Saturday, November 23, 2019

FED and the RED

This may seem like a technicality to some. While I think we are still in the Intermediate (B) wave, up, I have been wondering if we ever did see a triangle, at all. The chart below of price versus the FED's activity shows why I have a question.

S&P500 Cash Index - Daily - Ending Diagonal?

We all know by now that the FED's rate increases up to 2.50% (maximums used) into December, 2018 caused or correlated with the 20% decline in the market to that point. And, then we know the FED went into it's "patient" and "flexible" mode after the first of the year, expressing in a news conference with Ben Bernanke and Janet Yellen a willingness to be "flexible" on having the balance sheet roll-off be on the previous mode of "auto-pilot". Then, in February they actually reduced the balance sheet run off to only $50 billion per month, with an ending date to occur in September.

But, here's the key point. Have a look at the ISM Manufacturing numbers plotted, especially the first four of them. They are all above 50%, but declining from the April report.

55.3 > 52.8 > 52.1 > 51.7

Four months in-a-row of declining data. Even the FED would find a trend in that data. The FED decides now to lower rates to a 2.25% maximum - at what could have been the top of Intermediate (B) in the first count. The next report comes out at 51.2, and they quickly drop of bomb of ending balance sheet reduction immediately in August instead of even waiting until September. And I am wondering if that halted the decline from the top in a (c) wave of Minor B. Remember, commercials in the market were very heavily short at that time. In other words, the down wave ceased for a specific and definable reason at that location. Ending the balance sheet reduction allows the large players to change course and expand risk without worry.

Since that time the FED has lowered rates two more times as the ISM has gone quite heavily and consistently into the RED. Is the FED aware of the Elliott Wave count? Are they actively trying to thwart it? Good questions if you are asking them. And, those that have been paying attention know that since the overnight interest rate market has gone into spasms, the FED has had various announcements of increasing it's balance sheet by the purchase of T-Bills.

All of this has made me wonder if the pattern since the ending of balance sheet roll-off since isn't specifically an expanding pattern - an expanding ending diagonal. Why wonder? The expanding pattern would fit with the FED's current monetary expansion. The difference is that the expanding diagonal makes a clear prediction: If the diagonal breaks, then the start of the diagonal should be exceeded in less time than the diagonal took to build. We may not be done with the up wave, yet, but it has all of the right measurements.

So, why not the triangle? Well, if the triangle was, in fact, a running triangle, then the up wave in September should have ended around 78%, not around 99.9%. Triangles should not be that asymmetric.

Have a good rest of the weekend.
TraderJoe

P.S. This is the second report this weekend, and you may wish to read the first one, as well, if you haven't already.

37 comments:

  1. Good work Joe! The entire world has been missing economic expectations for over a year now.

    ReplyDelete
    Replies
    1. The simple truth about binary options which many of us do not know is the fact that it is mainly based on predictions. Without proper knowledge of what next can happen to the stock market, you are sure to lose your funds. That is why it is important to be tutored or mentored by a professional investor in binary options. During my weeks of being mentored by Mrs Patricia Morgan, I’ve learnt much and also succeeding in trades and was able to recover my lost funds. Feel free to contact her on patriciamorgan984 @ gmail .com for positive results or contact her on Whats App on +32460230365

      Delete
  2. Fed injected $103.65 billion dollars in the repo market last Thursday. What’s the limit before the market senses something is wrong?

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  3. hi joe thank you for your work
    you are the only one to believe in the waveB
    all the others think about phase 5
    who is right? I do not know
    I am looking for the highest point to sell but I do not know when it will be reached
    Tim when is the end of the climb?
    thank you

    ReplyDelete
    Replies
    1. See comment below @12:55 pm. While a higher high can not be ruled out, neither can the fact that we 'may' have seen the actual price high. A truncation can always occur. While I certainly offer no trading or investment advice - for people looking to sell - as you say you are, I have heard of strategies like 'scaling in', and not making just a binary decision.

      Delete
  4. TJ-
    This does measure nicely (consistent 1.382 measures among waves). Would we expect to see the A/O show higher peak with each leg up as it is an expanding diag?
    Thanks!

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    Replies
    1. It shows the right pattern off of the bottom, as in the link below. But, there have been so few of these patterns to study on the 4-hr or larger time frame, that I am not certain about the last wave up.

      https://invst.ly/os05w

      Then again, it is possible the pattern is not finished.

      TJ

      Delete
    2. I would say that if the diagonal was 'leading', then, yes, the fifth wave up should have a higher high on the EWO, as the momentum should be increasing.

      Delete
  5. An add'l observation (fwiw):
    If we draw a TL from peak at "A" to (b) and extend, I believe you will see our current peak being a 3rd touch of a rising TL.

    ReplyDelete
  6. One can place this timing study in the category of "interesting", not definitive. Wave (iii) was a little later than 2.618 x (i), and the current wave (v) is a little shy of 2.618 x (iii) when used from the 2.618 location.

    Price is still above a trend line which represents "the angle off of the bottom", and thus may still be considered in a fourth wave. A higher high can 'not' be ruled out. The risk appears to be to the downside. Perhaps a top may occur with the December inflows on Dec 2, the first trading day of the new month. Or perhaps that day will be a 'retrace' wave day.

    Price is above the 18-day SMA, and therefore has a positive bias for now. The daily slow stochastic is no longer embedded - that does not 'rule out' higher prices. It merely increases the likelihood that price and the 18-day SMA will try to come together.

    https://invst.ly/os0k3

    TJ

    ReplyDelete
    Replies
    1. Your (ii) seems to be a flat
      Shouldn't an Ending Diagonal be composed only by zigzags?

      Delete
    2. I looked closely at that. The prior high is not exceeded in either futures or cash, and the low is a lower low. So a zigzag in an acceptable interpretation. So, is a flat.

      Delete
    3. ?
      "So a zigzag in an acceptable interpretation. So, is a flat."

      Is it a Flat or a zigzag?
      May a Flat be a wave of an ED?

      Delete
  7. New moon is tomorrow. There have been quite a few bull market peaks on the new moon.
    Sep 3 1929 and Oct 10th 2007 and others. Friday the 240 min algo reversed up. Not near a computer to report that. If the market stalls hear......hopefully TJ has a good count to confirm the top of the B wave.

    ReplyDelete
  8. JOE

    Might be a link to a virus above at UNKNOWN

    ReplyDelete
  9. (i) and the first leg down of (ii) look very much like the orphan waves you identified as waves 4 and 5 of a triangle for PIV of the Dow some time ago. Have you considered similar applying here for the triangle to have ended sooner than thought?

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  10. just fyi - Hourly ES has reached the 90% level, upward.

    ReplyDelete
  11. Here's what I see, so far, based on degree. It is hard to count the upward wave differently without violating degree principles.

    https://invst.ly/ospd8

    No firm conclusions can be reached yet. Flat wave for iv, or a larger barrier triangle, or a diagonal v are possible. Stay patient, flexible and calm.

    TJ

    ReplyDelete
    Replies
    1. ..there is another large gap up in the futures, themselves, and these are often more quickly filled than gaps in cash.

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    2. I think that is right. A fifth up lets DJIA erase current divergence with a new high of its own...

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  12. Appears an ED may be forming......

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  13. https://i.imgur.com/iqLmNrg.png

    ReplyDelete
  14. O.K.
    I was assuming gap up would represent start of some kind of third...

    ReplyDelete
  15. How many are out there saying......

    "It's different this time "

    ReplyDelete
    Replies
    1. Hey Scotty, this time is different! I don't have any idea what the correct short term or intermediate term count is. :)

      My guess is that we may have completed (b) of a flat (or expanded flat) today. But since I wrote that, it must be some other count.

      Delete
  16. As I said weeks prior, most Elliot Wavers were calling for a top between SPY 3050 and 3100 and I said it would blow past that. You can short at 315 when it's hit this week or next week. I only follow Elliott Wave to see what not to do and it works every time. Thanks for your analysis.

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    Replies
    1. Aw, may i ask how you come up with your 3150 target?

      Delete
    2. Some analysts have still not figured out that the algos are all programmed to target their fib-based trading.

      Delete
  17. Technical analysis and option open interest

    ReplyDelete
  18. One really has to smile when thinking about the theory of "efficient markets". You need only look at the P.E. compared to performance of a company like TESLA to realise that this theory is a raging cataract of nonsense. Another completely asinine notion is that markets are "forward looking". I give you the case of Blackrock, up to their eyebrows in the Ukraine money-laundering scandal, yet the stock (desined for a 50%, at least, haircut) is trading near 500.00.
    Central banks have destroyed price discovery in equities markets and where they trade has been completely decoupled from economic reality. This kind of insanity can go on for far longer than folk think. I suspect we are closer to the end than the begining.

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  19. Nikkei made a textbook LD off the Nov top. Now look at the retrace it made last night. Keep an eye on this.

    ReplyDelete
  20. A new post has been started for the next day.

    ReplyDelete
  21. The simple truth about binary options which many of us do not know is the fact that it is mainly based on predictions. Without proper knowledge of what next can happen to the stock market, you are sure to lose your funds. That is why it is important to be tutored or mentored by a professional investor in binary options. During my weeks of being mentored by Mrs Patricia Morgan, I’ve learnt much and also succeeding in trades and was able to recover my lost funds. Feel free to contact her on patriciamorgan984 @ gmail .com for positive results or contact her on Whats App on +32460230365

    ReplyDelete