A Tale of Three Fibs

Market Outlook: Expecting Higher Volatility
Market Indexes: Major U.S. Equity Indexes were higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

After noting yesterday's hanging-man candle, we noted that if the market didn't immediately gap down at the open, then the highs could be revisited. That is because like any potential reversal candlestick, a confirming lower close is required to confirm the pattern. A gap lower did not occur. The highs were revisited and new all-time highs were made.

After doing some work on the German DAX in the live chat room today, this chart weekly was posted.

German DAX - Weekly

My operating premise was, "if you cover the name of the chart, and just count it like any other Elliott Wave chart, what would the count be?". The above chart results from the fact that within wave (3), wave 4 was likely a FLAT wave to alternate with the sharp wave 2, and to equalize the net distance traveled distance by wave 4 with wave 2. And, it should be noted that wave 4 now takes much more time than wave 2 - as is most often the case.

In the DAX, there are a clear three-waves down from wave (3), and then a retrace towards the high. But, it is clear that when a parallel channel is drawn in this manner, no wave has yet come back down to attack the weekly channel line. When or whether this happens remains to be seen.

I then decided to take the exact same approach with the weekly S&P500 Cash Index, as in the chart below. But, with one difference. I applied a Fibonacci ruler three different times to see if the Fibonacci hits made sense. Here is that chart.

S&P500 Cash Index - Weekly - Three Fibonacci Ratios Applied

The result of doing this is obviously that price is only about 20 points away from (3) = 2.618 x (1), a location where we must tip our cap to the power of a third wave. (See left-most Fibo ruler). Further, you can see that wave 3 is just shy of the ratio where 3 = 1.618 x 1, and yet minute (iii) is exactly 1.618 x (i), when measured in this manner. This picture of a chart-in-a-channel, allows the extremes of waves (1) and (3) to be currently located on the outer channel boundary which is just terrific. Whether price exactly makes the 2.618 extension seems pretty immaterial at this point - but it could - and we will watch to see if it happens. Right now, it is "close enough for government work."

Further, the lower channel boundary should give some guidance as to where wave (4) will form - when and if it does. Students of the technical indicators know that at present they are all currently just about maxed out - as is sentiment. That should indicate that we are indeed in the extended third wave.

When charted in this manner, one finds that the degree labeling in this index works out just fine. And, from a Neely perspective, the only thing one has to swallow is that in the cash index, partial bars of wave 2 chop off a line from the origin through wave (2). Well, all I can say is that Elliott formally called it an "under-throw" which often started an extended wave. So, it's a question of who you believe. The chart right now says to believe Elliott. I also think that this chart makes the alternate of the expanding ending diagonal wave much, much less likely, and will not revisit that chart until or unless something goes awry.

It is also worthwhile keeping an eye on Crude Oil at this time as it is finding some daily resistance at the monthly trend channel line we showed in the weekend video.

Have a very good start to your evening.
TraderJoe