Wednesday, January 31, 2018

For Wave Counting Only Three Things Matter at this Point

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

The market as measured by the S&P500 cash index had closed yesterday at 2,822. Prices were higher over night likely on some reaction to political news. As the result, the market gapped up and opened ten points higher at 2,832, and traded further higher to 2,839.  This retraced to 38.2% of the third wave almost precisely. The closes of the candles were, in fact, right on that level. (See chart below).

Before the Federal Reserve meeting results at 14:00 ET, the market made a zigzag lower. After the FOMC report, prices continued lower and closed the opening gap up, shown by the black circle. As the afternoon proceeded, prices continued lower and made the required new low we cited yesterday. One stimulus was an earning's downgrade for Apple's stock. However, the DOW did not make a new low.

Prior to some of the tech and FANG earnings which would be reported after the close, prices re-bounded going into the close slightly into positive territory. That leaves just a bit of quandary at the low. Here is the same S&P500 cash 15-minute chart we showed yesterday. The third wave iii, was 2.618, wave ii was a sharp, and wave iv is a flat, showing excellent alternation.

S&P500 Cash Index - 15 Minutes - Lower Low Day

In the chart above, you can see today's new low, and the potential for an ending expanding diagonal fifth wave. After the bell, some of the tech stocks were lower even though they had modest earning beats. (See PayPal, Facebook and Symantec). So, the potential diagonal could possibly finish tomorrow, before a retrace (or more) upward begins.

So, as of this time, only three things really matter related to Elliott Wave counting. Those three things are:

1. Does the potential diagonal above finish lower in good order?
2. Does the Dow make a new daily low tomorrow?
3. When the retrace begins, does it stop short of the high or make a new high?

Again, as was discussed yesterday, five waves down could be just the c wave down of a fourth wave. Once we know for sure where this wave stops, we will evaluate any overlaps and see what they imply in terms of the longer term wave count.

The above chart has an alternate of the low at .iii because there is a weird way to count a fourth wave within the last downward movement, but it is not the most ideal.

Let's see what tomorrow brings. Remain patient and flexible. This is one of the most intricate wave counting situations I have seen in a very, very long time.

And have a very good start to your evening.


  1. Based on what's already happening after hours, today's lower low in SPX looks like the b wave of an expanded flat.

    1. Based on this morning's pre-market action, I still think yesterday's low was a b wave, but now it was a running flat instead of an expanded flat.