Rejection - 3

The third time was the charm and it all happened at once. I cautioned two days ago about what happens when everyone sees the need to head to the exits at once. I cautioned yesterday at length about the complacency. I cautioned about both the daily MACD and the daily slow stochastic possibly rolling over. And today all of that happened. With the embedded slow stochastic lost, price made a run at the 18-day SMA, and missed it by only 1.5 points!

ES Futures - Daily - Minute ((v)) = Minute ((i))

More importantly from an Elliott Wave counting perspective this turn is occurring at the level of minute ((v)) = minute ((i)) to within just a few ticks, shown by the magenta boxes which are exact copies. That's what we should expect. That's where there should be a turn. There was. For this reason, I don't think it productive at the moment to hem & haw about possible alternates.

For avid readers of the blog, here is how the down wave was counted out live and in real time in the comments section of yesterday's post on the 15-minute SPY.  If you are interested in the real time count and the methods used to obtain it, you can read it sequentially in the comments of yesterday's post and of the day before. It took some head-scratching to synchronize the cash with the futures. But, it worked.

SPY - 15 Minutes - Expanding Diagonal

This Elliott Wave pattern is called the Expanding Diagonal. This pattern requires that wave v be longer than wave iii, that wave iii be longer than wave i, that wave iv be longer than wave ii, and that wave iv overlap wave i without traveling beyond the end of wave ii. Further, each of the waves is required to be a zigzag. Wave ii and iv are not allowed to be flat waves in a diagonal. You can check from the chart above that each of these requirements are met. Usually - most often - in an expanding diagonal each of waves v, iii, and i are longer than their prior waves in time. You can also verify that these characteristics are obtained in the above chart, above, too. For wave iv being longer in time than wave ii you have to verify this on the futures, because the gap in wave iv doesn't let you know how much time elapsed.

Further, the Elliott Wave Principle by Frost and Prechter states that the waves a diagonal often retrace between 66 - 81%. These waves are just bang on with each of wave ii and wave iv retracing over 70%.

So, rather than deal with alternates at this time, let's just explain that if this wave is to function as a Leading Diagonal, then the high of it's origin may not be exceeded. If the pattern is to function as an Ending Diagonal, then the high of it's origin 'must' be exceeded.

This is just like any impulse wave if you think of it. For the five-waves of a regular impulse down to be meaningful, then the high of the origin of the impulse wave must not be exceeded higher. Conversely, the five waves down of an impulse wave could also just be the C wave of a fourth wave flat or expanded flat. Even though it is five-waves-down - in this latter case - it is an ending pattern, and the high of origin of the impulse will be exceeded higher.

And herein lies the problem. The question becomes how deep does the retrace need to be? Well, first let's state it can be any depth up to 99.9% of the entire wave. But, usually, the retrace levels are less. If this wave were to be a larger first wave (i), down, then the diagonal could retrace to between waves ii and iv. But, if this wave is to be an (a) wave down, as in an (a)-(b)-(c) correction, then the retrace could be less. How much less? Well, Neely indicates that for waves in general 30-38% is a typical minimum to be considered as a wave of the same degree, meaning like a (b) wave corresponding to an (a) wave: those two waves would be of the same degree. So, we'll go with that understanding for now. 

Should that not work out, I will highlight it in the comments on Monday.

Meanwhile, have a good start to your evening and to your weekend.

TraderJoe