Weekly Degrees

In a prior post (see the post entitled Trillions, June 6th 2020, at this LINK), and subsequent ones, I have contended that we are in a Primary ((B)) wave higher. Since that time, many EW Professionals, pundits and YouTube videos have all but promised stocks would crash. I did not. The most I could see were corrections along the way. For a new over-view of the larger labels in the same context (with daily Elliott Wave labels removed for a moment) let's look at the weekly chart,

ES Futures - Weekly - Degrees

The chart shows that after the Intermediate (B) wave high in February 2020, the decline that proceeded was to a Primary degree ((A)) wave. Why? ..because the decline is too large in price and the whole structure from 2018 is 'too long in time' compared to prior Intermediate waves to be anything less than the higher degree. And now, the chart shows that we are nearing the 1.382 external retracement of the Primary ((A)) wave down.  There are possibly other external retracement levels this wave could eventually make - such as 1.50, or 1.62. The Primary ((B)) wave is marked with a right-arrow (>) to show that the wave is still in progress.

There are two features of this chart to note. The first is the largest correction in Time in the up move since 23 March is marked on the chart, but it is still exceptionally short in time compared to the number weeks of prior up-trending waves.

The second thing to note is that we just had an "outside week up" at the higher end of the chart, and close to external retrace levels. I will only paraphrase Ira Epstein here, "if the low of an outside week up is exceeded in the next two trading weeks, then it constitutes a trap for the bulls". This bar is also over a former weekly wedge line, so it must at least raise an eyebrow.  If price over-throws a wedge, and then trades back within the wedge, it is often a sign the wedge will break in the opposite direction. Just keep that in mind: there is no signal from price, yet, that it has turned.

Before we go to the daily chart, we know that Thursday's put-call ratio reading was again a very low 0.38, indicating very bullish sentiment from an actual market-based measure. It did back off a bit on Friday. Next, let's look at the recent AAII Sentiment Survey.

 

And, we see this measure is approaching local highs as well. My own proprietary sentiment measure shows overall bullishness from professionals, newsletter writers and the public at the highest level since the 23 March decline. It is at 59% bullish, versus 28% then.

With that in mind, and assuming we have prior wave labels correct, it begs the question of whether we will get a larger-in-price (X) wave down on the daily chart. First, here is the four-hour chart of the Dow Jones Industrial Average. A count like this has been unseen on this scale. It is a mess!

DJIA - 4 Hr - Minor B ?

It is currently being counted as a diagonal minute ((a)) wave up, followed by a complex flat, or triangle minute ((b)) wave downward, followed by an impulse minute ((c)) wave upward to a Minor B wave. Within a zigzag wave, the diagonal and the impulse alternate as they should. This may be inside of yet a smaller wedge - as shown. If this count is nearly correct, then, the overall pattern being made on the daily chart could be this one.

Schematic - Primary ((B)) Wave

The purpose of this pattern would be for the Intermediate (X) wave to become longer in time than the Intermediate (W) wave, and provide more correction to it. Right now, Minor B, up, is shorter in price and time than all of Intermediate (W), so this still fits proper degree labeling. Also, if the Minor C wave down occurs as part of an expanded flat, since it will be longer than the minute waves downward (shown as just a,b,c for clarity) this will fit with degree labeling as well.

You'll note the current pattern of variation of the corrections shown: first, the running flat for the B wave. Second the zigzag for the A wave. So, why is an expanded flat being seen as the possibility here? Because if you remember back to the Intermediate (B) wave, up of Primary ((A)), down, there was most-likely a triangle in the middle of that structure. So, it seems unlikely that there would be a triangle in the middle of this structure. I could be wrong, but that's what alternation suggests.

Further, the Expanded Flat and some downward price length, gives the Intermediate (Y) wave up more time to progress further without necessarily making a lot more price progress. For example, maybe a channel would fit around the entire correction instead of a wedge.

Those are some thoughts. Clearly, for any downward wave to begin, breaking of the current 30-minute up channel - explained in yesterday's post - and larger four hour wedge (as shown above) are needed, as are back-tests that fail at the lower channel/wedge lines.

This is the second post this weekend. If you haven't seen the first one, yet, you may wish to view it now.

Have an excellent rest of the weekend.

TraderJoe