Dollar Demonstrates 4WC

In our last post we said it was the first time possible to count a completed five-wave up sequence in the U.S. Dollar Index, so we wanted to alert the reader to it. However, well aware of the Fourth Wave Conundrum (4WC), we said we could still see two ways for the Dollar to extend it's rise if the potential ending diagonal we highlighted did not show the typical post-pattern behavior. We said that the first possibility was of that of a longer wave (iii) for the diagonal, and the second was as a longer triangle for a fourth wave.

With Friday's large move higher, it appears the latter of these options is the correct one. Here is a revised daily chart of the U.S. Dollar Index. Friday's move does look like the typical 'thrust' out of a triangle, still on a divergence with the Elliott Wave Oscillator. The 'fooler' wave, of course, is the (d) wave of the barrier triangle - with it's marginal higher high - which initially suggested the upper barrier line could be the up-sloping line of a diagonal instead.

U.S. Dollar Index Futures - Daily - Likely Triangle

With the inclusion of the channel, and the measurement boxes, one can see that the best count at this time is as a standard impulse wave - with 124 candles for the wave of interest - well within the usual parameters of The Eight Fold Path Methodology. And the boxes show this impulse has the potential to form a 5 = 1 leg, a very common relationship in Elliott Wave work. The important lesson here is not the exact count. No, the significance is that the Dollar demonstrates clearly how The Fourth Wave Conundrum operates to create uncertainty in the Elliott Wave - an uncertainty that must be dealt with and incorporated into one's routine. And, it happens at every degree of trend.

With Friday's drop, the S&P500 Index can be in one of several configurations including a fourth wave flat, a fourth wave triangle, a fifth wave diagonal or even a fifth wave truncation. Because some of these options are at different degrees of trend, rather than confuse the reader with too many options, we will be patient and calm and look for the wave sequence to clear up a bit. However, we will show the futures contract that has the greater propensity to be in a triangle now, at that is the Russell 2000 futures, below.

Russell 2000 Futures - Daily - Potential Triangle

Again, like diagonals, triangles are structures which must prove themselves by forming properly, and by showing the correct post-pattern behavior. We will watch to see if this one does. As with all potential triangles, any significant drop below the prior (c) wave would be a sign that a triangle is not forming properly and require re-evaluation.

In the meanwhile, have an excellent weekend.
TraderJoe