Market Indexes: Major U.S. Equity Indexes were lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle
FED Posture: Quantitative Tightening (QT)
The third question we had to answer from yesterday was:
3. When the retrace begins, does it stop short of the high or make a new high?
In short, the answer is there was no retrace. Instead there was follow-through selling. Let me explain what I mean. Elliott Analysts often look for wave v to equal wave i, or for wave v to be 0.618 x net ( wave i through iii). Yesterday, we clearly outlined the possibility for a fifth wave down, depending on the Payroll Employment Report. As the fifth wave accelerated through these two levels this afternoon, we changed our charting time frame from 15-minutes to one hour. And we changed the very short term wave count to a third wave lower. We'll show you that chart at the end.
We also said, that once we saw the full length of the downward wave, we would evaluate whether a smaller degree fourth wave was in progress. Today, we got that answer. It is not - with a very high probability - a smaller degree fourth wave. It is at the very least a much larger degree fourth wave. For perspective, here is the weekly chart.
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| S&P500 Cash Index - Weekly |
As you can see, there is hardly a larger down bar on the chart. Next, the turn came at the 2.618 Fibonacci extension which was pointed out on this blog both last Friday and over last weekend, along with all of the numerous sentiment factors we pointed out, including a $VIX which was diverging, and a put/call ratio in the "speculation zone", the very poor volume on up days in the ES E-Mini S&P500 Index futures, the actual premium of the futures over the cash (which is not typical), and the poor reactions to earnings on several of the FANG stocks over the last couple of nights.
So, here is the hourly chart of the DOW - which is just a lot 'cleaner' than the S&P500. The Dow gapped down and closed down -666 points (rounding).
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| DJIA - Hourly - Base Channel Broken Lower |
Just as we showed you in the weekend commentary, that Elliott suggests drawing the "base channel" first on the weekly chart, then so, too, do we draw in the base channel on the hourly chart. So, we have done that above. The Elliott Wave Oscillator (EWO) currently indicates a third wave of some type in progress, and there is no divergence that can be seen at this time. We have also showed the relevant Fibonacci extension levels, and the down move is currently below the 1.27 extension, with a 1.618 extension (or more expected). When we know where the third wave ends, we will redraw the channel, and look for a fourth wave. Today's third wave closed two of the gaps - shown in black circle - on the left side of the chart.
Although you will not hear this commentary from anyone on television, once again we have a FLAT wave ((2)). This most likely means the market is in a very weak position. If a flat correction on the upside means the market is in a "very strong" position, then this flat correction to the down side must mean the reverse. What is good for the goose is good for the gander. The advance-decline line today was 323 - 2,728 (or 1 : 8.4) which is definitely in the impulsive category.
Back to the weekly chart. If wave 2 was a FLAT, then wave 4 could be a simple zigzag or a triangle. If you thought we were in The Fourth Wave Conundrum on the fifteen minute chart, the problem is only going to be larger on this time scale. For the immediate future though, please have a look at the daily ES E-Mini futures with an 18-day Bollinger Band on it. I will leave that exercise to readers.
Anyway. One doesn't lose their head on the upside, and one doesn't lose their head on the downside, either. Patience and flexibility are still needed. There are other options, including, again, on the weekly chart, that the waves labeled Minor 1, 2, 3 are just Minor A, B, C of Intermediate (1) of a contracting ending diagonal. I again have absolutely no preference on how this Primary 5th wave ends - impulse or diagonal. I hope you don't either - as that is the spirit of true objectivity.
Have a very good start to your weekend.
TraderJoe
Joe, I'm thinking that we see 2584 at a minimum in the form of a zig-zag. That's below your channel line, but every sustained and relentless extreme momentum move we've ever had in the past that was of the degree of what we had last year always corrected at least 10% before the 5th wave began.(2480 wouldn't surprise me either.)
ReplyDeleteRight. Again, the only purpose of the lower channel line is that price should attack it in one manner or another - either as a complete zigzag or as a triangle. Fibonacci ratios may better help predict the extent of the move.
DeleteOn $SPX if indeed a triangle did complete as was shown in yesterday’s post, we know it can’t be a 2nd wave. Case in point, it looks a lot like a WXY or DZZ which is very near completion given the extreme oversold conditions.
ReplyDeleteHi. You would be correct. But I don't think the structure was a triangle. It's a W-X-Y in itself. One of the reasons I said yesterday that the (d) wave could move further to the right is that the proportions of a triangle (if that's what it was) were very skewed. Neely says to beware of any triangle that has retracement legs of >78%, as the upward (b) wave would have had. Secondly, since that structure is a W-X-Y, that limits the complexity a wave may have. In other words, a W-X-Y should not have a w-x-y within it.
DeleteSo, I quickly abandoned the potential triangle count. As to being oversold, the EWO doesn't think so, yet. There is not a downward wave on a divergence with it. Pull-backs and bounces, sure.
Hope this helps.
I was referring to a McO at -270. Very extreme and yes it may just produce a large bounce
DeleteET, hypothetically, assuming your weekly count is correct, since wave 1 and 2 took 1 week short of 9 months to evolve and wave 3 is an extended wave, for balance, would the expectation be that wave 4 and wave 5 would also evolve in 8 to 9 months? Appreciate the updates! Thank you!
ReplyDeleteHi John. Not necessarily. In Figure 37 of The Wave Principle by Ralph Nelson Elliott, he shows a short zigzag for wave 4, after the flat for wave 2. Based on the speed of yesterday's decline, such a zigzag could happen in weeks, and not several months. Note, a "shorter" wave in time for wave four also alternates in 'time' with a "longer" wave in time for wave two. It might also create the impression that the correction was not meaningful - which would be incorrect.
Delete