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.
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.