Saturday, December 28, 2019

Statements Not Tested

In Glenn Neely's book, Mastering Elliott Wave, there are some statements which are offered with little in the way of clear, realistic examples for the reader to sink their teeth into. Having real price examples - which are largely not present - would be a great way, on the other hand, to build buy-in to the ideas and claims made in the book.

For example, there is one statement made in the book, in Section 5-18, on Flat waves. The following statement appears,

"When the b wave exceeds 138.2% of wave a, there is no chance the c wave will retrace all of the b wave (the c-wave of a Triangle might, but not the c-wave of a Flat)."

So, I decided to put this exacting - either/or - statement to the test with the most famous Flat wave I am aware of : that is the year 2000 - 2009 Flat wave in the Dow Jones Industrial Average. Here is the chart. Notice that Neely says "no chance". That means none in my head: i.e. it won't happen.

DJIA Cash Index - Monthly - (B) Wave Flat

As the monthly chart shows there is a three-wave sequence down to Intermediate (A), which is composed of an Expanding Leading Diagonal a wave, down. This is followed by a three-wave b wave, up, and this is followed by a five-wave c wave, down, to end Intermediate (A). The five-wave c wave, down, proves that the expanding diagonal was leading and not ending.

Intermediate (A), down, is then followed by a three-wave Intermediate (B) wave, up, to well-beyond the 1.382 Fibonacci external retracement on wave (A). In fact, the wave surpasses 1.500 and is very nearly at 1.618.

The five-wave Intermediate (C) wave, down, ends well beyond Intermediate (A) - meaning that Intermediate (B) is also completely retraced. We  know the only way to have a five wave sequence down, and not make lower waves - which is hasn't - is to end a correction. So, as certainly as we might, we know this whole sequence is most likely a Flat wave.

And, by example, one can see that a statement which contains a categorical denial is disproved. Did Neely say, "for the S&P 500, only". No he didn't. Maybe it works in that case. It didn't for the Dow.

In the first instance, my purpose is to ask you to be a bit leery of categorical statements made regarding Elliott Wave for which an author offers few examples. In the second instance, I want you to note very clearly how long that (B) wave is in time! There are 60 candlesticks in that (B) wave, and, since this is a monthly chart, that means it is five-years long to a first approximation! How long in time is our current (B) wave? From Dec 24, 2018 to the present or just about only one year as things currently sit.

Have an excellent rest of the weekend.
TraderJoe

P.S. This chart was added after the original post and subsequent discussion. I thought it would be helpful to see "how large" a divergence occurred with the $NYAD at the 2007 top. As, you can see from the chart below, assuming this is a (B) wave, the initial divergence occurred on a prior high in price. Then there was a larger divergence before the ultimate price high.

$NYAD - Weekly - 2007 Wave (B)

Prior to the penultimate high however, the $NYAD was literally 'screaming' higher.


50 comments:

  1. Hi Joe
    Re the 2009 wave 5 of C in March or so, I've seen some folks argue vehemently that wave 5 was not a five wave move internally, invalidating that as a 5 (and so also the rest). I remember it appearing truncated to an untrained eye. Any thoughts on that leg in isolation, and what it means if there's a problem there?

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    1. I see that wave as thrust out of a triangle. So people are counting the d and e of the triangle as part of the 5 which is the problem.

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    2. I don't see much of a problem when you look at the weekly chart in this view. The first wave, Minor 1 is a Leading Expanding Diagonal. Wave 2 breaks the the upper diagonal trend line.

      https://invst.ly/pai46

      The internal divisions of Wave 3 are shown, with alternation. Wave ii is a flat failure created by Lehman Bros. failure. Wave iv is a sharp. Wave 4 is a triangle, and Wave 5 is a short thrust out of the triangle.

      This chart has only 74 candles. If you use a two-day chart, for 120 - 160 candles, you can see the EWO swing back to the zero line for wave 4, and it therefore fits The Eight Fold Path Method, too.

      If anything wave 4 is a tad short in time only. Wave 2 has about 18 weekly candles, and wave 4 has about 15 weekly candles. But, they are close enough to call them paired.

      TJ

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    3. Turns out if you examine the top closely, also, you'll see that Neely's rule about 'where to start counting a turn' is also ignored. There are more candles in the first down wave than those in the prior up wave - where Neely says there should be fewer. Yet, one of the largest declines in modern history follows it.

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    4. turns out that v of 3 is longer than 5 i believe

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    5. is it possible its a triangle from 2000 ending after 2009 ?

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  2. Joe, why can't the 2000 top be characterized as 3rd wave top, and the 2007 as end of 5th?

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    1. SVS ...See above weekly count downward @ 8:21 am. Then, there is no way in Elliott Wave to have five waves up (to your 5th), then followed by five waves down in which 'that' five waves down is not followed by another five waves down. Let's say it another way: if 2007 was five-up to 5th, then five down to 2009 should 'at least' be (A) down, and there is no '(C) down' to follow the (A) down. The conclusion we must reach under the rules of Elliott Wave is that 2007 is (B). Again, if five waves down is not followed by another five waves down, it 'must' end a correction.

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  3. The situation seems quite different in characteristics. We've already quadrupled the time of A with the current B wave. And now it's going parabolic on the monthly chart.

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    1. Here is a situation in the Eur/USD where the (B) wave lasted 'at least' 11 times the length of the (A) wave. This is a widely recognized triangle among technicians. Do you still want to claim that a (B) wave 'can not' take 4x ?

      https://invst.ly/pajjf

      TJ

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    2. Never said that it couldn't take longer, but that there's not much to take away from the 2007 example beyond that it also exceeded the time of A.

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    3. You said, "the situation seems quite different"..as if you totally disagree with it.

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  4. hi joe
    can you put a weekly and monthly chart
    thank you

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  5. I think we give too much credit to Neely.
    He had some ideas about EWT: were they good? were they bad? were they ungrounded? nobody knowns because at a certain point he abandoned Elliott Wave Theory, he even devised his own NEoWave theory to make the numbers work.
    More or less like a physicist trying to add something to the Theory of Relativity that abandons the effort to find proofs about the new ideas he has.
    Diametrics, Neutral Triangles, Extracting Triangles, Time rules, etc. and so on and so forth

    That is Neely in my humble opinion.

    In MEW he puts tons of numbers, ratios, waves, polywaves, macrowaves, rules, etc. and when the basis of his view of EW is posed... he disappears because he hasn't devised a new look at EW theory but he has only created a mess:
    - Corrective waves that don't correct anything (I mean wave 2 that ends above wave 1),
    - Flats of any length (the fact that, in a flat, wave b must correct at least 90% of wave a is an idea by Prechter, while in Neely flats can have b waves that can be any retracement of wave a)
    - the ratios that you are pointing out in this post ("no chance that wave c will retrace....")
    - other ideas that cannot be summarized in a post and that can only be read in his site in section "Question of the week" https://www.neowave.com/qow-archive.asp .... again exact numbers, exact ratios, new rules, strange ideas that clearly brought him to abandon the study of EWT.

    ReplyDelete
    Replies
    1. As I said in the post - a comparison to some actual examples would have helped build buy-in. There are a couple of other assumptions, in addition, to the ones you mentioned, which may be at the root cause of some of the difficulties with Neely. One might be "sampling error". As you know, Neely says you can not plot a wave using OHLC bars or candles because the dimension of 'time' is not represented accurately in those formations. Rather, he says you have to divide the period in two, and plot the high and the low in the order they occurred - like the high or low of the day as two plots for a day. But this contains sampling error too. Suppose the high of the day occurs at 10 am, and the low of the day at 11:30 AM .. then what does one do with all of the prices from 11:30 am to 4 pm? If it's a retrace wave before a third wave gap, is it ignored?

      A second one involves the use of the 61.8% limit for wave 2's, and wave B's of a zigzag. This is one that there should be hundreds of examples to support his case. He provides none, when Elliott not so inflexible.

      ...and i agree fully with the "running corrections that don't correct anything". MotiveWave software simply will not allow them to be labeled as such.

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  6. In relation to "From Dec 24, 2018 to the present or just about only one year as things currently sit.", the 2002-2007 wave B is of a higher degree than the current one's.

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    Replies
    1. I understood that you are considering the current wave B to have much more time to go by comparison to the 2002-2007 wave B which "… is five-years long…", reason why I pointed out that I see those waves as being of different degrees... Regarding the divergence with AD, I just don't know if a major top has been always preceded by an AD divergence. Do you know this?

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    2. Mike ... IIRC from Tom McC, perhaps a year ago, that all major tops except for one were preceded by an AD divergence. The exception was way back, perhaps 1962. So its not ironclad.

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  7. After the above discussion, I added a post-script containing a chart of the $NYAD at the 2007 top. Keep in mind that chart is in terms of weeks!

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  8. TJ, it has been discussed before but I am unsure if you have published your view of what LT degree we are in. Per your PS chart, we have a LT corrective wave (8-9 years) followed by an impulsive 5 up from the 2009 low. Now we counting the proposed LT correction (ABC) to that impulsive sequence in what I assume will create an expanded flat with an upward pointing B wave.

    To me, this implies that we have started a LT upward count. The 2018 high could be "A" of a LD 1 or it was a "1" of an impulsive count upward. The shape of this upward count is TBD. Meaning, for example in the impulsive scenario, we do not yet know if the "1" was the extended wave or not.

    Lots of time to figure this out but am I thinking in the correct direction?

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    Replies
    1. Sorry, typo I see now in the second paragraph - second sentence. I wrote LD but just meant "diagonal".

      Regardless, since we have a impulsive count higher off the 2009 and now tracking a corrective wave with a B wave high, it implies another wave higher once this proposed corrective wave ends. In the worst case, as far as market correction % moves, it would be wave 2 that bottoms above the 2009 low.

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    2. I am asking because the LT outcomes of counting / assuming a current corrective wave structure implies additional new highs at some point in the future.

      That would produce a dramatically different outcome than counting the move off the 2009 bottom as a SuperCycle 5th that is still in-progress but nearing completion - as some services are counting. That scenario would imply a depression era like decline in the not to distant future.

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  9. pb ... you are expressly classifying this ABC corrective in a manner that assumes we topped back in Jan of 2018 for the move from 2009. If you apply Joe's 8 fold path on a monthly scale from 2009, the EWO makes its (3rd wave momentum) high in Jan 2018. So from that I'm regarding the ABC we are in the midst of as a 4th wave at high degree WITHIN the move up from 2009. This ABC is not at the same degree as the 09-18 move. This is MY read, not necessarily Joe's. Good questions just the same, as it helps for us all be on the same page. I do fear the answer in a rhetorical sense, since you alluded to what that means may be directly ahead. Situational awareness will become a whole further dimension to life going forward. pdl

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    1. @pedro .. when replying to someone, please use the 'Reply' link, and not the 'Comment' link, so they are sure to get the reply. Thanks in advance.

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    2. Will do ... I went off the email notification which only offered Post A Comment, and no Post a Reply. PS -- pb and I correspond frequently off board ... and on this topic even ... he'll get it. But thx.

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    3. Pedro, the count on this board is 5 up from 2009 ended in Oct 2018 based on degree measures thus far.

      Perhaps it is higher degree (I am unsure) but, at this point, I am assuming it is the same degree. Either way though, from my point of view, if this an intermediate term B wave, it portends new highs.

      Thus far, the A-B (in-progress) is now longer in time than the other corrections since 2009 so I am assuming that means it is either on the same degree or one larger. Once this B wave completes and then we get a C wave back down - I will try to figure out if it is just A of a larger corrective move or not.

      This is just how I am thinking about it.

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  10. joe
    how do we test your wave degree usage when we have examples but no specific rules? allowing for slight violations in time and price allows for significantly different counts than you propose especially in long term.

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  11. https://www.tradingview.com/x/noHZyLWF/

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    1. jacksparrow, That is my thinking as well. First wave from 82 was the extended wave. I do not like how this made a new high this year for alternation.

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    2. I see, thank you. I need to change my charting platform to go back further in time to answer this question

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    3. Perhaps I have been blinded by EWI for many years that 2000 -2009 was SC wave 4. Upgrading my charting subscription to to back further in time...

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  12. ES green, not much of a reversal Friday. Probably a new high before year end, AAPL aims for 300.

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  13. I remain a bit suspicious over the failure of the cash session to notch the 3250 as ES did. It typically hints at a corrective move with the cash session ultimately heading back up to mimic the ES price level. If we are in a fourth wave that of course makes perfect sense with one final high to come. If it does on VIX divergence that would be a good indication of an important top being in.

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  14. Clear break of the 0 - ((2)) trend line, and Fibonacci levels added. It seems like round-number support around 3,200 might fit the bill as a first target.

    https://invst.ly/pb1wv

    TJ

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  15. Yep! They stepped in at 3216 and long shadow on hourly candle suggests they are trying to hammer out a bottom here. I would not be at all surprised to see an initial head-fake move below 3200 that gets swiftly reversed to commence wave five to the upside...

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  16. Also, note shooting star on VIX 5 hour...

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  17. Too many people looking for that 5th now. Top might be in

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    1. When we have an actual top, I am confident you are not going to be using the word "might"....

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    2. Are you confident in going long here for a new ATH?

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  18. Here is the intraday SPY; it currently seems to be following The Eight Fold Path Method, with a 126 candles on the 5-min chart. The fourth wave parameters are currently acceptable.

    https://www.tradingview.com/x/1cH9N0fO/

    Let's see if we get a lower wave today. If so, it is likely 'a' of ((4)), lower on the 4-hr chart. Expecting ((5)), up, on or around the new money that like rolls over on the first of the new month/new year.

    TJ

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    1. ..just fyi - there is a new local low, and the EWO has turned red and is now below the zero line.

      https://www.tradingview.com/x/Oq19BliO/

      Because there are still officially only 'three-waves-down' until there are five, we want to keep in the back of our mind, a tariff tweet could turn the three-wave down into only a larger upward triangle. Also, if the move is to finish tomorrow, the 'three-waves-down' could morph to a double-zigzag. For now, though, let's see if The Eight Fold Path Method provides a 'clean' impulse lower.

      TJ

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  19. Momentum on potential third down does appear somewhat sluggish....

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  20. Cash and futures got within 90% of the bottom. So, it depends on the overnight. Either the wave finishes tomorrow with a gap down and reversal, up, or if the cash market opens up over prior ((4)), on this five-minute chart, then look for the possible double-zigzag lower.

    https://www.tradingview.com/x/Pi1Vwl4N/

    There is a five wave sequence down - which is clearly shown; it could just be i of ((5)), but again, it depends on tomorrow's cash open.

    TJ

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    1. ..there are enough anomalies in the chart - like wave no clear peak for iii of ((3)) - to make one just a bit cautious on the exact count. All in all, what the 'powers-that-be' did was keep the daily slow stochastic from losing its embedded status. It is still over the 80 level.

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    2. on cash, save a new low by less than a point

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  21. A new post has been started for the next day.

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