Friday, January 10, 2020

A Long, Long Way from Home

S&P500 cash and ES futures made higher all time highs overnight or in the cash session today. They won't show up in the Daily Tracking chart below (which has the closes only). The tracking chart has had the prior projections removed to show a couple of points. Feel free to refer to past posts for earlier projections.


ES Futures - Daily Close - Versus Projection

One of the things that we wrote earlier was that if wave (ii) was less than a 38% retrace - which it was - then the upward wave, minute ((a)) should appear in a wedge. In this form, with the channel removed and actual trend lines drawn, you can see that those trend lines do converge and a wedge is formed.

Secondly, we think today is the top of the minute ((a)) wave. Why? Because we have been counting a diagonal upward in the futures since the 3,180 overnight low on January 7th. We can only count that the diagonal completed in the overnight. You can refer to the chart below.

ES Futures - 30 Minute - Diagonal Completed

The market pushed that diagonal to it's absolute limit. The measured limit for wave ((5)) was 3,287.75 and the actual overnight high was 3,287.00 - a difference of three ticks! None-the-less using the principles of degree labeling, we can not label the wave any other way. The clear over-throw of the ((5))th wave can be seen, and wave ((4)) has been exceeded lower in less time than wave ((5)) took to build.

So, now we have a diagonal to a top, and the question is, "will it be an ending diagonal?". And that's what the title, "A Long, Long Way from Home" refers to. By the principles of degree analysis, we can see that today is the longest and largest downturn since the upward diagonal began. So, somehow the degree has turned. But there is no concrete confirmation that the minute ((b)) wave has begun in earnest until that 3,180 level is exceeded lower.

Just for grins - if you have time - you should see where the CBOE Equity Put-Call Ratio has been in the last several days. I have showed you this chart many, many times before. Prices have been traveling in the Zone of Speculation for many days now, with the 10-day moving average the lowest in two years!

CBOE Equity Put-Call Ratio - Daily - Solidly in Zone of Speculation

And, it is also worth while having a look at the CNN Fear and Greed Index, which - to save space - we will just refer you to this LINK. The chart of interest is at the bottom of the page. Look at the latest readings a few days ago: the highest greed ever seen since the index began!

Readers of the blog comments earlier know that, today, we have two waves down with a 1.618 relationship in the form of what 'may' begin an expanding diagonal. Such a pattern must complete properly, but they hemmed and they hawed after that employment report today, and finally took out some important levels near the close. See my comments from yesterday, if interested.

Have a good start to your weekend!
TraderJoe

P.S. This chart was added after the post was made, and answers a question posed by a reader, below.

DJIA - Daily - Ending Expanding Diagonal

Note that the chart in the book started with January 1980. You have to go back just a few months to place the structure in its true context. If you do that, you'll find all the right lengths in terms of both price and time with (v) > (iii) > (i) in both. Note there is a tiny little truncation (*) in the fifth wave of c of (v) which would be considered perfectly normal after such a large structure and diagonal at that.

27 comments:

  1. Mr. Market is very wily indeed! He completed that diagonal uncharacteristically in "Slow Mo" and had obervers (like moi) scratching their heads and muttering:
    "No diagonal there...!"
    Then, whatta ya know?
    Voila!
    Today we get the over-throw (along with a new ATH thrown in just for good measuere!), followed by the prior expected swift re-treat below the diagonal lower boundary!
    Sneaky!
    Now watch the old fox clamber back inside the lower boundary...
    Am I starting to get paranoid?! Hehe!

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  2. Have a great and restful week-end all! Give the charts a break will ya?

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  3. I think it was a diagonal as well. The problem here is that ((4)) is longer in time than ((2)).

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    1. I saw them the same on 15 minute bars. But, you may be correct on some smaller scale. Not enough to bark about.

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    2. Agreed. Fwiw I saw 7 5m bars vs 8. But it could be read as 8 vs 8. Just looked more exaggerated with the 30m bars.

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    3. For CED, displacement of wave four relative to two more important than time I think. Key is trend-line convergence.

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  4. BTW, TJ excepted, of course on chart rest comment...keep 'em coming. Not too many EW analysts that seem to have any idea of what is really going on!

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  5. Wait, just to confirm that what you are saying is that even though ((a)) "appears" as a wedge, that it is NOT a diagonal, correct? By my novice understanding, if ((a)) is a diagonal of Y then ((c)) of Y shouldn't/can't be a diagonal right?

    This might be a stupid question, but if ((a)) "appears" as a wedge, though it isn't a diagonal, does that still make a ((c)) diagonal less likely due to a somewhat less-than-desirable likeness in form, thus increasing the likelihood that (B) is finishing now?

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    1. Hi Stephen .. right. When the wave (ii) is less than 38.6%, then the impulse will have a wedge 'shape'. It is 'not' a diagonal as in no way does wave (iv) overlap wave (i).

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  6. What I find awesome about TJ's chart projecting price action over the coming weeks is that NONE of the downward waves are projected to violate multiple round number targets (price remaining above 3000 ) prior to a final top. I think this is HUGE, and consistent with my own theory/model of what will transpire once we have a final top. Quite remarkable charting really...NONE of the EW charts I have seen presents this scenario with such absolute clarity imho...

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  7. As we are monitoring a possible expanding diagonal from today, it jogged my memory of a chart from "EW Principles". It has more meaning having spent time here. It did raise a question (for me at least). Ive attached below for reference. Perhaps its been discussed here previously and I missed it. Anyway, any/all comments welcome.
    Thanks!

    PS - again, great job on the diagonal call to our peak this morning! Tweezer top on 15min to boot!

    https://imgur.com/oLGwI4l

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    1. Thanks. And to directly answer your question, the hourly structure shown is only a common zigzag (with a triangle in the middle). The hourly chart you clipped is filled with 'good intentions'. Note that it starts in Jan 1980. To place the structure in its true context, you only have to go back a few months to find the correct expanding diagonal in which the lengths in terms of both price and time are correct. I have appended that chart as a P.S. to this post because of your excellent question about Elliott Wave. See above.

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    2. Thanks for taking time! All I could see that structure being was some type of corrective pattern, but couldnt figure out how that fit with the labeling prior. Great that you could pull up the old chart (that was back when I was hand posting charts every day (daily only of course)).
      Thanks again! :o)

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    3. Welcome. Is it worth noting that the pattern ended on a non-divergent MACD high prior to a >20% drop in US equities?

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    4. Extended 5th's always seem to mess up MACD regardless of type.

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  8. What about the Committment of traders that you posted two weeks ago?
    Even the "commercials" were wrongly positioned before the ATH.
    Is this the demonstration that that "indicator" is simply useless and that no one knows (even them) how the future will be?

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    1. Hi John. I really have no idea what you are trying to get at. Two weeks ago the commercials in the ES contracts were -100,000 short. The index level then was 3,250. Friday we closed at 3,264.50. That is a 15 point or 0.4% error.

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    2. When you posted that link two weeks ago you said that it was something to take into account because they were "market makers", implying that they were "short" because they knew where the market was going.
      The market went up (even if a little), while they thought it would have gone down.
      So I am wondering if that indicator is simply useless.
      Even commercials know about the future the same that we know, that is nothing.

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    3. Wow. I take from your comment that you truly don't understand how long it takes to 'scale in and scale out'. Contrary to the indictor being useless, it is your comment which is useless. I will answer no more of your questions.

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  9. I frankly was not entirely convinced of an imminent decline if both Commrrecials and Large Specs were short the market. The former have since reduced their exposure.

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  10. If it turns out b wave count is wrong does that mean the rules for wave degrees are subjective or we don't have proper rules? Because right now I don't know what the alternate count would be for an impulse from 2009. There has to be some probability we are not in b wave so what is that count? Thanks

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    1. In terms of "alternate count guessing" only, on a two-day chart of the ES you can place a 0 - 2 trend line from the Dec 24th 2018 low, to the October 3 2019 low, as well as anybody. But, in that case, wave 2 may 'not' be a triangle, and would have to be some kind of (w)-(x)-triangle (y) for a second wave. That latter option of the smaller triangle for (y) of 2 seems much less proportional than the larger triangle. And then the larger degrees still don't work out for the Dec 24th low.

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  11. Fed injected almost 260 (258.9)B on Friday.
    I could be incorrect in thinking this market will decline ONLY when the CBs loose control.
    It may well be that this will happen when the herd realizes they inevitably will, and in fact may ALREADY have...!

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    1. This may be relevant: https://wolfstreet.com/2020/01/10/the-wall-street-journal-and-other-media-should-stop-lying-about-repos/

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  12. Cash can count as 4 up from last Monday. In that case, erase Jan 7 overnight futures, Jan 7 regular hours close becomes 2.

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  13. There is a new post started for the next day.

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