Degrees Do It Again!

Today's post is occurring earlier than typical; it's just after noon on Monday. If you read the very cogent discussion begun by Marc Spungin in the comments section yesterday on degree labeling, you see that I said that based on only one concept - that of degree labeling - that I thought it was highly possible for the averages to make a new lower low today. Let's examine why.

Here is yesterday's chart of the cash S&P500 Index on a 15-minute time scale. It "looked" impulsive, and has a gap in the right place for an impulse wave. But that is not the whole story.

Incorrect Count - S&P500 Cash - 15 Minutes - Degrees are Wrong!

If you look at the above chart, here is what's wrong using the concept of "wave degree". The supposedly smaller degree wave (i), which is supposedly a sub-wave of wave 3, is larger in points traveled than the entire wave labeled 1! Wave 1 is shown, incorrectly, as a larger degree wave. So what might have looked good in the heat of battle, on calm reflection and review must somehow be incorrect.

So, now that we have the lower today, we have a much better wave count - which we predicted in advance - that can both be shown to you (in near real time), and a clear demonstration of why degree labeling helps make predictions about the course of prices. Here is the corrected chart.

Correct Count for Wave Degrees - S&P500 15-Minute - Leading Diagonal

First on the left hand side of the chart, the corrected degree labeling shows why Neely is such a proponent of a truncation for the ends of significant waves. The degree violation clearly allows one to assess that all of the mid-day hash on 03 Oct was just part of the truncating wave sub-minuet v of minute (iii)! Then, the five smaller degree waves (i) through (v) can clearly make up the larger degree wave 1 (still not sure if this is micro or sub-minuet, but that is not relevant to this example). Then, the large zigzag for wave 2 is much, much larger in points than wave (ii), so this must be a higher degree wave 2. We have already explained the five smaller degree waves now shown inside wave 3, and then over the weekend we measured what is now wave 4 to be smaller than wave 2.

So, we have wave 2 and wave 4 both as sharp zigzags (no alternation), and wave 4 is smaller than wave 2, and wave 4 overlaps wave 1 at the red line. These would be the requirements of a 5:3:5:3:5 Leading Diagonal "a" wave lower. 

What made the prediction possible that we would see a lower overall low today was the fact that in a Leading Diagonal the fifth wave may not fail. And it didn't! The lower low is shown.

Finally, we now have the requirement that wave 5 must remain shorter than wave 3, or else the wave is impulsing, not forming a diagonal (or the diagonal is extending to form a larger 3:3:3:3:3 leading diagonal). So far, the Elliott Wave Oscillator is diverging as it typically does during a diagonal.

Let's see how it goes. We are very, very grateful for having had the opportunity to show you the importance of getting wave degrees correct in near real-time. It led to a correct prediction, and the whole point of Elliott Wave analysis is that, within certain limits, it should be predictive.

You see, the impulse count would have predicted a retracement higher today. The more likely diagonal count predicted lower lows. That's a pretty big difference in views.

P.S. Update after the close. After the low of wave 5, of the leading diagonal, an up wave began and it HAS broken the declining diagonal trend line by quite a bit. Therefore, it appears the b wave up is underway. Again, it can be a zigzag or multiple zigzag, a flat, or a triangle. Most likely it would not be a triangle since we just had a diagonal.

Have a good Monday.
TraderJoe