Monitor Slow Stochastic

Today Bloomberg apparently reported that the White House might seek to increase capital gains taxes on the wealthy. For some odd reason, they didn't seem to like that - or want to pay more - to help make up for all of the windfall profits they have made on stocks, and stocks sold off a bit. They did not sell off enough to draw a conclusion yet, but enough to tip the daily slow stochastic near the settlement below the 80 level at 78. If it stays that way tonight, the only day it can get it back is tomorrow. See the daily ES chart below.

ES Futures - Daily - Loss of Embedded Status

This did not occur before we had counted a potential five-waves-up on the intraday ES 30-minute chart. You can see the comments in the prior post for that count. If the stochastic loses the embedded status then a first target would be the line-in-the-sand, the 18-day SMA. We shall see. Lower daily lows are needed to send the swing line indicator into a down trend, along with a close being below the 18-day SMA.

While we are still somewhat negative on the stock market, we could only count three-waves-down from the high. The means while we maintain that general outlook, we must be flexible. Price could still go back over the high, but it can also go lower.

Other people have miracle answers for how they know the stock market is going up or down. Sometimes they are correct, sometimes incorrect, sometimes partially correct. My suggestion at this time is to do the hard work of counting waves. This is one of the most important times to do it. So, below is the ES 5-minute chart.

ES Futures - 5 Min - Tentative Up Channel

Just be open minded and err on the side, for now, of there being only three-waves down. Then, draw the tentative up channel, and start counting as a/i, b/ii, c/iii and measure both the retracement level and the lengths of the c/iii compared to the a/i. Recognizing that - with three waves down - the only two ways down are by diagonal or for this structure right here to form a triangle that fails lower. Just keep those ideas loosely in the back of your mind while an upward count is attempted. Human minds can handle two thoughts at once, right?

Then, allow only one slight redraw of the channel if the current ((B)) wave low breaks slightly. Otherwise look for a zigzag initially, if not a potential diagonal ((A)) wave up, to the right of the current ((A)) wave location, and, if not, a full-on impulse up. Too much work? Well, it is work. If things get discouraging or breakdown in unexpected ways then remind yourself that it is the very purpose of the market to try to put as many people on the wrong side as possible. Are you going to outwit the market? Maybe. Maybe not.

Luckily, we don't have to try to outwit it. We just have to keep some powder dry until we see wave structures we can recognize, and then try to take appropriate action from there. Am I trying to give you advice? Definitely not. I am trying to remind myself that a couple of the waves recently, including this last one counted up in five waves, really might have two interpretations. This is because of that truncated bottom at the 4,110 level. For example, 1) it is possible it really was five-waves up and represents a new impulse structure to come; 2) it is possible it was five-waves-up and ends some type of flat wave, or is a truncation top; or 3) that, because of the weirdness of the bottom, it is only some type of three-wave structure and is the deep retrace after the expanding diagonal. I am giving this last possibility somewhat lower odds at the moment until or unless we see a full-on five-wave structure lower at this point.

Sorry, but this is the work of Elliott Wave. For those who want quick answers, please see those that have them. What we have here is patience, calm, flexibility - and the rules of Elliott Wave.

Have a good start to the evening.

TraderJoe