Alternates & The Eight Fold Path

Welcome to the Fourth Wave Conundrum! We have been writing about this phenomenon since February of this year when we first posited that a triangle 'could' form for a Minor 4th wave in the S&P500 Cash Index. This conclusion was suggested because a Minor 4th wave would be larger in points, than the prior Intermediate (4)th wave unless a triangle formed. That is because a triangle is always measured to it's (e) wave to determine its length.

Meanwhile, a major Elliott Wave service and certain websites were predicting a panic crash that simply has not yet occurred. They used phrases like "the third wave will begin accelerating down immediately". That just didn't happen yet. (Could it? Yes. Has it? No). Instead prices have had no net travel since the first few days at the beginning of February.

We have already shown you how a "smaller triangle" could have formed. An updated chart of the smaller triangle is below.

Figure 1 : S&P500 Daily Chart - Completed Smaller Triangle

This, above, count has the advantages that 1) it is completed - so we could stop talking about a triangle! 2) It is well-formed, agrees with the daily Elliott Wave Oscillator (EWO), as we showed before, 3) has minute waves ((a)) - through ((e)) each on an opposite side of the EMA-34, 4) each wave counts correctly: each wave is a zigzag except wave ((e)) which is a triple zigzag, and 5) the pop out of the triangle occurs reasonably near the apex of the triangle. In this count, minute ((i)) of Minor 5 is completed, and minute ((ii)) could have completed or may still be underway. So far, minute ((ii)) has taken less time than minute ((i)) suggesting that a deeper correction or one longer in time may still occur.

Then, there is the larger version of the triangle.

Figure 2 : S&P500 Cash Index - Daily - Completed Larger Triangle

The larger version of the triangle has many of the same qualities, although it does not fit the daily EWO quite as well. It does have the advantage that it's minute ((e)) wave is shorter - which makes a much better "fit" with the point distances traveled by Minor 4, and Intermediate (4). And, Friday's high stopped right on the declining trend line, without yet breaking the minute ((d)) wave high. But, it also has the disadvantage of price not being as close to the apex of the triangle if a breakout were to occur here. Could the (e) wave extend lower? It certainly could provided the minute ((d)) high is not exceeded first. It has not been, yet, in the Dow and the S&P.

What if the minute ((d)) wave is only marginally exceeded higher? Yes, it is possible to draw an even larger version of a triangle. This one would see the minute ((d)) wave as a triple zigzag, as in Figure 3, below.

Figure 3: S&P500 Cash - Daily - Largest Triangle in Progress

This version of the triangle has the characteristic that the minute ((d)) wave, being a triple zigzag, would be the complex leg of the triangle and would be fulfilling the mission of a triangle: to take up time and to move price sideways. But it has the disadvantage that some of the zigzags would look non-proportional within this ((d)) wave.  Still it might allow for more symmetrical slopes to the two triangle trend lines, and push price further out into the apex of the triangle in another ((e)) wave.

In this version of the triangle, though, minute ((d)) may not trade above the minute ((b)) wave.

So, here we are: three different versions of upward counts - any one of which could come true - or has already come true in two instances. And there is one downward count that we have noted before, which is minute ((i)) down at the February low, and this upward wave is minute ((ii)), up. So, there are four different counts - using pretty much the same wave structure, and that's what makes trading with the Elliott Wave still quite a risky business. This is very true at or near market tops where it takes a larger number of points to prove one's wave count or invalidate it. It's what makes it The Fourth Wave Conundrum, and it does occur at every degree of trend.

Of course, there are other lenses through which to view the market. For example, the most recent cash price action was a "gap up". And in the daily futures, the ES price is above the 18-day SMA, giving it a positive bias, and the 18-day SMA has just crossed above the 100-day SMA, giving the moving average traders a "bull cross". The daily slow stochastic has turned up from the 50 level, and so momentum, as of Friday, is and was up. And while that is to be respected, there is a daily upper Bollinger Band sitting at 2,747 which is not too far away from the current price. Further, the bands have narrowed in the last three days which may presage an eventual breakout.

ES E-Mini S&P500 June Futures - Daily - Bollinger Bands

So, will price latch on to the upper daily Bollinger Band and ride it higher to make that Minor 5th wave? Or will price hit the upper band and reverse again, break lower and make a further wave ((ii)), or wave ((e)), lower, or something worse?

Again, my bias is that a triangle completes, and a satisfactory Minor 5th wave up completes (even if it truncates in some indexes) to make a clearly identifiable conclusion to a Primary Vth wave.

Lastly, using fully disclosed Eight Fold Path Methodology in the weekly chart, below, we see that it has 119 candles on it; the only time frame that mates with the 120 - 160 candles recommended by the method. Further, we see price is still in the up channel, and we had commented in prior posts how the Elliott Wave Oscillator had come back to the zero line to likely indicate the Minor 4th wave.

S&P500 Cash - Weekly - The Eight Fold Path Methodology

So, when we count using proper degree labeling (so that minute ((i)) of Minor 3 is not longer than Minor 1), we also see that any of the triangles - the smaller one is shown - is now longer in time than Minor 2, at 14 weekly bars versus 12. This is a truly excellent result, to have a fourth wave longer in time than a second wave, and it is one you will hear little mentioned on other websites, or even by major Elliott Wave services.

Could a triangle go longer in time? Yes it certainly could, but only within certain limits. Does a triangle have to go longer in time? As the above chart shows, it does not have to. The weekly EWO is already green and rising which 'could' indicate the fifth wave, Minor 5, in progress.

Have an excellent weekend.
TraderJoe