Tuesday, May 22, 2018

End of Minute (d) Approaching ?

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

In the daily chart of the S&P500 cash we said it was likely the c wave of the minute (d) wave was underway, and we had stated it could have higher to go. It still could. 

Yet, in the live chat room today, this hourly count was posted.

S&P500 Cash Index - Houly - c wave of minute (d)

So far, we can count this movement as a potential contracting ending diagonal to end the c wave of the minute (d) wave. Interestingly, we called this potential wave structure at today's marginal new high - which makes such a diagonal a potential. Notice how the Elliott Wave Oscillator is declining from wave ((1)) to wave ((3)). We had no assurance that wave ((4)) would begin in earnest, but it did.

As a refresher, here is that larger potential daily triangle.

S&P500 Cash - Daily - Potential Larger Daily Triangle

Clearly you can see why we have a Fourth Wave Conundrum. This larger triangle could play out or the smaller triangle - as we outlined in a previous post on The Russell 2000 Index (with it's new high) could have been the triangle of interest - just apply the same declining trend line from (b) to a, above in the smaller version of the triangle. There simply is not a fool-proof way to tell.

The hourly ending diagonal c wave could be spelling out that the prior b wave low will be taken out by the minute (e) wave lower. That is one excellent possibility. In any event, I would like to see the (e) wave travel below the blue EMA-34 shown for best form and balance. Such a wave would probably generate a lot of bearish sentiment.

And, so that you know, this is now the first time that I can call a legitimate downward alternate to this count - bearing in mind there is little downward evidence for it just yet. However, in the interest of 'an abundance of caution', we're going to show it to you here first.

S&P500 Cash - Daily - Downward ALTERNATE

The above count would be that of a double combination w-x-y whose purpose would be to form minute wave (ii) after a minute wave (i), down, from an Extended 5th wave higher. This count would be the very same in the DJIA as it would be in the S&P500, and might help explain the Dow's lower low at x, which is unconfirmed by the S&P500.

Why have we NOT counted it as the proverbial 1,2, (i), (ii) down as so many web-sites have? Well, remember Neely's guideline that no part of wave 3 should break a line from 0 - 2? That is what would happen if w was wave 2., and if y was wave (ii). So, we are not going that route.

Further, we think that considering this wave as either of the two triangles, above, or as the double-combination alternate count has served us well in terms of predicting just how this wave would stall as it has in the low volume reflecting the tremendous uncertainty as nations elect whether or not to play the "Trade War" game.

And this should be the best written illustration of why The Fourth Wave Conundrum exists in reality. With exactly the same wave structure, you have the clear possibility for the smaller triangle, and the larger triangle which point upward, and this latter double-combination, which points downward. If that doesn't spell conundrum I don't know what does.

We might suppose that with the recent highs in the advance-decline line, that it would be better to have a Minor 4 triangle help finish the Primary 5th wave to end the SuperCycle. That's our bias, but it is just that, our bias. It could also be that the Primary 5th wave ended with the extended Minor 5th wave as a major Elliott Wave firm sees it. And, the evidence for that might be that we are forming an ending contracting diagonal. Will such a structure lead to a complete breakdown of the entire triangle? It could. But, it hasn't as of yet.

Stay tuned, and have a very good start to your evening.


  1. Hello.
    To consider a double combination in this case, it would have to be a double zigzag, right? Isn't a double zigzag meant to extend the correction in price, taking y higher than w? Being y lower than w, your alternate count doesn't look good to me.
    Going back to your larger triangle count, your wave a of (d) appears to me as a 3 wave structure, a double zigzag, which wave y displays a leading diagonal in its wave a. And, for that reason, I'm favoring the smaller triangle count.
    And note that your EWO has now made a higher high compared to the level reached in wave b.
    Thanks for your time.

    1. Yes, very often a double combination will have the Y wave higher than the W wave. But, this is NOT, under any circumstances, a double zigzag. It is a FLAT because the X wave is at least 90% the retracement of the W wave in the S&P500, and it is slightly a new low in the DJIA. So, if Y does not move beyond W, then it would be a 'failed flat' or a 'truncated flat' which would indicate great weakness ahead.

      Further, although I have 'outlined' the case of an hourly ending diagonal, we 'simply do not know' that upward movement is over, or will end in a diagonal. It 'could' go further, but we are about to find out.

      I am aware of the EWO on the daily chart. But there are NOT 120 to 160 candles within the triangle - which is 'the wave of interest' on the daily chart. Therefore, one must look at the EWO on a lower time frame that provides the 120 - 160 candles; like the 12 hr or 8 hr chart.


  2. A question, Joe. Wave (a) labelling in triangle wave count would be a :3, while wave (i) in the alternate count would be a :5. Does this mean the wave structure is such there is not enough evidence to prefer one (corrective) to the other (impulsive)?

    1. Yes, the first wave down to (a) can be interpreted in two ways. The futures did not confirm a fifth wave down in cash within (a). So, strictly speaking while cash 'can be' counted as a 'five' the ES futures can only be if a truncation is assumed (which I am not at this point). And none of the YM, NQ or TF futures can be counted as a 'five', downward. That's one of four factors that makes either of the triangles the preferred count.

  3. Thanks for the update Joe. Isn't it possible to count the recent rally from the 5/15 low to the 5/22 high as a 5th wave terminal? I realize that wave 1 of that rally did not exceed the previous 3rd wave, but other than that, it looks textbook to me. The only other possibility is that rally was a wave b of a flat.

    1. Welcome. The most common alternate for a potential diagonal is the b wave of a flat.