Thursday, April 5, 2018

Gap Up Day

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

Yesterday, we said because we had counted "five up" that further highs along with the obligatory backing and filling were possible. Today, we gapped up, and then backed-and-filled some. Overall, the S&P500 was up about 18 points.

Today, in something of a rare treat, I'm going to post the S&P500 cash index 15-minute chart that was developed in the live chat room, showing each wave position wave-for-wave. That chart is below. The intent in this chart is to see if The Eight Fold Path Method is followed for this time scale.

S&P500 Cash Index - 15 Minutes - The Eight Fold Path Method

So, beginning on the left, we have the bottoming process. There are a pretty clear five non-overlapping waves up to (1) which your mind can probably imagine as being 'roughly' in a channel. Then, there are three clear waves down that obviously leave that channel. I have labeled this wave w because the following wave up to x only has three clear waves. It just misses making a fifth wave up. And the down wave to (2) also has only three clear waves on the chart. So, that down wave to (2) is a y wave. The y label is not shown, but understood.

The shape of wave (2) will become important later. Note, the EWO does cross below zero on wave (2).

Then there are five waves up labeled as i, ii, iii, iv, v to wave (3). In this case it is (3) > 1.618 x (1), and it is very, very close to the 1.618 level. The gap is located in wave iii of (3), and the EWO is at maximum on wave iii. It diverges ever so slightly on wave v of (3) - as it should - following The Eight Fold Path Method.

Today in chat room we called for a wave that would alternate with wave (2). If wave (2) is the expanded FLAT wave, as shown, with the higher x wave, then wave (4) might be expected to be a regular flat (i.e. not a higher b wave), a zigzag, dzz, or triangle. As best we can tell, we got three waves down to an (a) wave. Then, we got three waves up to a (b) wave. And somehow - probably because the payroll report is tomorrow - the (b) wave did not go over the top, expressing some of the alternation we are looking for.

At present, the Elliott Wave Oscillator is red and declining. So, this suggest that a fourth wave can be in progress with the right hand channel line as a target.

IF price wishes to, it may make any of several waves for a fourth wave down to 38% or over to the lower channel line. Because one of those options is a barrier triangle therefore, the overnight must be watched carefully to see if the high is exceeded. If not, one of the other options may be in play, and the Payroll report will, of course, have it's say.

If an impulse wave forms upward, it may well be an a wave of the (d) leg of the triangle we showed yesterday for the daily ES futures.

In any event, you can see above what I see. No mystery, no drama, just a simple procedure for wave counting. And yes, most importantly, you can see the options for even this fourth wave, at this small degree of trend. That is why I coined the phrase, The Fourth Wave Conundrum, and I contend it occurs at every degree of trend. It is one of the factors that makes using Elliott Wave for trading more risky than many people think.

It is one of the many lessons I have learned over the years about counting Elliott Waves. And there are many, many more. But, for tonight, have a good start to your evening.



  1. Thanks Joe. Let me offer a completely different count from 2554 that fits the idea that we've been in a running flat since the 3/23 low at 2586. The 1st wave was an abc to 2619. Then wave b to yesterday's opening low at 2574. Then wave c up to 2672, but I'm referring to the 2nd print of 2672 late in the day. (I'm counting the 1st 2672 as b of iv.) At 2672, c is a 1.50 extension of a. Also, 2669 is the .382 retracement of wave A (2802-2586.) If the market were to gap lower and continue straight down tomorrow because of a bad NFP number, then that would create an "abandoned baby" reversal top and confirm the running wave B count. It's valid until it's not.

    1. Lol. What is a 'bad' NFP number? Too many or too few? I don't mean to be smart. Be cautious and watch out for reversals.

    2. Thank you Trump, let's crash these markets! 100 billion more in tarriffs!

  2. Looking like a bad day tomorrow in the markets...futures deep in the red!

    1. Looks like the President's tariff comments - regarding consideration of an additional $100 billion.

  3. Hi TJ,

    And this wild market continues. Since SPX did not exceed the March 27th high, is it possible this is still part of the C wave of this assumed triangle?

    Thank you as always for your fantastic insights, there really isn't anyone like you on the internet right now.



    1. Thanks for your comment Andy. The logic of the best counts are presented in the Saturday post. TJ.