What May Be Next

(Fyi - there is a Friday post, too, if you have not already seen it).

Some people are visual thinkers. They can understand something better when they can see a picture or two. Other people are verbal thinkers. It's the words that matter most to them. Primarily for the former group, we will try to help clarify what 'may' be next in the wave count.

On Friday's chart, we counted five waves up, most likely to an 'a' wave. Through the comments and the discussion, we ruled out an alternate at this point in time. Interestingly, and separately, yesterday a major Elliott Wave service also counted five-waves up - but to a ((c)) wave of a Minor 2 Flat. The point is not their count. The point is we agreed on 'five waves up'. Nice. Who says, "if you put 10 Elliott analysts in a room ... ??!!"

If Friday did indeed end all or most of an a wave up, then this is what might be next for the market. We would first expect a b wave down. This b wave down could be a relatively simple wave, like a zigzag, or a flat, or it could take the form of a more complicated and time-consuming triangle. (See first inset on chart).

S&P500 Cash Index - Daily - Double Zigzag?

Then, after the b wave down, there should be a c wave up to the (y) wave of minute ((ii)). This would be the double zigzag count for the minute ((ii)) wave.  The purpose of the triangle would be to inform us that, "the last wave in the entire upward sequence is dead ahead - after the triangle."

If the b wave should turn out to be a triangle, then the c wave would most likely be only a sharp thrust up out of the triangle - a five wave sequence in which the fifth wave must be allowed to fail, because it would be a terminal c wave. It doesn't have to fail, but failure must be allowed.

If the b wave should turn out not to be a triangle - and it is more simple like a zigzag or a flat - then it is possible for the c wave to become an ugly overlapping diagonal wave. (See second inset on the chart). That is because it would not be next door to it's cousin pattern, the triangle.

If the diagonal forms, it's purpose would literally be to scream from the rooftops that "I am the last five wave sequence in the upward direction for a very long time." And, since it would be a terminal c wave, then it's fifth wave must be allowed to fail, as well. Again, it doesn't have to. There could be the typical 'throw-over' of the fifth wave of the diagonal, as we have drawn in the chart, but it must be allowed to fail given it's position in the wave structure.

The reason this post is titled "What May Be Next" is that these are two alternate scenarios, both of which are allowed by the normal and usual rules of Elliott Wave analysis. Which will come to pass, I have no advance way of knowing yet.

What I do know is that a major Elliott Wave service yesterday called a significant top, and there is very, very little price evidence for it on the chart. Daily price is still above the SMA-18, and thus has positive bias. The daily slow stochastic is in over-bought territory now, but it has not curled over yet. And, in terms of candle patterns, there is no outside key reversal bar, no inverted hammer candle, not even a Doji at yesterday's high. Further, there isn't even an upward wave that has failed in the five-wave-up-structure that we showed in yesterday's post. So, it seems very, very odd to me that they would do that. Further, a tool we respect a lot - the Elliott Wave Oscillator - on the daily chart has not gone above the zero line to indicate unequivocally a second wave up. Does it have to? No. Could it? It most certainly could and often does.

Yes, I am on alert for a big down-turn. But, I am still trying to count diligently - with measurement only and not opinion -  and use technical analysis, and not just wave counting, to help inform us of the nature of the structure. And, yes, I am exceptionally cautious here. Never hear that I wasn't.

In that regard, for the double-zigzag count price may not travel below the low of the (x) wave shown or it would invalidate the double zigzag. Yes, unfortunately, the risk of a wrong wave count here continues to grow, and objectively speaking, one can not completely rule in or out the upward progress until the low of (x) is exceeded, or unless higher highs are made. That's just the nature of Elliott Wave analysis, and we have to peaceably accept that as it is.

So, we'll see how it all turns out. Perhaps along the way, there will be some time or degree considerations that can better inform us of the structures being made.

In that regard, what I can say is that the whole purpose of a double zigzag would be to make wave minute ((ii)) longer in time. I had shown in an earlier post that the waves up to (w) only took 38% of the time of the downward minute ((i)) wave. That was an absolute 'minimum' amount of time being consumed. If the double zigzag forms, then minute ((ii)) would exceed minute ((i)) in terms of the length of time spent in the whole retracement. That's what occurred at the 2009 bottom, between Intermediate (1) and Intermediate (2). Let's see if that happens here, too.

Until then, stay on your toes, and have a good weekend.
TraderJoe