Window Dressing

Today was the expected window dressing day (which started actually in last night's overnight session with Alphabet's revenue miss and stock decline). 

Tomorrow is the first trading day of the new month as well as the FED meeting, decision, and news conference following. So, we could see some inflows, some reaction to the Fed, and all around some volatility. With the ES price still above the 18-day SMA, and daily slow stochastic still embedded it still has a positive bias although it is bumping up against its upper daily Bollinger Band, which lends a note of caution.

The Russell 2000 futures had two clear Elliott Wave patterns on the intraday chart, which is shown below.

Russell 2000 Futures - Intraday - Two Patterns

The first pattern on the left is a clear, very whippy, Leading Contracting Diagonal a wave. This is a proven diagonal and the measurements were pretty exact. The b wave retrace was absolutely minuscule which is what prompts Glenn Neely to say that the b wave of a zigzag can be - at times - as little as a 1% retrace. This is awful stuff if one is looking for proportional waves. The c wave down was the bulk of the window dressing. Then, after a five-wave a wave up beginning after 10 am, a fairly rare barrier triangle begins with three waves down to (a).

It is hard to catch some of these patterns on larger time scales, so this one is presented for learning purposes. Notice how the a wave, up, forms part of the barrier. It is rare to catch this. Also while the (b) wave does not make a new high, the (d) wave just pips over the high but does not close above it. This is a requirement on the time-scale of the triangle. 

Finally, notice with what precision the (e) turns around and bangs the lower triangle trend line yet avoids closing below the (c) wave. Also note how flat the MACD indicator is during this time period. This is very characteristic of triangles.

On the Russell, there is a potential for these three-wave sequences to become part of an ending diagonal. If so, this one would be wave (iii), higher, if it does bust through and make the new high.

Let's see what tomorrow brings.

Have a good start to the evening.

TraderJoe

Bulls Need a Stick Save - It Could Happen, But be Very Cautious

Yesterday, on the chart in the post-script of our article, we had posted minute wave ((iv)) at the 7,756 level in the NASDAQ 100 Index after carefully watching the overnight futures prices and determining that a downward pointing diagonal was not forming. Higher highs for the NDX cash index did occur. The futures also made "five waves up" including a verified ending diagonal at the end of the day. The chart is below.

NASDAQ 100 (NQ) Futures - 15 Minutes - Five Waves Up

Further, we noted that often the end of the month is "window dressing time". On this index, the window dressing began in earnest after the cash close.

There are now a clear five non-overlapping waves upward, with much of the overnight session occupying a very long wave iv. This was followed by an overlapping five-wave diagonal fifth wave higher. And this ending diagonal is a verified diagonal. Prices exceeded the start of the diagonal lower in less time than the diagonal took to form. Further, the high of wave i has now been overlapped downward. Therefore, this can not be part of the fourth wave, it must be a larger degree second wave, or a full-on down move.

There are 111 candles on the chart - which is not too bad of a fit for The Eight Fold Path Method's recommended 120 - 160 candles.

The reason the bulls need a "stick save" is that the diagonal is verified. It may just end  this wave sequence. This wave might only be the first of a larger wave for minute ((v)). But, if that is the case, then prices should not trade below that 7,756 low. As far as I know, where cash did make a higher high, the futures did not.

The large drop in the NQ came when Alphabet (GOOG) reported a revenue miss, and  the stock dropped 5% in the after-hours. So, even if a stick-save does occur (sometimes these things reverse by morning) the whippy action means a good deal of caution in wave counting is needed.

Have an excellent start to your evening.

TraderJoe

A Very Simple Situation

It is quite true when writing a market blog that many people want to know your "long term" view without bothering to wonder what is around the next corner first. While I do not claim to be a market Nostradamus, the immediate situation does not have to be anywhere near that mystical or exciting.

Below is a chart of the NASDAQ 100 futures (NQ) on a fifteen minute basis. As most market participants know by now, it would be hard to see the market going down without this sector failing, and probably first. So, instead of looking at daily charts and groaning over the longer term chart again, let's look at this chart of the short run, instead.

NASDAQ 100 (NQ) Futures - 15 Minutes - Simplified

This chart makes life so easy it almost hurts. The chart is currently of an expanding double-zigzag downward. Those two zigzags are labeled as w-x-y in red near the separation line of the indicator panel. As important as the expansion in price (with y being longer than w in price) is the expansion in time. The second zigzag takes much more time than the first.

Then, after these two zigzags, there appears to be another zigzag upward, based on where prices stopped for the week. But we caution, this up wave has not proven to be over, yet. The only thing the up wave has proven is that it, too, is longer in time and longer in price than the prior upward wave marked as (ii) or x.

Yes, you guessed it. IF the high of 7,855 holds, then this pattern can begin to shape up as an expanding diagonal downward of the 3-3-3-3-3 variety. But, this pattern is on a razor thin margin! IF the pattern holds, then more lower lows might be expected. But, because of the razor thin margin, if the high of 7,855 is exceeded, it simply means there is more upward price movement to be expected. What is very nice about the potential pattern, however, is the deepness of the retrace waves. This deep type of wave is what is generally expected in an expanding diagonal. So far, so good.

Try to remember that Tuesday of this week is the last trading day of the month which often, not always, brings some sloppiness due to month-end window-dressing. And then Wednesday would be the first day of a new trading month - which we have written before often, not always, results in positive inflows.

But right now, the task is ridiculously simple: watch the overnight futures for clues on whether this pattern breaks or holds. The task is to find a valid Elliott pattern, and, until then, just be flexible and patient in wave counting.

I'll have more to say on the long run in the future.

Have a good rest of the weekend.

TraderJoe

P.S. The NASDAQ 100 futures did have an invalidation of a few points in the overnight session. And that little invalidation now tells us a LOT about the current count. See chart below.

NASDAQ 100 Futures (NQ) - 4 HR - Extended First Wave

Because there is only a double zigzag downward from ((iii)), we now know to potentially expect higher highs. There is now an impulse up in the futures from the wave labeled as ((iv)). So, the count is of an extended first wave, with a retrace for wave ((ii)) of much less than a 38.2%. But wave ((ii)) is longer in time than wave ((i)). Wave ((iii)) is shorter than wave ((i)) and stopped at the level of 78.6% x ((i)).

Wave ((iv)) is a clear double zigzag that alternates with the flat double-combination for wave ((ii)). IF, for some reason, new highs are not obtained, though I expect they will be, then the current impulse up is the failure or truncation wave ((v)). Remember, Wednesday could see first of the month inflows from pension funds, 401k's, etc. Wave ((v)) would need to remain shorter than wave ((iii)).

Bonus Chart

While we are waiting for the stock indexes to more fully resolve, this bonus chart is being presented. It is of the EUR/USD daily, and it is a fine example of an Expanding Diagonal, in real time.

EUR/USD - Daily - Expanding Diagonal

It is very, very rare that you get to see such a pattern on a daily chart, so I didn't want to miss the opportunity to present it to you. I have literally been waiting weeks for the correct measurements to be established, and now they are.

Both the price signatures and the time signatures are correct. Wave (v) is longer than wave (iii) which is longer than wave (i). Wave (iv) is longer than wave (ii) and overlaps wave (i). Wave (iv) is also longer than wave (ii) in time as well as in price. I have not seen this count presented by anyone else, and as far as I know, it is original with me.

There is an outside reversal bar at the bottom, and it occurs on a divergence with the EWO. The only caution is to verify that this up bar is not part of a fourth wave of c of (v). Otherwise, from a wave counting perspective, the pattern may be considered complete.

Have a good start to your day.

TraderJoe

Base Channels and Out-sized B Waves

Some of you will hate this post. Some of you will like it. One of the best ways I can think of to show why I think the current up move in equities is a Minor B wave is to show you an example of a true impulse in another market. This one is current. One reason I show it to you is to show you than I can, indeed, count an impulse. The chart is the U.S. Ten Year Treasury Note Futures Daily.

U.S. Ten Year Treasury Note Futures - Daily - Impulse

First, let's be clear, it took me less than 15 minutes to analyze this chart and to find where you and I would likely differ.

Starting at the lower left, you see a wave labeled 1, that looks remarkably like a "three". But, it is either 1 and and flat 2, in which case the b wave of 2 is larger than 1, or it is just 1 with a very brief fourth internal wave that gives it the appearance of a "three". Either way, the second wave retraces a very deep 82% of wave 1 as shown. Remember Neely's caution about the extremely low probability of a second wave beyond 62%? Throw it out the window in this chart! The extremely deep base sets the foundation for the large rise that follows.

Also - in terms of time - if wave 2 is a Flat, then it does take more time than wave 1. If it is not a flat, then it doesn't.

What follows should be quite clear. There is a clear break of the dotted "base channel" drawn around waves 1 & 2 just as R.N. Elliott instructs us. Then, the third wave is a clear non-overlapping five wave sub-division with gaps that ends beyond the 1.618 level. But, the wave did make the 1.618 level. 

Where most of us will differ is that most of you will be tempted to put wave 3 on the spike that I have labeled the b wave of 4. But if you do this, you will quickly note that wave 3 then gets one too many sub-divisions, and no longer counts like an impulse, itself.

Further, you will fail to recognize that wave a of 4 is too short in time to correct any of the previous up waves - leading to - yes a corrective wave b that is massive in comparison to it's a wave. This over sized b wave is the b wave of a "running triangle" and it clearly looks like a "three", regardless of it's power to move prices higher. The rest of the triangle clearly is designed to "take up time and move prices sideways" until the e wave overlaps wave 3, again, as wave 4.

Wave 4 is then longer in time than wave 2, yes, but it is also longer in time than wave 3, which Neely likes to see. Next, when we draw the channel from wave 2 to wave 4, with a parallel copy on 1, we find that wave 3 is somewhat outside of the upper bounds of the channel. This helps indicate that wave 3 is the wave with the most amount of momentum.

It turns out in this chart, the maximum of the MACD is on the b wave of that triangle, not on wave 3. Fooler? Or does it just represent the power of an out-sized b wave. Then as Neely correctly predicts, the out-sized b wave leads to a "failure" wave. The c wave of the triangle does not break the b wave low. There are some things Neely has gotten exactly correct, there are other things which have not passed the test of time.

After the triangle, wave 5 breaks out with five quick waves up - which is almost, but not quite - the size of wave 3. The fact that wave 5 did not exceed wave 3's length, shows that wave 3 is the extended wave in the sequence and should be denoted x3. The MACD does diverge on wave 5, as expected.

Now I know that most of you hate this b wave. You will look for another way around it, like putting "three" at that high, and saying there was only a double combination downward after it. Fair enough. But, keep in mind, we have said that by the principles of degree labeling it is very hard to find ways where the third wave can exceed the 2.618 Fibonacci extension level.

Further, the Elliott Wave Principle indicates that the "running triangle" is a very common structure - particularly in strong markets. And, the triangle indicates the "last wave in the sequence" is dead ahead - which it was. The downward wave has overlapped a prior wave and appears to have broken the channel lower. Beyond that - since fourth wave triangles provide alternation for any type of second waves, having a triangle here "cleans up the mess" left by trying to determine if wave 2 was a flat or not.

Again, this analysis of a current chart took only 15 minutes - start to finish - although it took longer to write about it. Yes, I can actually analyze impulse waves. I do it all the time, and this one  is quite messy at that. Hopefully, analyzing a current impulse independent of anyone else's view might prove helpful to you and lend some additional confidence to what I do.

It is many of these above characteristics that I can not find in the current stock market rise. Is the current rise just like that little (sic) b wave, above? Only time will tell. The question is not how I will count it. The question is how will you? Or .. will you even bother...

Have a good start to the day.

TraderJoe

P.S. At the risk of generating any 'degree violations', I tried to clean up the 'bottom' of the above chart. Below is a four-hour chart in what clearly looks like an expanding diagonal off of the bottom and a deep >80% retrace as a zigzag and back to a prior fourth wave, at that.

US Ten Year Note Futures - 4 Hr Chart - Expanded Diagonal

This, now proven and not potential, diagonal would be of the 5:3:5:3:5 variety. And, yes, I do have a lot of questions about this count. But I have to say this. Of all of the Elliott wave patterns this one is the least frequent, and therefore the most difficult to study. But this would not be a small diagonal. It occurs on the four hour time frame, by gosh. But, it seems that the internal overlaps of the diagonal require the count, as do the subsequent waves of the further impulse that follows. It is also characteristic of some leading diagonals that they have the "deep retrace" afterwords. So, the wave personality seems to fit, as well.

Dow 2nd of Two

For all of its overlaps, it is possible to count the Dow Jones Industrial Average futures (YM) as the second of two potential diagonals we showed in the prior post at this LINK.

DJIA (YM) Futures - 4 Hr - Potential Diagonal

What would now be needed now is confirmatory post-pattern behavior. As of this moment, we do not know the up wave is over, but it could be. Therefore, we must monitor. These would be the expected confirmation steps IF a potential diagonal formed and is complete.

1. Wave ((5)) must remain shorter than wave ((3)) in price, and preferably shorter in time.
2. Waves ((4)) and ((2)) would have to be exceeded lower in order.
3. The origin of the pattern would be exceeded lower in less time than the pattern took to form.

If any of the above do not happen then the pattern is not a true diagonal, and may be the diagonal's opposite alternate - a series of smaller degree 1, 2, i, ii higher. That is just the nature of the beast in looking for diagonal patterns. So, one must be on their toes from a wave-counting perspective.

The NQ futures finished up against their upper daily Bollinger Band - where the 'Smart Money' may be taking some off the table. The ES futures finished higher but may not be counted as a diagonal as the lengths of the waves are not correct. The ES did not contact it's upper Bollinger Band, and the daily slow stochastic is still embedded higher. Therefore, further upward movement is certainly possible. The Russell 2000 was higher but did not best it's prior high, yet. It may.

Have a good start to your evening.

TraderJoe

Splitsville

After opening lower, the NQ futures made a marginal new daily high, and settled higher. The Russell 2000 futures made a new daily low and settled lower. The Dow and the ES made neither a new daily high nor low. The Dow closed lower, and the ES closed higher.

The count remains the same as minute ((w)), ((x)), ((y)) to a Minor B wave, shown on the NASDAQ 100 futures, below, with minute ((y)) now slightly exceeding 0.618 x minute ((w)) - which represents very good proportion. 

NQ Futures - Daily - Double Zigzag

Have a good start to the week.

TraderJoe

Desperation and Rationale

Some people have asked me to produce an "impulse" count for the upward waves and to show why this does or not work following the degree labeling guidelines, and other considerations. At the moment I simply can not do that because the count just immediately produces degree violations of all types, and breaks Neely's 0 - 2 guideline.

But, I have been able to do the next best thing. Below is a count (which originates with me as far as I know) which wave rules and guidelines suggest is not quite correct, but which does meet degree labeling requirements. I present it only as an exercise for your thinking process regarding Elliott waves.

SP500 Cash Index - Daily - Best Try

So, let's assume you are just desperate to find those "five waves up" for some reason. If so, then degree labeling currently offers only one option that I can see, and that is a diagonal upward. If you will review the symbols you will find that all of the minute (( )) degree labels, the circled labels, are larger than minuet ( ) degree labels in the same direction, which are larger than the sub-minuet labels. Further, we discussed in previous comments how sub-minuet ii after the first minuet (b) fits degree guidelines if wave ii is a flat, and sub-minuet i ends lower than the peak. It is the net length of sub-minuet ii we are concerned about, not i. IF wave ii is not a flat, then it is a degree violation in this count - which would further tend to rule it out.

In addition to this count meeting degree labeling requirements, it also meets Neely's guideline of wave ((iii)) being entirely over the 0 - ((ii)) trend line.

But, the most significant problem with this count is that wave ((v)) is now longer in time than wave ((iii)), and that means the form of the diagonal is likely incorrect. Further, such a contracting diagonal would invalidate above 2,937 cash - where wave ((v)) would become longer than wave ((iii)) in price. And, such a contracting diagonal is likely not a fifth wave ending diagonal because fifth wave ending diagonals take place over their respective wave three's. Finally, wave ((iv)) in this count is not a clear and unequivocal zigzag. It might be a truncated zigzag, but part of it could be part of the next wave up, too. We usually don't have to question the zigzags in diagonals much - so this one makes us pause.

Another significant fact is  that often - on larger time scales - the retrace waves of a diagonal tend more towards 62 - 86% - and that does not appear here. That's not a deal-breaker though, we have seen examples where they don't. But, it does lend more caution to a count like the one above.

And then, there is the principle of equivalence to consider. Any diagonal can always be considered as it's triple zigzag counterpart - particularly in B waves. That's where we've seen it happen most. And that's because three upward zigzags are required in the diagonal.

One thing we do unequivocally know - by measurement - is that the top of the current upward wave simply can not be ((iii)). That is because a downward wave ((iv)) from that location would be longer than ((ii)) if it were to overlap wave ((i)), and that is not allowed by the rules.

It is for these reasons that I remain in the double-zigzag count to a B wave. I could spend every single waking moment producing incorrect counts and telling you why they are incorrect. But that just won't happen. I have showed you this one example to further clarify what the rules and guidelines currently say - and why.

Have a good start to the holiday weekend.
TraderJoe

Dow Solo new High

The Dow futures made a new high today over the previous day. The Nasdaq 100 futures, the ES E-Mini S&P futures, and the Russell 2000 futures did not. The Dow has some interesting trend lines shown in two versions below on the four-hourly futures chart (YM).

YM (Dow) Futures - 4 Hr - Overlapping Count # 1

The above is one way to see the latest four-hour wave in the Dow, as a completed count. But, we have learned to be very patient with these things and note that the Elliott Wave Oscillator did not get that close to the zero line. And, there is an odd way to count the same chart with a flat wave in it.

YM (Dow) Futures - 4 Hr - Overlapping Count #2

Much of the market has a holiday tomorrow. So, the overlapping count might continue into the evening and weekend in the futures. It's very difficult to say, so please remain flexible, calm and patient as these waves potentially wrap up.

The daily ES futures temporarily lost their embedded daily slow stochastic reading this morning, but by the close regained it. Bottom line is so far, that market has only made a three-wave sequence lower. It does not appear as if the volatility squeeze we wrote about earlier is completely over in all equity markets. The reason for saying this - beyond the Dow's new high - is that the S&P500 cash index (at this time) can still only be counted as three-waves-down from its high, as follows.

S&P500 Cash Index - 15 Minutes - Three Waves Down

This is as messy and as ugly a chart as one will see. There was first the Leading Diagonal shown in blue as (i) - (v) which we called out in real time yesterday. Then, there was a flat wave this morning followed by the impulse c wave, to a new daily low. This makes wave counting exceptionally difficult at the moment, and the interpretation even worse. With only an a-b-c lower, we can not assume that all of the upward movement is over just yet.

Have a good start to the long weekend.

TraderJoe

Mixed Martial Arts

In the game of chicken to see who will blink first that we have been describing over the last few days, today the bulls flinched. They are by no means down and out for the count - just yet. But, there was at least a chink in their armor. By the end of the day, the NASDAQ 100 remained higher, the S&P500 and the Russell were lower, and the Dow was virtually unchanged but to the down side. For the ES E-Mini S&P500 futures, today was another outside day down, and a potential key reversal at that - if not exceeded to the upside.

This morning we had showed one version of a potential triangle on the hourly futures, made likely by the whipsaw nature of prices. A triangle did appear to complete, and a picture of that chart is below allowing a "five-count" up.

ES E-Mini S&P500 Cash Index - Hourly - Triangle Completion

The triangle was quickly and briefly exceeded to the up side. Then, as prices headed lower, prices both exceeded the lowest low of the triangle, and overlapped wave 1, as well - allowing the potential completion of a count.

And what is interesting about today - if it should be the top - is that there is not a gap at the high! That's different. What makes us cautious - of course - is the quite narrow point loss and the fact that, while turning down, the daily slow stochastic is still over that embedded 80 level. None-the-less, if today should end the upward movement, then both the S&P500 Futures (ES) and the Nasdaq 100 Futures (NQ) can be counted like this.

ES and NQ Futures - Daily - In the Same Count

Again, if this double zigzag holds, it would likely be the B wave, with a C wave down to follow. What is critical now is to see follow-through and some acceleration. Without it, there is something else going on.

So, flexibility, caution and patience remain critical tools.

Have a good start to the evening,

TraderJoe

P.S. There was a previous post today if you did not already read it.

'Possible" Triangle

Yesterday, prices broke for a bit, retraced down to the 78.6% Fibonacci retrace level almost exactly, and then rebounded strongly in the last half-hour. This type of sharp whipsaw action is characteristic of a possible triangle in formation. A suggestive chart is below.

ES E-Mini S&P 500 Index Futures - Hourly - 'Possible' Triangle 

Such a scenario is still in keeping with the "Volatility Crush" we noted in recent blog posts. Such a triangle might be trying to right the situation shown where the previous two peaks both have "double tops" - representing poorer alternation - a create a wave that does have better alternation.

Does a triangle have to form? It does not. The cash market is not even open yet, and the potential d ? wave could be a second wave in the downward direction. So, the first thing to do is to see how prices react to an upward 78.6% retrace. If they exceed it by quite a bit, a possible barrier triangle is yet another common and realistic option.

In short, the game of chicken continues until confirmation occurs of a completed wave set in the upward direction. The S&P500 cash index did indeed try to break it's upper wedge line yesterday, and then prices quickly fell back into the wedge. So, it is something to keep an eye on. The definition of a 'possible' triangle is useful in that it provides some rather exact invalidation points to help in establishing the true nature of the current count. 

Prices should not travel below the c wave to remain in a triangle configuration. Yes, it is also possible for such a triangle to morph into an ending diagonal wave, as well. We just have to keep our eyes on things as we are likely in a smaller degree Fourth Wave Conundrum - and they happen at every degree of trend.

Have a good start to the day.

TraderJoe

Excellent Article

As we noted yesterday, new local highs for equity markets were possible. With stock index futures currently higher this morning, it seemed like a good time to step back and look at some simple economics. With that in mind, this particular article - at this LINK - is very illustrative of the current condition, especially as related to the stock market.

I sincerely encourage you to read the article on "Where inflation is really hiding."

Should stocks rise again today, it is possible the $VIX will under-throw its wedge line, and the S&P500 cash index will over-throw its wedge line. Sometimes (often) those are close to reversal points. This is definitely not always the case, and this is definitely not a recommendation. As you know, Ira Epstein would say that until the daily embedded slow stochastic comes back under the 80 level, a retrace to the 18-day SMA is much less likely.

None-the-less it is a time to watch things closely to see how they play out.  The current wave count remains unchanged.

Have a good start to your day.

TraderJoe

P.S. I am trying this count in the ES 15-minute overnight futures primarily to avoid degree violations in "time", and to further recognize the 0 - 2 guideline.

ES E-Mini S&P500 Index Futures - 15 Minutes - All Hours

ES E-Mini S&P500 Index Futures - 15 Minutes - All Hours (Update)

In a further update, prices are fading, well out of the channel, and it would be wise to watch the 62% retracement level to see if it holds. If it doesn't, we may have a truncation on our hands, as above.

TJ

The Volatility Squeeze is On!

A very wise man - and professional trader with a track record at that - once said (paraphrase), "you can't make any money if prices aren't moving." He provided numerous examples, and he also stated, while some (dumb money) traders try to trade through low volatility, the primary recipients of the profits are the brokerages and investment banks who take in the commissions, exhange fees, platform fees, trader inactivity fees, (etc.!) whether the traders are right, wrong or out to lunch!

With that in mind here is a chart of the daily VIX. Let's call it the VIX crush!

VIX - Daily - Caught Between Trend Lines

Just like volatility was being squeezed from - especially - January into late February, so too is it now caught between another set of trend lines forming a wedge. And it seems like a massive game of "chicken" is being played to see who will 'flinch' first. 

If you don't think this is the case, here is hard data from the weekly Commitment of Trader's report. See the bottom panel of the chart below.

ES E-Mini S&P 500 Futures - Daily - With Commitment of Traders

Note how the current situation is grotesquely different from the decline into December. The commercial traders (red) were correctly short going into the December decline, with the more speculative traders (blue & green) largely on the incorrect side of that decline, and massively so - as usual.  But now look! All three groups are netting out their positions and have very little "open interest" in the contract. The interested Elliott analyst should have a look at the recent volume and open interest figures for themselves.

And so, if volatility is being squeezed - what does it mean for prices?

S&P500 Cash Index - Daily - Wedge

It means that prices are still wedging, making gaps and diverging. This is the surest method for the retail brokerages to pump up their accounts, with money from the small trader and/or day trader. How many gaps would you like? There are many more than the few large ones I've highlighted.

From an Elliott Wave perspective, it is a keen observation which almost anyone can make that prices have bumped up against that upper wedge trend line roughly seven or eight times by our count. So the trend line seems quite significant. And, the higher prices are still diverging from the Fisher Transform indicator. As of Friday, prices were still making gaps higher, and there is no reason they can not overshoot the wedge before falling back. Most wedges typically fail when prices are about 70% of the way through the wedge, and so, this one is a bit over-due.

This does not mean prices will turn tomorrow - or the next day - prices can go 'nowhere' if they want for a while. But, below is my Elliott Wave perspective on the situation.

S&P500 Cash Index - Daily - Line Chart

The three waves down to the December low - while they may have seemed slow and tortuous on the way down, can be looked at now through the lens of time. And they may be described as being faster and less complex than the up wave since the December low. So what this may represent is excellent alternation within a corrective wave. 

If Elliott wave theory cited by both Prechter and Neely is correct, this means that a possible C wave down (whenever it begins) could either be simpler and faster than than A:3 wave down, or it can be more complex and tortured than the B:3 wave up. Either form would represent alternation within a corrective wave.

Keep in mind that B wave rallies are often described in the Elliott Wave literature as "suckers rallies" or "bull traps". They are often noted to have a volume signature that "dries up at the end". And that is a current observation.

Can a B:3 wave "go over the top"? You know that it can. It could form the "expanded flat" variety if it wants to. If it does, the C wave down might potentially get quite deep, but there are other possibilities, as well. I know it seems odd to be talking about the C wave down. Most people are thinking, "we're so near the high". True enough. And the $NYAD (advance-decline line) is at all time highs. Maybe we do go over the top first, but it is not required. Again, the B:3 wave does not have to go over the top. It has already done everything it is required to do by hitting the 90% level.

Now it just seems like the question of "who will blink first!"

Have an excellent rest of the weekend.

TraderJoe

ES Futures Above 2,900

I had said that any alternative upward counts would be dependent on price being above the 2,900 level. Being true to my word, with the futures up strongly on bank earnings this morning, and over the 2,900 level, this is the best alternative I can find that still honors the wave 0 - 2 guideline. It is still a corrective count, and likely still to the minor B wave of a flat.

DJIA - 4 HR - Alternative Corrective Count

This count is based on the DJIA cash, but a similar (but not exactly the same) count works in the cash S&P500 and the futures, as well. The "running triangle" with it's higher (b) wave portended bullish implications, and a diagonal count would no longer fit well, immediately after it's cousin, the triangle.

Note in this count that wave minute ((x)) is longer in time than wave minute ((w)), so that seems to fit the corrective nature of the wave, as well. Further, this makes minute wave ((x)) of 'higher degree" than either of the second, ii, or (b) waves preceding it.

Have a good start to the day.
TraderJoe

ES 4-Hr Still on A Divergence - 2

Yesterday's marginal new high in the S&P500 cash index, and the ES futures was accompanied by yet a further divergence with the Elliott Wave oscillator. From both a price and time perspective, the third wave advance was as close to being max'ed to the limit and still allow the possibility of a diagonal shape. Here is the updated chart of the ES E-Mini S&P500 Futures on the 4-Hr time scale.

ES E-Mini S&P500 Futures - 4 Hr - Potential Diagonal

Yesterday, we said that wave (iii) was 78.6% the length of wave (i), which is about the maximum allowed that can still generate "the right look" for a diagonal wave. And, in this configuration, it is just shorter in time, as well. Today's down move was technically an "outside day down", and one which can qualify as a key reversal day, as well.

The down move was slow and grinding all day with fairly minor point loss - and therefore - it still seems like a fourth wave in progress. The Elliott Wave Oscillator on this time scale has already reached the location where it can qualify for a fourth wave, but for a true diagonal one would like to see the overlap with wave (i). The tentative lower trend line will be adjusted as warranted once it is clear where the fourth wave is located.

If and / or when a fifth wave occurs upward, the fourth wave should have a shallower EWO reading than the second wave, and the fifth wave's EWO should diverge from that of wave (iii), just like wave (iii) diverged from wave (i)'s EWO reading.

On a note of caution: as of the futures settlement the ES daily slow stochastic is still technically embedded, and price still has a positive bias as it is above the 18-day SMA. If a fourth wave is made lower, it could be quite "bumpy" given those technical parameters. And, it would be expected that the fourth wave might consume less time than the second wave - but this is not an absolute requirement - just a guideline.

Have a good start to your evening.

TraderJoe

ES 4-Hr Still on A Divergence

Given that the Elliott Wave Oscillator on the four-hour chart is still on a divergence - which is even beginning to widen - it is possible the potential divergence will play out as expected, making the minute ((c)) wave.

ES E-Mini S&P500 Futures - 4-HR - Divergence Widening

The lower trend line remains tentative.

There are technically two forms the diagonal could play out as. The second one has Friday's high as "the" high. But, we think the degree labeling and trend lines work out better on the count shown above. Additional overlap is required for the form of the diagonal shown above.

Have a good start to the day!
TraderJoe

ES has Inside Day with Upward Bias

The chart below of the ES E-Mini S&P500 Index futures shows several things. First, it shows today was an inside day, that closed higher. So price still has a positive bias - both for the higher close and for still being above the 18-day SMA (not shown).

ES E-Mini S&P500 Index Futures - Daily - Potential Diagonal

By contrast the Nasdaq 100 (NQ) futures closed lower and overlapped their prior up wave in the downward direction.

But, the potential (stress potential) pattern above can help us define several key parameters. First, the third wave of a potential diagonal would invalidate upward above a price of 2,932 - as it would then be longer than wave i at that time. In addition wave i took most of ten days (10 days) to form. That should mean that wave iii - which is at seven days - should take less than 10 days to form. We're not there yet. (Bear in mind that counting the time component on a daily chart is complicated by the partial bars, and by a potential slight truncation).

None-the-less, we should be learning a lot about this wave by next week at the latest. Also, please remember that should this wave turn out to be an ending diagonal, then wave v is not required to make a new high above wave iii. It can, but it does not have to. It can truncate.

Tomorrow is the payroll employment report, so my usual policy of not deciding too much in terms of wave counts until that is in the market will be followed.

Have a good start to your evening.
TraderJoe

Measurement

Please note this measurement taken slightly before the close. The cash S&P500 Index daily has now reached the 90% level of the prior high. 

S&P500 Cash Index - Daily - Gap Closed at 90%

This means without trick, deceit or breaking of any rules, this wave, in this index, can qualify for a flat wave. Qualifying for a flat after the three-waves down into December is one thing. The further wave structure needed to allow it would also be required  to occur.

There is not yet a key outside reversal day since March, and the mid-March peak has not been overlapped downward. In short, there is nothing compelling a downward count just yet.

Have an excellent start to the evening.

TraderJoe

Inflows

I was quite clear over the weekend that today could see the typical "first trading day of the month" inflows from pension funds, company bonuses, 401k's, dividend reinvestment programs, etc., and these did materialize. This resulted in a large gap-up day - and even quite a large gap in the overnight futures. Further, it did indeed result in a new high for the Dow - as a pop up out of its triangle shown in the prior post.

ES E-Mini S&P500 Index Futures - Daily - Gap Up Day

Such gaps in the futures are quite rare, and its persistence today seems to signify a third wave - one way or the other. The chart above includes the best labeling I can determine at this time, including a healthy respect for the degree labels of the waves.

It is the best way I can tell to synch up the Dow's triangle - shown over the weekend - with the S&P.

Have a good start to the evening.
TraderJoe