Don't Assume

Every Tom, Dick & Harry internet analyst will tell you about how they recognized a possible top today. They used their cycle work. Or they reviewed their "volume profile" and saw how rarified things were getting up here. Or they used their AVWAP (Anchored Volume-Weighted Average Price) and the five-day moving average and saw the breech of them. Or they used their support and resistance lines to tell you, "Once this level was gone, the next level was so & so". Or they will tell you how their upper Bollinger Bands "acted as a brick wall yesterday to stop the price advance". They will typically do this to try to sell you some subscription or some market service, or to get more clicks for their YouTube videos (and, hence, ad revenue). 

I will not do that today. I will instead plead with you not to assume anything. I will offer you one chart, with more discussion below the chart. The chart is of the S&P500 daily in September & October 1987.

I beg of you to look at this chart and learn its lesson. The decline started modestly enough with about ten down days in late August & early September. Then there was almost a month of dickin' around in a flat wave back to about the 50% level before the October decline started. Some people probably felt pretty good about the rebound. But here is the lesson. When the decline got started, did it stop at equality (100%)? It did not. Did it stop at 1.618 level for wave three? It did not. Did it stop at the 2.618 level for wave three? It did not.  It kept going until the Fibonacci 4.414 extension level was reached, wiping out all those might have assumed at the 1.618 level there would be a turn for a fourth wave. And it took only two days from 1.618 to 4.414!

So, then what? Is that the end of the assumptions? Heck no. One would then have to think (sic) with a down wave being so large in price, there simply must be a fourth and a fifth wave to make another lower wave after that to finish the impulse. Right?  Well, as the chart shows - while there was a new 'closing' low, price did not ever make a new intraday low. The bottom in December was what we call a truncation - and a fair sized one - and the rest is upward history.

So, on to today. Yes, today was impulsive well enough. But there are only three-waves-down from the recent all-time high. So, what are we to think? Well, not too much. There must be a fourth wave the adheres to the 'rules' and then a fifth wave lower than it and at least roughly equal to wave one to claim an impulse. Is it likely it will happen? It has odds. The odds are better than 50%, but not by much. Why not? Because with only three-waves down, the market could 'by the rules' form a diagonal structure to move lower. So based on the state of knowledge right now, the odds might be 55-45. Then, depending on the overnight and the open on Monday, the odds can be updated. In other words, look to see if it happens, but don't assume it will.

Let's extend the lesson to today's wave.

Here we see the three waves. Did today's wave stop at equality? It did not. Did it stop at 1.618? It did not. Did it stop at 2.000? It did not. Did it stop at 2.618? Well, we simply do not know yet. There is no proportional turn to the second wave in the series. The Elliott Wave Oscillator (EWO or AO) is still bright red and pointing down on this hourly timescale.

Does that mean we should expect a fourth wave overnight on Sunday into Monday morning. No! We should not expect it. It has odds! Maybe you and I rate the odds as pretty good. Maybe someone over in Japan or England - that couldn't sell when they wanted to today - has other ideas and wants to unload at their earliest opportunity and not wait for more pain to set in. Maybe it's a true crash wave and hits one of those larger Fibonacci numbers hardly giving anyone time to react (like the two days in 1987). Those scenarios can change the odds.

Or maybe there's news announcements during the weekend or on Monday that overrule the urge to sell, and it all stops here or only slightly lower for the time being.

The point here is not that Elliott Wave is useless. It has some benefits in the market. But, rather, the point is that the market is a wild non-linear and chaotic system. And it's going to give profit to some and knock others out as it sees fit to accommodate the buy & sell orders it receives or does not receive.

So, if you can't necessarily count on Elliott Wave, what can you count on? Well, I'm here to tell you to be careful. You might wake up one morning to find the internet out, and so orders become difficult to place. Or you might wake up to find a limit move in your favorite stock or commodity and you become trapped in your position. Stock & index futures trading have limits and halts, too. I truly hope these things do not become bothers for either you or I. But market history has a way of saying different at the worst possible times.

So, please do not assume anything, particularly as regards Elliott Wave. How you trade is strictly your own business. I am here to show you - among other things - it's not always what it might seem. And especially to remind you that people with much, much more money than you or I have can make a rational or an irrational decision at any moment and it can affect the retail trader greatly. Further, the government can affect markets with announcements good or bad at any time - and I can assure you they won't consult me first.

So, be patient, be calm, be flexible and realize to most market opinions there are associated odds which may or not be in your favor. You might assess something as 70-30, but it's the 30% that comes through for some reason you might not be able to see. You might not be considering the truly big money and what they have to gain or lose. Or you might not be able to assess it accurately because they can act irrationally, too. Or, they think they are acting rationally, but all they do is scare people. Like the story that comes out today with the headline, 

Social Security recipients may lose $500 monthly in 2032, report says

Great. Good job people. Thanks for getting everyone all riled up and thinking they might have to sell some investments earlier because they will lose some Social Security. This kind of stuff is what helps make the market so chaotic. Even if no one acted on the specific story, you have salted the very idea of it in the back of someone's mind. 

So, try to remember that IFF we enter a bear market, everything will be backwards from a bull market. All of the assumptions that went into financial planning (you know the 60-40 balanced stock-bond allocation kind of stuff), interest rate assumptions, home value assumptions, etc. all get turned on their head. For example, right now there are people on the internet telling others what specific combination of new ETF's can guarantee them X% return per month. And a lot of these people assume linear growth in the A-I stocks. It's a warning flag. And they assume these products will trade in all bear market conditions. Another flag. Some of these things are untested.

Be careful out there. Some cities just fixed the potholes from two winters ago - if you get my drift.

Have an excellent start to the evening,

TraderJoe

Provisional Top - 2

For today's post I said in the comments I would post the potential alternate count found after the overlap was made in pre-market session in the ES 4-hr futures. I mentioned I couldn't find one last night, and this one wasn't made possible until the lower low this morning.

There are things to dislike about the alternate - which is why it is the alternate - but as you probably know price in today's session has already gotten up to 78.6% of yesterday's down wave. So, either count is on the table. We'll see if the down movement after the close creates a gap-n-go or not.

One thing I was monitoring all day - as I do every day - was the intraday wave-counting-screen. Overnight I had noticed that it was possible the futures & CFD were getting an expanded flat wave that never showed up in the cash market, as below.

And it was interesting to note that the level of 2.618 x a-3 added to b-3 was right at the R1 daily pivot today. My personal confidence in this expanded flat is only about 60-40 by-the-way. That's because while second waves can be flat waves, they are a little less typical than those made from zigzags.

In the cash session, price broke the three up (green) fractals in the middle of the chart and never looked back until the close. It was also interesting to note that no additional fractals were made, up or down, until the closing candles which made an up (green) fractal. So, this is where a wave-counting-stop would go in my book. The market has made sure to widen out the risk of a fractal trade to all the way back down at the early morning low for the time being. That might change overnight.

So, either a top is "in" and we had an expanded flat at the low. Or, possibly, there is still a triangle working given the 78% retrace. In either that case or the diagonal, it is possible to go over the top again. We'll see how Friday goes.

Have an excellent start to the evening,

TraderJoe

Provisional Top

Here are two charts providing the provisional count to a top. The first chart is the ES futures only on an 8-hr close-only basis. The count consists of five minute-degree waves from Minor B to Minor C which would form the Intermediate (V)th wave of Primary ⑤. Under this count the wedge at the top would likely not have been a diagonal; just part of the overall wave Minor C which is part of the monthly diagonal shown in many, many posts on this blog. Within the five minute-degree waves wave minute ⓘ is the extended wave in the sequence. There are ~140 candles in the chart and the wave four indicator on the Elliott Wave Oscillator (EWO or AO) circled right where it should be.

The next chart is of the ES/SPY CFD on the 30-minute timeframe showing how the day unfolded into the cash close. The top shows a tiny truncation (*) in the ES futures, but not in the CFD or SPY.

ES/SPY (CFD) - 30 min close only - looks impulsive

Note there is a five-wave structure to potentially end the move on a divergence with the EWO. Then, there appears to be the start of an impulsive wave lower. (As this is written the after-hours just made another lower low past the daily S2 level to 7,550 in the ES futures, only, so far). Note there is a 2.618 wave down for a third wave.

If this top holds, it would end the contracting diagonal from 2021. The reason the count is provisional is that post-pattern behavior is required in three forms: 1) an impulsive wave in good form should be confirmed, 2) there should eventually be a retrace wave that does not go over the high, and 3) there should be a lower low that significantly exceeds the  low of the original impulse.

The confirmation steps, above, are in the future. It is difficult for me to see an alternate at this time due to degree labeling and current overlaps, but I will keep looking.

Have an excellent start to the evening,

TraderJoe

MOAD

In the ES futures (and SPY CFD) 30-minute chart, is it possible we are in the Mother of All Diagonals (MOAD)? This is because of 1) the prior triangle - which could be a 'b' wave, 2) the new overnight high, and 3) the current numerous overlaps as the 'first-of-the-month money' has helped send price to capture the intraday 18-period SMA at least temporarily. There are also some downward fractal breaks to consider.

ES/SPY (CFD) - 30 min - Intraday Wave Counting Screen

At the present time, the diagonal could point either lower or higher (with higher currently shown). But the invalidation of the upward diagonal is clearly shown.

Have an excellent rest of the day.

TraderJoe

The Nothing Bagel

Is that a plain bagel, or a nothing burger? While the world waited for a decision on the situation in the Middle East, nothing was delivered. It's like the Uber driver entrusted with keeping the meal warm, ate it for themselves on the way to your house. Meanwhile, back at the market, prices made a new higher high and then appeared to put in much of either a triangle or a Flat. This was the likely end-of-the-month sloppiness known as window-dressing.

It might be that the message was deemed to be best delivered when the potential 'first-of-the-month' money, the passive monthly inflows that usually occur around the first trading day of the new month, could reliably blunt any news that was perceived negatively - even if it was supposedly good news.

Bear in mind a flat or expanded flat could potentially challenge 7,560 - 7,530 on this chart if a triangle should not be in play. But, as far as the potential triangle goes, its centerline, the wave 3 peak, was crossed over again toward the end of the futures session, as shown. (Degree labels shown are just for reference and will be adjusted later.)

So, let's see how things go on Monday.

Have an excellent rest of the weekend,

TraderJoe

The Everything Bagel

Sorry I really meant the everything bubble. But like one of those bagels at your favorite coffee shop that has every conceivable manner of topping and seed on it, this market has now really taken on the characteristics of an 'everything bubble'. We knew about the debt bubble, we knew about the equity bubble, we knew about the housing bubble, we knew about the crypto bubble - to name a few. But now we also know we have an A-I bubble, and further, a war bubble. And that means bubbles in commodities, like oil, and even still Gold. Some would even add that we have a bubble in war babble. And now you can add a bubble in government owned enterprises. Intel was not the first. A former President had the U.S. government buy a lot of shares of a flagging car company called General Motors. Of course, that was at the bottom of one of the more notorious financial problems in 2009. This is near a market high. It certainly feels like the stakeholders are truly getting "all in".

Maybe I'm wrong, maybe we need a bubble in planet ownership. Oh, wait, yeah, there is a certain IPO scheduled for 12th June isn't there? Something about rockets and space exploration, I think.

Meanwhile, back at the chart ...

ES Futures - Daily - Days since 18-day SMA

This is just a reminder that price has not hit the 18-day simple moving average in the last 35 bars. That is almost twice the length of the average. And all-day today after the 10 AM bar price did not even hit the intraday 18-per on the ES 30-min chart. No worries. I'm sure the algorithm is going to do what's best for us all in the end. Right? Ha. Meanwhile, can I interest you in some cream-cheese?

Have an excellent start to the evening,

TraderJoe

Best Alternate at this Time - 3

The daily picture in the ES futures still looks like the chart below. Nothing has changed there, yet. We are still waiting to see if a fifth wave, minute ⓥ, completes and if it completes with good form. Since the third wave in this configuration is shorter in price than the first wave, the Fibonacci ruler is shown to see if the fifth wave stays shorter than the third. There isn't an upward length violation at this time. If there should be, we will adjust.

As far as the local count on the SPY cash 30-min chart, there is a leading expanding diagonal first wave (where the zigzags first started coming from - because they initially couldn't be counted as clean 'fives'), then a second wave zigzag, then a third wave which just notches out a wave that is longer than the first. This chart starts with minute-iv, circle-iv, or ((iv)) at the lower left. From there, this would be the minute ⓥ wave.

There is one way to count the pattern as complete, but it doesn't match up with the futures. A further way to see the pattern ending would be with a ivth wave triangle. Right now, a parallel is being maintained. If a triangle forms, the parallel could be breached. We note the Elliott Wave Oscillator is not near the zero line yet on this timeframe.

Have an excellent rest of the day.

TraderJoe