Ground Coffee

Today, we step back and we see what the market informs us regarding potential Elliott Wave counts. Not the other way around. We do not start with a preconceived idea and work backwards. It is most appropriate to do this with a nice hot cup of coffee, to relax the mind and open it to possibilities.

Let us first look at this weekly chart of the S&P500 cash index, without any Elliott Wave labels applied. And, again, let us concentrate largely on what is known or what can be seen.

S&P500 Cash Index - Weekly

When we do this, we note two essential things. First, price is still in the green up channel shown. While weekly price has traded below the channel, it has not closed below the channel. So, we should assume that while price is in the channel an up trend is still largely in tact. Second, we note the indicator at the bottom, the weekly Elliott Wave Oscillator (EWO or AO on Investing.com). And, with 113 candles on  the weekly chart (closest time frame to 120 candles for the wave of interest), we note that it peaked out at over 200 in January of this year.

Next, the EWO is currently on red histogram bars and appears headed for the level at which a fourth wave would be indicated. To indicate a fourth wave, the EWO should get to +10% to -40% of the largest peak. That would mean it should get below 20, as 10% of 200 is 20. (That does not have to happen instantaneously, there could be some intervening green histogram bars.) It is currently at 35.

Next, let's look at this equity four-block which comprises many of the major U.S. market averages.

U.S. Equity Four Block - All Potential Triangles

The first objective thing to note is that the downward wave to (c) took more time than the downward wave to (a) in each index. That is more consistent with a triangle than it is with impulsing waves down. Usually, the key characteristic of a third wave is that it accelerates. These waves simply do not show that. In fact, the (b) wave takes more time than the (a) wave, and now the (d) wave has only one less as many daily bars as the (a) wave. If the (d) wave extends in time, at all, it will have as many or more bars that the (a) wave down.

A second objective thing to note is that in each case price has again tagged it's daily EMA-34. And a third objective thing to note is that (as we mentioned in prior posts) the DOW has now broken it's initial down trend line from the highs, although it is currently trading back below it. That may be significant because it may mean it is not a second wave location (per Neely).

One shape that is consistent with all of the charts above, of course, it the triangle. A downward diagonal would also be consistent with all charts except the NASDAQ 100 chart, because of it's higher (b) wave. Why this exception? What is it trying to tell us?

What these charts suggest is that the (c) wave down is at least a zigzag downward.

What is also suggested in the case of the hourly S&P500, therefore, is that we must absolutely allow that the potential diagonal we are now counting in the hourly S&P500 could be a leading diagonal, as well as an ending one. In that case, the daily S&P500 chart would then count like this below.

S&P500 Cash - Daily - Potential Triangle Count

Again, the labeling above is still consistent with proper degree labeling. The only inconsistent fact that this point is that the DJIA has a lower low at (c), as we have pointed out numerous times. But, perhaps the DJIA is making a downward diagonal-like wave to finish it's fourth wave as a triple zigzag. We don't know yet.

Next, let's say on the hourly S&P chart, we do, in fact, have a leading diagonal upward and not an ending one. Well, then, we know leading diagonals are most often 'a' waves . They are sometimes 1 waves, but, most often, they are 'a' waves.

Bottom line: the majority of the equity indexes are telling us we are in a triangle. And we should respect that until or unless there is more evidence to the contrary.

Other than that I will leave you with this daily chart of May Crude Oil to ponder, with emphasis on the signature of the Elliott Wave Oscillator, and the c = a relationship in wave (i).

CL - May Futures - Daily

Further, notice that wave (ii) is the deepest wave. Therefore, any other count would likely be a degree violation at this stage.

Have a very good rest of your weekend!
TraderJoe