Elliott Not Being Followed?

Some people say that Central Banks are running rough-shod over the Elliott Wave theory - destroying patterns and making wave counts obsolete. What part of Elliott Wave theory is not being followed here? Below is the SPY 2-Hr chart.

SPY - 2 Hr - Channel

Starting on the lower left, there are two approximately equal lows. Moving up the chart, there were some pull-backs, but - after what we think is a truncation low - then there nothing on the order of 50-62%. We thought we had detected a diagonal as part of that wave. But, we noted that the beginning of the diagonal would have to be exceeded lower in less time than it took the diagonal to form in order to be an ending diagonal. It was not. Hence, the risk is that the wave is a Leading Diagonal, and not an ending one. It looks like it was. That is almost always the risk with diagonals.

Leading Diagonals are usually "A" waves. If the usual and typical is the case here, then the up wave can be a minute ((a)) wave, and the down wave is a minute ((b)) wave. As the Fibonacci ruler shows, the minute ((b)) wave retraces exactly between 50 - 62%, as is also typical of a larger retracing wave.

Next, following the minute ((b)) wave, we likely have an impulsive minute ((c)) wave, higher. There are a pretty clear five movements, with a large gap likely in wave iii of (iii), and wave (iii) occurs on a high of the Elliott Wave Oscillator (EWO). The next high occurs on a divergence with the EWO.

Cash prices - right now - are still in a channel, as is typical of a zigzag wave, and price has met a typical zigzag target of ((c)) = ((a)), shown by the second Fibonacci ruler. Volume, as we have noted several times this week, is, well, weak. Further, the pattern of alternation right now is a diagonal for ((a)), and an impulse for ((c)). And that is good form.

So, we must ask, "What part of Elliott Wave theory is not being followed here?". Yes, must concede that if price keeps powering higher so that the up wave reaches 1.618, then an impulse might form. BUT, we must do this on nearly every single zigzag made - every time. It is part of the uncertainty in Elliott Wave theory that allows a market to be a market, and not a preordained pattern. Still, at this point in time, we have what we have.

In particular, we showed weeks ago, the likely Fibonacci confluence area on this chart - shown as it was published back on 28 March.

ES Futures - 1 Week - Prior Price Projections

Futures on Friday got up into the 4,120 zone - or well into the "Zone of Confluence" shown on the chart, this after finding support on the 1.382 Fibonacci level. So again, from a price projection point of view, "What part of Elliott Wave theory is not being followed here?".

Can price go higher? Yes, it is possible. Some zigzags reach 1.27 x ((a)). That would occur at 4,160, and should that level be exceeded higher, then it would suggest a more impulsive wave is at play. That's the interesting thing about Elliott Wave theory. It provides actionable parameters like no other. Further, from a time stand-point, I would even suggest that if a significant retrace is not in play by Wednesday morning, the idea of a zigzag begins to lose more credibility.

People often wonder, what makes me more confident of being in a Primary ((B)) wave, higher, rather than an elusive 5th wave, up, that just won't seem to impulse properly? To answer that question, I will leave you with this last chart of the monthly Dow/GOLD ratio.

As you can see, this chart topped in October of 2018, the wave that in mid-2020 I identified as the top of SuperCycle (III). The next down wave - which I also identified as the Primary ((A)) wave down -  made a low sufficient to undercut the prior 2016 low. The Elliott Wave Oscillator (EWO) measures "too deep" to likely be another fourth wave, and we have since been headed upward in this ratio. I suspect there is more to go, and the EWO has not crossed the zero line yet. It could.

But, a new high in this ratio has not been made yet, although we know it has been in price alone. And, as with any "B" wave, going over the top is a possibility, but not a certainty. So, all-in-all, in terms of "real money", the Dow just does not show impulsive behavior yet. And there are some real social anomalies showing up as well. We know about the virus, and the lack of action by the former administration, blunting overall growth and actually showing a large contraction in GDP.

This has forced the free-money printing which hasn't even resulted in a new high for this measure. But - even with the free money - it has resulted in an insurrection at the seat of government, a period of sustained social protest over racial equality and immigration policy, and the odd phenomenon of offering jobs to workers who will not take them. See this recent article from 30 Mar 2021, an excerpt is below (LINK).

Today, 500,000 manufacturing jobs across the U.S. remain unfilled, open to anyone with the right skills. And wherever possible, manufacturers are also helping upskill workers or provide on-the-job training. 

How the FED and Central Banks will rectify such a situation by printing money and allowing large corporations to incessantly buy-back their own stocks and pay no income taxes in some cases causes one to scratch their head. But, I think it is very reflective of a Primary ((B)) wave, up. It is literally built on the back of printed money and financial engineering - like no other - and it is having a difficult time making economic or social impact,

Have an excellent rest of the weekend.

P.S. The chart below was added on Sunday. It is of my proprietary Bullish Sentiment Index.

Bullish % - Weekly - Nearing Highs

 

I have been keeping this chart up meticulously since 2005 when the data I was looking for first became easily available. The weekly chart above starts with panic lows near the 23 Mar 2020 low, and it tracks the increase in sentiment each week since. There are a couple of weeks missing because with them the chart is too crowded to see the detail, but they in no way detracted from the trend. 

The chart shows that all classes of investors, from professionals to mom-and-pop, are nearing some of the highest levels of bullishness seen. These levels begin to rival the levels at the 2007 top, the 2015 top, and the 2018 top. I am looking for a pull-back around here, at least, and perhaps not yet a major top. The sentiment data would seem to be ripe for that.

An interesting thing happened with CBOE put-call data on Friday. As the market rose, puts became a little more popular. That was interesting, too!

TraderJoe