Thursday, November 8, 2018

Wave ((4)) of C Underway

Market Outlook: Likely Long Term Top Identified, Now likely in Minute ((ii)), up
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

As we explained yesterday, today we expected to see the ((4))th wave down, or part of the fourth wave down of the C wave impulse upward. Today is the last day I will show the 10-minute chart. It is getting too many candles on it. I will switch to a longer time frame chart tomorrow.

Before showing you the 10-minute chart, I thought it would be instructive to have a slight dissertation on the presence of diagonals and two rules of degree.

1. It is NOT acceptable to have two diagonals of the same DEGREE in the same wave.
2. Is IS acceptable to have two diagonals in the same wave if they are of DIFFERENT degree.

Here is today's S&P500 3-minute chart. It is just of today. Today's up wave did NOT make a higher high. I didn't think it would, because the (B) wave of wave ((2)) did make a higher high. And there would be no alternation if today's (B) wave did.

That is a very important point because in the cash market, the wave can be counted as a zigzag (A), (B), (C) wave downward. True as that is, please note the presence of TWO diagonals on the three minute chart (there are actually four, can you find the other two? hint: they are at smaller time frames).

The day started with a gap down which was filled. The gap wave was the (A) wave down. The retrace wave was the (B) wave. If you will look closely, you will see B of (B) did NOT travel below the start of the A wave of (B) allowing this whole wave to be constructed as a zigzag. But, just look at the C wave of (B)!

S&P500 Cash Index - 3 Minutes - Two Diagonals



It is what's known as the relatively rare, Ending Expanding Diagonal - just like the daily one in the DOW from the Apr low to the October high that I showed in previous posts. (See this LINK.) If they are so rare, what the heck are they doing in my charts?! Notice that wave ((v)) is longer than wave ((iii), and wave ((iii)) is longer than wave ((i)), and wave ((iv)) is longer than wave ((ii), and wave ((iv)) overlaps wave ((i)), but does not travel beyond the end of wave ((ii)), and they are all three-wave zigzag sequences - meeting all the criteria for an expanding ending diagonal. Great!

But now note it's degree designation. It is a C wave, which is part of a (B) wave, and NOT the same degree as the (C) wave, downward, that follows. And this downward (C) wave is ALSO an ending expanding diagonal, but this one is of the larger degree wave (C).

Yes, both diagonals are in the SAME zigzag wave. But both diagonals are of a DIFFERENT degree. Did the market bounce you out at all on Fed day? The diagonals are why. And there's that term 'degree' again.

So, now we have a 'perfect' zigzag, with prefect trend line touches to alternate well with wave ((2)) on the ten-minute chart. The problem with a 'perfect' zigzag is that it often leads to multiple zigzags. 

So now, here is the 10-minute chart again, the last time before I switch time frames.

S&P500 Cash - 10 Minutes - Retrace wave ((4))


Now we have a perfectly good wave ((4)) down. We said we were expecting the Elliott Wave Oscillator to go below the zero line, and it did. The only partial problem now is that wave ((4)) has not even attained a 23.6% retrace - let alone a 38.2% retrace. Is it enough? Technically, yes. It clearly overlaps wave ((3)), and has good alternation in that it counts as a zigzag. Late today it became just longer than wave ((2)) in time, and that is sweet! The typical relationship in an impulse wave. But, both because of it's depth, and the perfect nature of the zigzag, it can go lower if it wants and become a double zigzag.

So one must watch the opening gap direction for clues. I hope this was helpful.

Have a good evening,
TraderJoe


66 comments:

  1. TJ, thanks, as always for sharing your analysis. Am I correct in assuming that only a new high in the indexes would cause you to call an end to the bear party?

    Regards,
    Douglas

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    Replies
    1. Partially, but I would want to see "five-waves-up" somehow too.

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    2. Doug...After a 10 year rally, you think we have more time left? I guess you believe bond yields topped too? Oil is crashing again and all the commodities are in a bear market. Stocks cannot be a safe haven. Don't confuse yourself with this recent severe rally. In Sep to Oct of 1929, the markets sold off 14 percent after making new highs. Then, in the beginning of Oct stocks rallied hard 10 percent and everyone thought the markets would break to new highs. It was a wave 2 sucker rally followed by a massive wave 3 crash two weeks later.

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  2. Joe, Thanks a lot for guiding us with so much insight here.

    I know I am asking for too much, but it would be great if you could
    a) Point me to your posts that talk about wave degrees (and violations)
    b) Make a video of the post "confidence level of a down market", that I am having a lot of difficult following just from text, even after reading it for the fifth time.

    Appreciate your help.

    ReplyDelete
    Replies
    1. Here's one, copy and paste link if needed ...

      https://studyofcycles.blogspot.com/2018/10/degrees-do-it-again.html

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  3. TJ how do you get an EED in the DOW from Feb. to Oct. when the low occurred in April?

    ReplyDelete
    Replies
    1. Sorry. Typo. You are correct. Here's the link.

      http://studyofcycles.blogspot.com/2018/09/dow-jones-industrials-proves-case.html

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  4. Brilliant dissection! Now I’m just waiting for an impulse up so I can buy me some TVIX. That is probably not so brilliant.

    -TJ (we have same nick names I guess)

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  5. Joe-

    Since you have repeatedly turned down subscription service and expressed that you’re doing this only to teach, I’m selfishly going to ask if you can analyze Gold and Dollar Index charts once a week. Perhaps Gold on Tuesdays and DXY on Thursdays along with business as usual analysis on SPX. An hourly chart and a daily chart for longer term postures.

    Thoughts?

    -TJ

    ReplyDelete
    Replies
    1. That's not teaching. That's doing. Same as a "free" subscription service. So, it's not likely to happen.

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  6. Thanks you, if only I knew about this site when I first started.

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  7. Hi Joe,

    Question about triangles. Can wave C go slightly below wave A of a triangle? I am looking at silver and I am coming up with a triangle but C briefly penetrates A so not sure if that is valid, if it isn't then it is a zigzag to me.

    Thank you!

    ReplyDelete
    Replies
    1. Only in an Expanding triangle, then the (c) wave 'must' go below the (a) wave. Otherwise, it can not.

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  8. The good news is I recognized the potential zigzag half way through the uptrending B wave today and had placed a C in the vicinity of where it ultimately ended several hours before it happened. The bad news is I could not effectively count the subwaves as the market was drawing them. Consequently, then I begin to doubt my projected wave form is correct. Then I start to wonder if one of my previous waves was counted incorrectly. At the end of the day, I can usually go back and reconcile. I am just noting that doing this in real time can be a real challenge.

    ReplyDelete
    Replies
    1. I can identify with that. It is so helpful you were looking for a zigzag. Just need to 'marry' that with the outlook for volatility on a FED day. I was expecting wicked swings, and got them.

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  9. Is it anyway possible that 2019 will mimic 1999 and go into a final hoorah bubble rally to ultimates crash in late 2019 or early 2020? Reminiscent of the dotcom bubble peak?

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  10. Joe thanks for your comments. It is very indepth and thoughtful. But I just wish I knew what it all means. It’s like me trying to read a Russian language. I don’t even know where to start. Sob sob.

    ReplyDelete
    Replies
    1. Jay .. start reading with this link .. and read all the sections. It's a good introduction.

      https://stockcharts.com/school/doku.php?id=chart_school:market_analysis:introduction_to_elliott_wave_theory

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  11. Hi Joe. I would like to kwon why your Fibonacci retracements were drawn from the beginning of wave ((1)) and not from the one of wave ((3))?
    Thank you.

    ReplyDelete
    Replies
    1. Because often wave four divides the whole wave into the golden section.

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    2. Hi ET, is there a rule which says when one should draw fibs from begining of the wave 1 vs wave 3 to project wave 4 retracement ?

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    3. "When wave three extends, wave four often divides the entire wave into the Golden Section" .. 0.618, and 0.382; but it is not a rule. It is a tendency.

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  12. Joe, my question is because your Fibonacci retracement for wave ((4)) wouldn’t be following The Eight-Fold Path Method (Step 6: “ ..verify, by measurement that wave four only retraces 23.6 - 50% of wave three”)

    It is understood that it refers to the entire wave 3, which wouldn´t be the case if the retracements were drawn from the start of wave 1 as in your second graph.

    ReplyDelete
    Replies
    1. Actually if you will draw both rulers on this actual wave, you will find that 38% x 3 = 23.6% x 1+3, to within 2 points. Also, 38% x 1+3 = 50% x 3 to within six points. This provides a zone of 2,771 - 2,777 where the prior wave (4) of ((3)) is located, which, as you know in this case is both "gap support", and often where the next fourth wave stops - at the location of the prior fourth wave. It could stop shorter.

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  13. ET, I think i have an answer to your trivia, I see one ending diagonal on 1 min chart starting at 9.36 am and ending at 10.05 am EST. Second one starts 10.24 am & ends 11.09am EST.

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  14. If this retrace gets to deep for a 4th wave it might be (ii) of a ending diagonal for C? So the leading diagonal you counted from nov 2nd would be (a) of (i)?

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  15. As of noon. The S&P500 is holding 2,771 at the 38.2% Fibonacci retracement level, and in the target zone provided yesterday. For the rest of the day, it needs to hold 2,660 (for the impulse count) or one might suspect the C wave of minute ((ii)), up, is morphing into an ending diagonal - which might be fitting if a big down draft is about to occur. We need to take it one step at a time. Futures can be counted as a single zigzag down. I think cash can too, but I have to work on that one.

    ReplyDelete
    Replies
    1. ET, I think u meant "For the rest of the day, it needs to hold 2,760" instead of 2660 ?

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  16. also consider c is done. and this is 1 down with a retest coming as wave 2. i count from oct low ABC X ABC.

    ReplyDelete
    Replies
    1. Not as likely as having an ending diagonal c wave.

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    2. Marc .. I will not review charts at my email. The email is for problems logging in to the site, etc.

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    3. no problem. not looking for a review of anything. not even EW related. no problem

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  17. daily ewo hitting 0 tomorrow. weekly just crossed 0. seems like pretty imortant area.
    thanks joe

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  18. Since the NQ futures have now overlapped lower, the ((1)), ((2)), ((3)) up can also be the first three waves of an ending diagonal, regardless of whether the 38% level is significantly exceeded lower. The EWO is currently more than -40% on the down side. It is down to -62%. That is typically too far for an impulse.

    In this case the up wave from 2,700 is Micro ((A))-((B))-((C)) of sub-minuet (i) of minuet c, of minute (ii). It's time to keep the degrees clearly in mind, now.

    ReplyDelete
    Replies
    1. Ah .. for the single zigzag down in cash, make the diagonal at the end of the day in the 3-minute cash chart, the Leading Diagonal 1st wave of C down, and today's gap down is iii of C. There is a proven fourth wave triangle 10:15 and 11:45 EST. And the down move after than may be v of C to end a single zigzag.

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    2. Clear breach of 2,771; supposing the deeper retrace is diagonal related.

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  19. Seeing expanding diagonal forming on 1 hour chart, only problem with that count is wave 4 is not long enough in time as compare to wave 2... which is making it less likely.

    ReplyDelete
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    1. I'm still in v down of C of the zigzag.

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    2. Heiken Ashi bars starting to show indecision on the 5 min chart. Could be signaling the end of the down move.

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    3. Indecision resolved to the downside

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    4. Here's iii of 5 with a new low; can go for a while.

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    5. Yup! I was looking at i of 5 as all of 5. Obviously wrong degree assumption.

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    6. Downward overlap in ES with high of 11/2.

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    7. Looks like we ended with an ending diagonal .. upward wave too long; degree violation.

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  20. Hope not too much longer as we are only 12 points from overlap of wave 1.

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    Replies
    1. One more low ought to do it. What are the ramifications of the ES overlap and none in the cash?

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    2. Cash tends to follow futures more often than not. Seeing 5 non overlapping on spx 5 mins chart.

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  21. Hi Joe, can we have a running flat in the making? So we have a of B, b of B the election bounce and now impulse down in c of B? Could be quite bullish.

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  22. As of 3:15 PM, something seems real odd on a 3-min chart. Wave 4 shortest in time? This may be an expanded flat for wave 4, with the diagonal only part of a grinding b wave down. I'll explain after the close.

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    Replies
    1. Also, it would put the diagonal at an incorrect location.

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    2. As of 3:45 PM, the futures look like a clear "five waves up", with overlap. Primary count has to be that the downward zigzag is over.

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