday, we said that based on degree labeling, that the most likely course of prices today was lower for a ((C)) wave. Others disagreed. There were some fake-out waves higher in the futures, overnight, but the market opened lower with a solid gap, lower. Prices declined and kept on declining. Typical of a ((C)) wave.

As an impulse ((C)) wave, lower, this would be the only count at present that makes sense. There is no upward overlap between the high of the triangle and wave (1) down.

S&P500 Cash Index - Fifteen Minutes - C Wave lower?

The only way the count works from a degree labeling standpoint is if there is a "barrier triangle" at the end of the day. Otherwise wave (5) of ((C)) is too long in price. Remember, in a barrier triangle prices bang along the lower barrier, but they don't close lower than the barrier. That IS what we see, above, and the purpose of the triangle is to "better equalize the net distances traveled between wave (2) and waves (4)". This one does that quite well.

Prices briefly breached the 78% retrace, but then they held there for the close.

The downward price structure is just awful, which is what makes me think it is a ((C)) wave. And, the triangle might be signalling that we've seen the last wave. The day ended on a divergence with the Elliott Wave Oscillator.

I will not start an upward count until price should regain the upper declining tend channel line shown above. So far, the degree labeling considerations have been predictive. With "five waves down" today, there should at least be three-waves up, next. And, there could be more. But that remains to be seen.

For a continuing count of an upward contracting diagonal (c) wave of minute ((ii)), in no case can price trade below the prior low at 2,700. That would invalidate a diagonal.

Have a good start to the week.
TraderJoe

Diagonal Degrees and the Avoidance of Conflict

If you did not read the Friday or Saturday posts and comments, you should. There is a lot of information there. Today, though, we want to talk about a topic that you do need to know about and one that will help clarify a lot of things about wave counting for you. That topic is "how do diagonals avoid degree conflicts?".

Don't worry. We're going to make it short simple and take it step-by-step so it is worth the read. So let's begin.

In order to make this as simple as possible, we will start with the case of the contracting diagonal first, with reference to the diagram, below.

Contracting Diagonal - No Inherent Degree Conflicts

If what we mean by the term 'lower degree' is that the next sub-wave after a higher degree wave has completed must be shorter in price and time than the previous wave of the higher degree, then we can see that a contracting diagonal inherently avoids a degree conflict.  Why?

So, since wave (iii) is shorter overall than wave (i), then we know by logic that wave a, within wave (iii) must also be shorter than (i). This is provided that wave (ii) is shorter than (i) – which it must be if it is a second wave.

Let's be clear. Wave a does not have to be shorter than the first 'a' within (i), it just has to be shorter than wave (i), overall. Wave (i) is the higher degree wave. Wave a is what we are calling the first lower degree sub-wave after wave (i). And so, the same occurs within wave (v). And, since wave (v) is shorter than (iii), then all of the same considerations apply, and inherently degree conflicts are avoided.

It should now also be clear why contracting diagonals usually, almost always, also contract in time, too. That is because the sub-waves must be shorter in each section. In fact, I contend that “counting bars” can be an effective way to determine whether one is in a contracting diagonal or not. If the next sub-wave gets “too long in time”, then one most likely will not be in a contracting diagonal.

The time considerations of degree violations also help determine why wave (v) is always shorter than wave (iii) in a contracting diagonal. Most people tend to think of it as, “wave (iii) can never be the shortest wave”. And that is true, too. But, in fact, if wave (v) is adhering to time degree considerations, then it should also not be longer in time than wave (iii), either.

Now, let's move on to the somewhat more diabolical Expanding Diagonal. In the case of the Expanding Diagonal, we expect wave (iii) to be longer in price and time than wave (i). But serious Elliott Wave students want to know, “just how does this happen without degree violation?!”.

Avoiding Degree Conflicts in an Expanding Diagonal

So let's assume we have made first wave down, (i). This wave (i) establishes the “Field of Play” as it were. Then, the first sub-wave a of the next wave must be shorter only than wave (i). It does not need to be shorter than wave 'a', of wave (i) – just shorter than (i).

So now follow this logic. Since, wave a can be almost as long as (i), then if you put two of them together in an a-b-c wave, then the whole wave can be longer than wave (i), particularly if there is a shorter b wave in the middle. And now the wave (iii) can be longer in price & time than wave (i) without degree violation! And, it is OK for wave (iii) to be longer than wave (i), as they are the same degree wave, and that is the usual course of events – to have the third wave longer than the first wave in a sequence.

Again, the only restriction is that the sub-waves of (iii) are shorter in price and time than all of wave (i). Well, the same thing occurs for wave (v), except now it is wave (iii) that has become the 'longest wave on the board' and it sets the new “Field of Play” as it were. Then the sub-waves of wave (v) must only now be shorter in price and time than all of (iii).

The next consideration is wave (iv). Keep in mind there is no Elliott Wave rule that says a wave four can not be longer in price than a second wave. And as long as the sub-waves in wave (iv) are shorter in price and time than all of wave (ii), then wave (iv) is going to take full advantage of the lack of a rule regarding fourth wave price and travel as far as it can - provided it does not travel beyond the end of wave (ii). That, of course, is something no fourth wave is allowed to do, by rule!

When you consider time and price degree like this, you can also answer for yourself, “what is the maximum extent of travel” of wave (v) in an Expanding Diagonal?

And, if you have ever seen an Expanding Diagonal in real time, you know that the last upward move can be especially aggressive in an Up market, and the last downward swoosh can be quite devastating in a Down market. How far will the move go? A person caught trapped in such a wave might have a vital interest in knowing.

Well, it should be clear by now that wave (v) can not proceed farther in time than it's c wave would become longer in time than all of wave (iii)! That may not be much consolation if money is lost – but at least it is a LIMIT that would otherwise be undefined. Otherwise, how do you know? And you know, the c wave – wherever it starts is limited to the maximum price travel of wave (iii), too!

Now the above example was for a 3-3-3-3-3 diagonal. By extension, the serious Elliott Wave student should undertake specifying the limits of travel of the various sub-waves of a 5-3-5-3-5 diagonal, as well. We think if you will do that it will also crystallize for you the concept of degree violations in impulses, too. 

Does this make sense? We hope so. After reviewing this article, you may be able to answer more questions about price and time than many professional Elliott analysts can. More importantly, we hope it makes your wave counting that much more accurate.

Have a good start to your Sunday.
TraderJoe

Eh? Let's Really Not Rush Things

Some people like to get up on a Saturday morning and do the crossword puzzle to get the weekend started. Other people 'rush' to publish their often wrong wave analysis claiming that once their so-called objective waves are quantified, they never change. They actually sell this unintelligible system for a hefty sum, and are advertising it again today. Yet, their ever unchangeable waves were wrong at the May, 2015 top - where ours were correct; they were wrong at the August 2015 bottom - where ours were correct; they were wrong again at the October 2015 top - where ours were correct, and they were wrong at the February, 2016 bottom where ours were correct. Folks, they had to change something somewhere, to be wrong enough to have to completely reverse their market count, shut down their web site for two or three weeks, and get back on course.  This is all documented fact.

On the other hand, when you do the crossword puzzle, and the clue for 26 across is "NY baseball team", but so far you have HETS as the answer, you KNOW your answer for 21 down probably is wrong. Dead wrong. It doesn't have an H in it - it has an M in it, so the answer to 26 across is METS. I like to treat the market that way, and once the 'heat of battle' is over look things over and ask, 'what I am not understanding here?', or 'how is the market trying to tell me what the real count is that I just don't see yet?'

I did that this morning, and I came up with a big fat H in the name for the NY baseball team. And, so, as simply as the crossword: something was wrong. Get the eraser out and change it! What? Who gets crosswords done without error, every time?

Yesterday, I published that we may have had a zigzag down - based on the ES futures. But, when I went over to cash I found - you guessed it - a degree violation! Several of them. And, as I stated during the market day, "something was wrong with the ending diagonal being in the wrong location".

The biggest problem is located on Wednesday's chart; the FED day. The downward wave made that day is just "too long" to be a sub-wave of another wave lower. This means it must somehow be part of a continuing (likely third wave) in progress. Here is the chart with the problem wave.

S&P500 Cash Index - 5 Minutes - The Problem Wave

Now, let's reassess the count with proper degree labeling, and all potential diagonals in the correct locations.

S&P500 Cash Index - 5 Minutes - Proper Relative Degrees Notes

We now see the ending diagonal at the low wasn't that at all, but it's more common contracting triple zigzag (B) wave of ((B)). And now the count overall is of an Expanding Leading Diagonal ((A)) wave down, which is of a 5-3-5-3-5 construction followed by a Flat ((B)) wave up.  The 5-3-5-3-5 construction is the only time a third wave may be a diagonal (and it's in a diagonal wave). We showed on the 3-min chart that wave (1) down was a five wave sequence. The form of the overall diagonal is ugly, but it agrees with the futures, and the measurements are correct. Wave (5) is longer than wave (3) which is longer than wave (1). Wave (4) is longer than wave (2) and overlaps wave (1) without traveling beyond the end of wave wave (2), and the motive waves - downward - are all five-wave sequences.

It is important to note the level of the Elliott Wave Oscillator at various locations. It bottoms on the ((A)) wave, and then diverges on the (B) wave low.  Finally, at the end, it is simply too high for a fourth wave. And that is what raises the likelihood of a higher probability ((B)) wave up. Clearly the wave is not following The Eight Fold Path Method, and that is why we suspect only a corrective zigzag overall is in the making.

This all means there should likely be a ((C)) wave down beginning on Monday morning some time.  This is possibly to get the ((C)) wave down to the 61.8% retracement level to make a deeper wave within the potential hourly diagonal that we showed on Friday.

Once again, we have a chart making a clear prediction from the assessment of degree labels. Now, we need to see if that comes true. Are anyone else's charts even making a prediction? But you want to pay them for it, right?

Have a good day.
TraderJoe

P.S. Because of the really intelligent question, I have attached a chart, below, of how the DJIA 'could' have avoided the degree violation between Minor 4 and Intermediate (4). I have no proof, except that the January wave was so out of character, that it could have been a b:3 wave.

DJIA Cash Index - Daily - How it 'Could' Have Avoided a Degree Violation

That means the "net distance traveled from wave 3 to wave 4" would be less, thereby avoiding the degree conflict.

Downward Zigzag Likely

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Yesterday, we wrote that a zigzag or double zigzag was expected downward. We warned that more downside movement to 2,771 could be expected as a 38.2% retracement. Once that level was attained today, we warned that further downside movement could mean that the (c) wave of minute ((ii)) might be forming an ending contracting diagonal. Further down movement did occur.

Using the all-hours futures, which contains all of the information, it is still possible a single zigzag downward was made. Here is that chart.

ES E-Mini S&P500 Futures (All Hours) - 30 Minute Chart - Zigzag

We called the low during the first up bar at the end of the day as an upward degree violation occurred. The downward waves are messy, but cash has a clean ending diagonal on it, and the lengths in the futures are correct. The count is that of a Leading Diagonal ((A)) wave down, three waves up for a ((B)) wave, and an impulse down for the ((C)) wave. At the end of the day, there was upward overlap.

Now looking at the hourly chart of the cash S&P500 Index below, we note something very telling.

S&P500 Cash Index - Hourly - Maybe Not Done Yet

From the Oct 29th low, if you were calling ((A))-((B))-((C)) up to Wednesday's high of this week, you would have the two legs of a zigzag that would be essentially the same length in time. This would not be in accordance with the Principle of Alternation. Usually, in a zigzag, one of the ((A)) or ((C)) legs takes much less, or much more time.

So, the best suggestion at this point is not to rush things. The market makers have to be sure the fewest number of people are on board for any significant decline, so they can just whip things around more and in the process try to get people lost in the count.

But, if there were about to be a significant decline, wouldn't it make more sense that the last wave upward were, in fact, a diagonal wave - since diagonals often, often, often (not always) end C waves? There is already one good sign for the potential diagonal, and that is that wave (1) of ((C)) occurred over wave ((A)), as this shows its character as a motive wave. Now an upward wave (3) must do the same in some manner countable as a zigzag (even if it will contain a flat or triangle B wave). And then a wave (4) would have to remain shorter than wave (2).

One would have to get below the prior B wave of (1) to change my view on that.

Have a very good start to your evening and your weekend.
TraderJoe

Wave ((4)) of C Underway

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

As we explained yesterday, today we expected to see the ((4))th wave down, or part of the fourth wave down of the C wave impulse upward. Today is the last day I will show the 10-minute chart. It is getting too many candles on it. I will switch to a longer time frame chart tomorrow.

Before showing you the 10-minute chart, I thought it would be instructive to have a slight dissertation on the presence of diagonals and two rules of degree.

1. It is NOT acceptable to have two diagonals of the same DEGREE in the same wave.
2. Is IS acceptable to have two diagonals in the same wave if they are of DIFFERENT degree.

Here is today's S&P500 3-minute chart. It is just of today. Today's up wave did NOT make a higher high. I didn't think it would, because the (B) wave of wave ((2)) did make a higher high. And there would be no alternation if today's (B) wave did.

That is a very important point because in the cash market, the wave can be counted as a zigzag (A), (B), (C) wave downward. True as that is, please note the presence of TWO diagonals on the three minute chart (there are actually four, can you find the other two? hint: they are at smaller time frames).

The day started with a gap down which was filled. The gap wave was the (A) wave down. The retrace wave was the (B) wave. If you will look closely, you will see B of (B) did NOT travel below the start of the A wave of (B) allowing this whole wave to be constructed as a zigzag. But, just look at the C wave of (B)!

S&P500 Cash Index - 3 Minutes - Two Diagonals

It is what's known as the relatively rare, Ending Expanding Diagonal - just like the daily one in the DOW from the Apr low to the October high that I showed in previous posts. (See this LINK.) If they are so rare, what the heck are they doing in my charts?! Notice that wave ((v)) is longer than wave ((iii), and wave ((iii)) is longer than wave ((i)), and wave ((iv)) is longer than wave ((ii), and wave ((iv)) overlaps wave ((i)), but does not travel beyond the end of wave ((ii)), and they are all three-wave zigzag sequences - meeting all the criteria for an expanding ending diagonal. Great!

But now note it's degree designation. It is a C wave, which is part of a (B) wave, and NOT the same degree as the (C) wave, downward, that follows. And this downward (C) wave is ALSO an ending expanding diagonal, but this one is of the larger degree wave (C).

Yes, both diagonals are in the SAME zigzag wave. But both diagonals are of a DIFFERENT degree. Did the market bounce you out at all on Fed day? The diagonals are why. And there's that term 'degree' again.

So, now we have a 'perfect' zigzag, with prefect trend line touches to alternate well with wave ((2)) on the ten-minute chart. The problem with a 'perfect' zigzag is that it often leads to multiple zigzags. 

So now, here is the 10-minute chart again, the last time before I switch time frames.

S&P500 Cash - 10 Minutes - Retrace wave ((4))

Now we have a perfectly good wave ((4)) down. We said we were expecting the Elliott Wave Oscillator to go below the zero line, and it did. The only partial problem now is that wave ((4)) has not even attained a 23.6% retrace - let alone a 38.2% retrace. Is it enough? Technically, yes. It clearly overlaps wave ((3)), and has good alternation in that it counts as a zigzag. Late today it became just longer than wave ((2)) in time, and that is sweet! The typical relationship in an impulse wave. But, both because of it's depth, and the perfect nature of the zigzag, it can go lower if it wants and become a double zigzag.

So one must watch the opening gap direction for clues. I hope this was helpful.

Have a good evening,
TraderJoe