Weekly - Evidence?

The weekly chart below looks at the evidence we can find for a wave count. It does not provide the typical YouTube/Internet hysteria about what a count might be that indicates the end of the banking system, the end of the U.S., the end of the dollar, or the end of the world (as one analyst sees it). The weekly chart of the S&P500 cash index is below. Let's look at the Elliott Wave evidence.

Waves Tend to Form Channels

The first point of evidence is that Elliott Waves tend to form channels, so we have drawn a tentative channel around the whole wave. The channel is drawn using the origin of the down wave, and the points currently labeled as (A), and B. Note too, downward expanding diagonal trend lines have been significantly violated upward, so the channel count seems to apply best. It looked like the expanding diagonal was the best way to get the first five-waves-down, but that no longer appears to be the case based on the current evidence.

First Waves require Third Waves

First waves in an Elliott Wave impulse pattern are later defined by their third waves which often extend and a non-overlapping fourth wave. The point labeled (A) in the above chart has no significant wave following it, and certainly not an extended wave. So, there is no evidence to call this a first wave (1). Within this (A) wave, look at the waves labeled 3 and 4, and note how they can define the 1 wave shown. Wave 3 is fast, it is long, and wave 4 does not overlap if wave 2 is a flat wave. This is not yet the case for the (A) wave. But there is a lower low after the wave labeled as (A). This suggests that (A) itself is indeed a five-wave-sequence.

Bear Markets Often Unfold as 'Threes'

If impulse waves are 'fives', corrections or bear markets are often 'threes'. Usually, most-often, the third wave of a bear market, the (C) wave in this scenario, is about as long as its first or (A) wave in this case. So, it is a reasonable assessment to suggest the down move is not over yet as there are not equal-sized waves in the downward direction as of this time. 

The Current Up Wave is Complex

The current up wave since the October low can best be counted as a complex wave - perhaps a triple zigzag. It has not yet exceeded its prior high labeled as the A wave.  Yet, the whole structure cannot be counted as a diagonal in the cash market. That is because the most recent down leg in cash was longer than the prior one, violating the rules for a contracting diagonal, at least. One of the few ways this complex structure can fit into a count is if it is the C wave of a triangle. Often, in a triangle, the C wave or the D wave is the complex leg of the triangle, supporting this view. As well, the up wave is 78% or better than the prior down wave. This suggests more a triangle formation and less a nested second wave formation.

Triangle Supports (A)

If there is a triangle after a down wave, then it, too, would support labeling only (A) at the down wave extreme of the Elliott Wave Oscillator. That's because second waves cannot be triangles.

Hourly Ending Expanding Diagonal Upward

We have been counting an ending expanding diagonal upward on the hourly chart. Assuming this pattern plays out, it should or must end a wave sequence. The diagonal should be entirely retraced in less time than it took to form. And, if it ends a triple zigzag, upward, then, this too, should or must end the entire upward wave sequence since the October low.

That is the best evidence we can glean or surmise from the waves presented. What are the implications? Well, if we are in a triangle, with a complex C wave, then the D wave down should be a simple zigzag. This should be followed by an E wave zigzag, higher before the (C) wave down begins. This might take the correction down to the 62% retrace level of the up wave from the 2020 low to the 2022 high.

Evidence Contradicting

Well, if a significant downward wave develops and extends more than 1.618 times the current (A) wave, we will reconsider this count only to see if a true fourth and fifth wave develops. Clearly, we are nowhere near there yet. But, right now, the actual evidence is against it, and there certainly is no down wave even started yet.

Evidence Not Hysteria

Regardless of what waves develop, we will remain patient, calm and flexible. As suggested by the hourly expanding diagonal, the market may have already made its choices, even if they are not yet complete. A major surprise (upward or downward) would have to occur to invalidate these scenarios - such as a significant change in FOMC policy, etc. But right now, these are certainly not in evidence and the next best data we have are company earnings that come pouring out in the following weeks. We know about the banking difficulties. They are a drag but not an outright brick-wall. So be careful what you listen to on YouTube. Many of these people simply have to take extreme positions to gather viewers so they can make money at your expense.

Have an excellent start to the weekend.

TraderJoe