Friday, January 26, 2018


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)

It's hard to argue with measurements, so I'm going to present some. For the time being, pretend the Elliott Wave labels are not on the chart below.

S&P500 Cash Index Weekly - Channel - With Some Measurements

If a channel is drawn on an arithmetic scale, it can currently be seen to touch the relevant border points. In fact, some of the lower bodies of the candles in August 2017 are just beginning to be cut off. This suggests there may be a bit of resistance near this level. Whether that happens remains to be seen.

And a third wave (currently shown as minor 3) is just a hair's breadth from the 2.618 Fibonacci extension.

The weekly candle shows no sign of a topping tail. Nor does the daily candle. Nothing downward can be counted without lower daily lows.

If we ignore the topic of wave degree for just a moment, we can see that all of the labeled wave 3, also falls such that no part of a trend line from the origin at 0, through wave 2 cuts off any part of the third wave. This is Glenn Neely's guideline on a large scale.

The reason I asked you to pretend the Elliott Wave labels are not on the chart are as follows. First, notice that the Elliott Wave Oscillator is as green as can be and is rising like all get out. Suppose - just suppose - that if we are in a Primary fifth wave, that there would be an ending diagonal on a very large scale. Then waves 1, 2 ,3 can also be just A, B, C of wave Intermediate (1) of such a diagonal. Remember, if 3 = C, then C waves often show no or little divergence before ending.

Further, (I said I would have more to say about this topic) it is often precisely in triangles and diagonals where we see 2.618 wave relationships. So, if this is wave (1) of such a large diagonal, then the Fibonacci length of 2.618 might make some sense. Another reason to ignore the current wave labels is that I have another idea which is more intimately involved with the concept of degree, and may better explain why price lived under the middle line of the channel shown for more than a year from November 2016 to December 2017, and then pops up over the mid-line on the passage of the tax cut. I'm going to reserve that idea for the time being until there is more evidence for it. But for me, one of the most curious aspects of the chart is why it "folds over to the right" or makes a "right hand turn" in July and August, 2017.

Keep in mind, we are not quite to the 2.618 relationship yet, and sometimes price can just put "tails" above that level if it proves to be resistance. These are characteristics to watch for until something more certain develops. There are numerous Fibonacci relationships in this wave, and I am pointing out one.  I showed another such relationship in the live chat room for participants there, related to the "extended fifth wave scenario". We are, after all, dealing with scenarios and probabilities. So patience, caution and flexibility remain the by-words.

Have a very good start to your weekend.


  1. Merci joe pour les commentaires

  2. Joe, for someone like me learning Elliottwave, your analysis is gold dust, so thank you!

    If the above count is right and we are in a 3rd rather than a 5th, then that is a hell of an extension - is this common in SPX? In that case, is it possible we might get a truncated 5th? That would set up a double top, and perhaps a very large correction in the latter part of the year.

    1. Hi Prashant - thanks for the nice comment. Again, a third extension has to be the first hypothesis, even under Neely's guidelines, for a 2.618 wave. The second hypothesis is A,B,C of Intermediate (1) of an ending diagonal. I know people do not like to think about these latter diagonals, but it is harder to explain the lack of divergence in the first hypothesis than the in second hypothesis.

      And, yes, a 2.618 wave for a third wave begins to be the length where a truncation could be looked for in the fifth wave.

      Sounds like you are learning quickly to have mastered that subtlety so soon

  3. Hi,

    Been reading your blog daily last couple months, outstanding work!

    To get some more context a good idea (if you already haven´t) would be to look at the individual sector ETFs, there are some key takeaways from some of the bigger sectors like XLK, XLI, XLF, XLY and XLV. How this will play out in the s&p500 is another discussion, but it might help clarify "whats the most likely". Especially if we are dealing with such different scenarios like a extended third wave, or A, B, C of intermediate (1) of an ending diagonal.

    And by the way, the "right hand turn" in July and August 2017 is indeed very suspicious, what do you think about the possibility of a running flat from the high of Mars 2017 to low of August 2017? This is what I see in some of the other sectors and also Transports.

    Regards, Erik

    1. Hi Erik. Thanks for commenting. Please see Sunday's post 1/28/2019.

  4. Thanks for the updates. I noticed wave 2 is in November vs June compared to the three fib article. In looking back were there things that would have shown this back then? I know it mentioned breaking the Neely rule a little. Thanks.

    1. Hi Tls - you only need to go back to the "Lest We Forget" Post at this location (, copy and paste link if needed, to see how it was counted as the bull market just began to progress. It was done then so that a wave 2 would be on the right-hand-most location of a potential parallel, and to follow the Neely guideline.