Degree Labeling Lesson on AAPL

If you scour the internet for your Elliott wave counts, and even if you pay and subscribe to some services, you are going to find many, many people who will show you a daily wave count that looks like this for the stock of AAPL. They don't know what else to do.

AAPL - Daily - Questionable Degree Labels

 

These degree labels should be viewed with a very high degree of suspicion. They are questionable, at best, and plain incorrect at worst. Why? Well, starting from the lower left, the Minor degree 1 is smaller in both price and time, than minute (i) or minuet i.  Stated another way, the minute waves and the minuet waves - which are supposed to be smaller degree waves - are larger than the supposed larger degree Minor 1.

I know, you will find the analysts that say, "Wave 3 started out with a gap. That's proof it's a wave three". And then, they will add, "Wave 4 of one larger degree comes right back to the wave (iv) of wave 3 - just as it should! You don't get a better wave count than that."

How can an analyst dispute such claims? First, one might look with suspicion on that wave iii of (iii) of 3: this is supposed to be the most powerful wave segment, but instead, it has a big loopy turn in the middle and looks more like a 'three-wave-sequence'. That's not right, is it? Also, look at minuet i. Is it not longer in price and time than minute (i)? Doesn't this defeat the whole purpose of talking about wave degrees as being larger or smaller than another degree?

Second, what is the Fibonacci relationship of 3 to 1? Why it's greater than 2.618 x 1. That should be a tip-off. It is mathematically very, very difficult for an impulse wave to have greater than a 2.618 times relationship and have smaller internal waves than the first wave. That's because if the first wave is "1" unit - and not one the wave label - then three smaller-or-equal internal waves for the next wave would calculate to less than 3 x 1 = 3 units, which is very, very close to 2.618 and one has to yet subtract the retracement waves - which brings it down to 2.6 or less.

Still not convinced?

Then I say, go back one level and look at the weekly chart. That chart is presented below.

AAPL - Weekly - Expanding Diagonal

 

The trend lines on this chart suggest that the market is in an expanding diagonal. There is overlap with waves (4) and (1). And, clearly the stock is now up over the upper expanding diagonal trend line. This chart represents one of the few ways that the stock could have made the trend line pattern without violating degree labeling definitions, and without violating overlap definitions. Knowing, then, that expanding diagonals are most-often three-wave patterns allows for the following wave label count back on the daily chart.

AAPL - Daily - Better Degree Labels

 

Notice how the label definitions just flow much more readily here? The minute labels (i) - (v) are smaller than the Minor label A. The Minor B wave comes back to just barely overlap the Minor A wave, but it does, and then there is an explosive wave of a totally different character than the grinding up Minor A wave.

Both charts allow the casual observer to claim the stock is in a blow-off-wave. But the second daily chart allows the Elliott analyst to preserve the definition and meaning of the term degree. And both charts can allow for some additional upward movement.

Oh! And what about that Fibonacci ratio business? What is the relationship of C to A at the moment? It is a nearly precise C = 0.618 x A. That is a common relationship in a zigzag, not an uncommon relationship in an impulse like greater than 2.618.

This is the third post this weekend, if you have not read the first two, you are encouraged to.

Have an excellent rest of the weekend.

TraderJoe