My readership is falling off. People are bored, they are tired of winter, electrical outages, snow and they are tired of being whipped around by the markets. Over the weekend, sort of like doing a crossword, I asked myself, what could the structure of the Y wave from Friday's post be? I went over it and over it - sort of like that clue you just can't get in the crossword puzzle. But I ran into problems. If I was honest there were a few overlapping waves where there shouldn't have been. Then, this structure began to fall into place when I looked at the time relationships and not just price. This is the daily chart of the ES futures in wave format.
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| ES Futures - Daily - Hidden Triangle? |
This chart shows in wave format (where the vertices of the waves are accurately depicted) the structure of a triangle that may have formed over the holidays. I'll let you ruminate over the chart. I'll only say that it does meet 'the rules' for a running triangle. Although some continuation may be expected from this count, the presence of a triangle would have significant negative implications for a true bullish wave upward.
Some date suggestions for termination of the upward wave are shown on the right-hand-side of the diagram. These would fit within the 34 week +/- Fibo range in the prior post.
One thing that can be said from the pattern is that the prior minute ((a)) wave eventually held as support. Further, the descending triangle trend line was back tested by the market, and it held overall. Another positive of this analysis is that it greatly simplifies it into the a-b-c structure. Without that simplification there may be "too many" diagonal waves in the wrong locations as seemed to be forming on the short term intraday charts.
One can criticize the pattern for the outsized ((b)) wave. Still, it is less than 2.618, and as far as I know a triangle is one of the few patterns that corrects for degree issues because the measurements are always taken to the (e) wave. So, that seems to nullify that criticism.
But there is other criticism. Did I predict such a pattern? I did not. Did I count it as it formed? I did not. I don't know anyone that has. Still, that being true, I don't want to miss the pattern possibility in study of the past price action. It can aid in setting future targets in price and time, some of which are shown.
Can the W wave be exceeded? Yes. That is the usual expectation of a Flat wave. But also, be aware that if a strong downward third wave is to form, such a pattern might also fail to have Y cross the W wave terminus. Double-combination waves often fail slightly as second waves.
This more simple ((a))-((b))-((c)) pattern up also allows that the tentative X wave location is also the location of Intermediate (1) down in a larger diagonal. You usually can't have that pattern without a simple zigzag in the wave (2) position. This provides it.
So, what if a triangle didn't form and the pattern is an expanding diagonal C wave instead? That is possible providing the futures cross 4,255 so that a fifth wave is larger than a third wave. I'll try to address that one in a later post. But keep in mind that expanding diagonals are supposed to be quite rare creatures. It could be there, but I tried counting it and ran into problems (one of which is the terminals are not cleanly along the trend lines). And, further, the Elliott Wave Principle and other wave references whereas indicate that running triangles are really very common and are often mistaken for other patterns.
I'm not sure what to do about those readership problems. Maybe the triangle has lulled some to sleep. Maybe those who were in such urgent need to find a third wave got burned. Some of us here were trying to count a choppy diagonal downward. Maybe we will have to resume. Maybe it will be a contracting diagonal, instead. Maybe the third wave is nearing.
As always, we just urge caution, patience and flexibility until the situation becomes a bit more clear. This is the third post this weekend and if you haven't read the first two yet, you might like too now.
Have an excellent rest of the weekend.
TraderJoe
FWIW I check your site most days, though I don't know e-wave as well as you do. I think a lot of people are looking for validation of their PoV, so they will leave if they do not get that or if they trade based on e-wave being a crystal ball. If it were, you wouldn't be posting to a blog but sitting on a yacht in the tropics and Elon Musk would have you on speed dial for when he needs funding on a new idea.
ReplyDeleteI use the site as a check to see how it compares to some things in the macro world. Of course, the macro indicators are always changing. For example, the treasury futures market is now pricing a terminal rate just over 5% out to September. OTOH, used car prices are going up again. House prices seem to be stabilizing, and buyers are coming back per Redfin. The liquidity that the Fed supposedly is taking out of the economy, was actually replaced by the Treasury drawing down on its TGA piggybank - withdrawing money from the Fed and spending it. So, QT, is a mirage so far. However, TGA seems to be rising the last month (sucking liquidity out) from taxes - not expected to keep rising as the debt ceiling hits, but it happened.
I know this site isn't about any of that, but I think e-wave is just one of many indicators to try to predict future market conditions.
Also your Feb 14 fib date is when CPI comes out. Another critical date range will be Mar 14-22, CPI and Fed meeting. My thesis right now is that CPI will run hot, the Fed will have to hike more, and when the debt ceiling is resolved the Treasury will replenish the TGA account by sucking ~400B out of the economy + ongoing Fed asset sales. So we will get hit with a liquidity crunch and an inflation scare. But until then, the market can rally a great deal. There are huge amounts of cash sloshing around so psychology matters a lot, I'd have a bias towards bullish moves for at least a couple more weeks.
Thanks Dan..can you please elaborate on how exactly TGA is like Fed QE?
ReplyDeleteTGA = Treasury General Account. The Treasury deposits its cash with the Fed in this account. Think of it like the Government's checking account. When it is deposited with the Fed, it isn't in the wider economy hence it is not available to finance or be used in economic activity.
DeleteWhen the TGA gets drawn down, that money is going out into the economy. When it is building up, it goes out of the economy and into the TGA account.
It sat at 945B in May of 2022, and currently sits at 560B. That is a drawdown of about 400B, which is about what QT has been in that time.
Of note, TGA has risen since a Jan 18 low of 339B. So they have sucked out about 200B of liquidity in the past 2 months.
But overall since QT started, between the TGA and QT, they haven't really done anything. They took with one hand, while giving with the other (less visible) hand.
But does TGA adjustment help reducing inflation?
ReplyDeleteES 4-Hr: they're making quite a mess of this wave, so far. But I've tried to adhere to the definitions of degree labeling. Nothing says wave iv in black is over, but it has run smack into the EMA-34 on this time frame.
ReplyDeletehttps://www.tradingview.com/x/H6qFcSvn/
TJ
P.S. There is a new location for an overlap warning as it would overlap both the prior wave i, and wave ((1)). TJ.
DeleteSorry, working too quickly. Minor revision: had to up the degrees one level. Same idea overall.
Deletehttps://www.tradingview.com/x/fFfZN4qE/
TJ
SPY 15-min: here is what I see in cash, so far. c = 1.618 x a ? With an expanded flat for the b wave?
ReplyDeletehttps://www.tradingview.com/x/gSqhMx93/
TJ
A new post is started for the next day.
ReplyDeleteTJ
Greetings ET .. ..I've actually been eyeing a triangle for sometime, and I've seen different triangles published that would have resolved down by now. My question involves the potential as I see it for us being in a larger B wave triangle. The large A down from early last year. But ending in June not Oct. The Oct low would be the b wave within triangle B, ongoing. We might only still be in complex c of B. Is this idea on your radar, and can it be dismissed? The dow is the misfit but it might not be fatal to this idea. Thank you putting the triangle into play!
ReplyDelete