Last of the Month / Quarter

Tomorrow might be some window dressing for month-end/quarter end. Then, it might be followed by the usual first-of-month inflows before the holiday.  The SPY 30-min chart is shown below. The trend lines are provisional at the moment.

SPY cash - 30 min - Provisional Trend Lines

If a higher high is made and the measurements remain acceptable then wave i might move to the high as a diagonal. There is an alternate yet of a second wave at red ii depending on whether window dressing appears tomorrow or not.

Have an excellent start to the evening.

TraderJoe

Higher High Day - 2

Today did make a higher high, and the completed upward impulse is shown on the SPY 15-min chart, below. Price then broke down under the channel, and rebounded to back-test the channel twice. There was then a down leg that failed to make a new lower low. And, at the very end of the session price bounded up to the underside of the channel again.

SPY Cash - 15 min - Tails at Prior Wave ④

 

The resulting structure is currently indeterminate. It could end upward travel in this area to make a 5-3-5 down from the high of i / a with a lower low tomorrow. Or, it could be all of ii / b, down at the prior wave ④. Or the up wave could go over the high marginally to make a flat or an expanded flat that would travel back to or under that prior wave ④.

There's no set of market metrics I know of except the full order book (which is kept by the brokers and their machines) which can really help better define the probabilities. One might say the down wave is quite short-in-time and that is a reasonable statement to make. But, the uncertainties are still high enough to warrant caution.

Have an excellent start to the evening.

TraderJoe

Higher High Day

Below is the SPY hourly chart. Notations include a falling wedge in three waves down as a,b,c to the area of a prior fourth wave. Today was a gap up, a trend line break upwards, a prior gap fill, and travel upward over the a prior b wave. That b wave was a marginally failed flat wave that we counted out in real time. The a wave down was a non-overlapping impulse. The c wave down was an overlapping diagonal. So there was good alternation shown in a corrective structure.

There are two more gaps overhead. The low might have been all of wave (iv) or just a three wave a wave as part of a larger triangle wave (iv). Therefore, today could either be a smaller degree a wave, up, or a i wave up in an impulse for wave (v). Time will tell.

Have an excellent start to the evening,

TraderJoe

Fourth wave developing nicely

The ES weekly chart is below. The fourth wave minute (iv) is developing nicely. Keep an eye on both the interior channel and the larger exterior channel. Measurements are shown for both C=A, and a 1.272 extension, as well.

ES Futures - Weekly - Possible fourth wave (iv)

Meanwhile, note the DOW futures, below, have already overlapped downward on the daily chart. They have filled their prior up gap from the 12 June rollover, and might make a contracting diagonal upward, as shown.

DJIA (YM) Futures - Daily - Possible Diagonal wave (iv)

There is a potential MACD divergence at a third wave high, although it would be best to see the MACD line cross the signal line.

The potential fourth wave of this diagonal would invalidate below the 33,128 level shown (in the futures) as it would become longer than the second wave downward, thereby breaking the rules. It would be interesting if we had the NQ, the ES and the YM all in fourth wave positions together.

Have an excellent rest of the evening.

TraderJoe

Or Else Too Complex..

Something was fishy. Something wasn't adding up. Several of us were counting a diagonal lower in the major U.S. indexes (S&P, Dow) because of the halting pattern of declines and immediate price pull-backs. We started counting as an expanding diagonal, but then that count blew up. Still it felt like a hesitating diagonal lower. It did not feel impulsive. Yet the counts were not legal. If you review the counts that people propose on line none of them follow the rules for an expanding diagonal because the fifth wave is not longer than the third wave. I have stated that I will not break the rules. With that statement in mind, here is the last remaining downward count I could find this weekend that did not break the rules. If you are a regular reader of this blog, please repeat the measurements I have shown to confirm them.

ES Futures - Weekly - Contracting Diagonal & Retrace

As you can see, I ran the count through the MotiveWave software engine to see if any errors or warnings were produced. None were. Happy day.

The problem I was having was that the up wave was else-wise becoming to complex with w-x-y's inside of a W-X-Y, and that is a clear indication of trouble. Also, looking at potential triangles did not produce the typical triangle forms - another sign of trouble.

So what do we have now? We have a contracting diagonal, lower, that does not break the rules. There is only one partial bar out of the pattern, and that is simply the most minor issue on the chart. Another potential issue is that while Minor 4 does overlap Minor 1, as it is supposed to, it is fairly short. Still, being short does not break the rules, and that is one key. A second key was that October drop appear to many of us to be only three waves. That is what got us potentially counting a Flat wave upward. The flat was incorrect. But, the only other place a three-wave drop fits is inside of a diagonal. Bingo!

Now in the upwards direction we have the expected deep retrace in the form of a simple zigzag. Further, within the zigzag, we have an expanding diagonal Minor A wave, and, so far, an impulse for the Minor C wave - outstanding alternation within the corrective pattern.

And just look at the Fibonacci ratios! I won't drone on about them. If you are an Elliott Wave student and frequent reader of this blog, you should go through the exercise of duplicating these measurements if you haven't already. The only one I will emphasize here is Minor 3 = 0.618 x Minor 1, which often occurs inside of diagonals.

Can we go over the top again? I try to keep three things in mind: 1) the (A)/(1) wave down is now longer in price and time than the 2020 Covid-19 drop (another measurement you should perform for your own confirmation), so it should start the next larger correction lower by degree-labeling;  2) the advance so far this year continues to be a narrow one led primarily by the AI stocks; and 3) sentiment is heating up with many analysts now flipping to bullish.

Could the analysis of going lower be incorrect? Yes, something may happen to tilt it. But, then, at least the chart above ends with a legal form, the contracting diagonal. In that case it would be an ending contracting diagonal. But until we know more, it may also be a leading diagonal.

And this means patience, calm and flexibility are still required. The Minor C wave up may simply not be over yet.

Have an excellent rest of the weekend.

TraderJoe

Not So Giddy

Things in the equity market have toned down a bit, and today was a whippy day which challenged wave counting skills, but perseverance provided some clues. They are noted in the chart in the comments section of the prior post. On the daily chart of the ES futures, the regular calculation of the daily slow stochastic lost its embedded status as of the cash close as below.

Today was a lower low day, but price is still above the 18-day SMA, so the daily bias remains up even as price corrects. This is just a reminder that the only day price can gain back the slow stochastic over the 80 level is tomorrow, otherwise it has to go through the whole three-day rebuilding process. If the embedded reading stays lost instead, then price might head for the 18-day SMA as a first target.

It certainly feels like we are getting a fourth wave, (iv), reference the NQ chart shown in prior posts. Also remember that in some fourth waves, it is possible to go over the prior high in a running triangle or expanded flat wave. So, do not be surprised if that happens. Calm, patience and flexibility remain the name of the game.

Have an excellent start to the evening,

TraderJoe

Lower Daily Low

ES daily futures were lower during pre-market trading today. Cash opened with a gap down, and only three waves down were recorded before a 38 - 50% retrace wave which could be a fourth wave.

Patience caution and flexibility were again urged today because it was easy to tell in the last hour that some machine (or perhaps many) were fighting tooth-and-nail to avoid making an impulse lower. A wave-counting-stop and some additional observations were placed on the intraday SPY 10-minute chart in the comments for the prior post. It is possible a gap-down fifth wave could form tomorrow, and then reverse quickly. But, there is no guarantee.

The slow stochastic on the daily chart remains embedded above the 80 level, and the daily bias remains up.

Have an excellent start to the evening,

TraderJoe

Special on NDX

Below is the six-monthly chart of the NDX index, in arithmetic scale. The Fibonacci relationships are stunning. Wave (III) is exactly 3.414 x wave (I), and Wave (IV), so far, is 38.2% x Wave (III). The chart allows that for a triangle or a flat. Price may go over the high again - just as it has with AAPL and NVDA. But, for either a regular flat or a triangle price does not yet have to go over the high. It can, but it does not have to. It's another "B" wave scenario.

I used the 13-per EMA because there are only about 65 candles in this analysis. Look at the unexpected contact. Near perfect.

Don't think for a minute there isn't some machine out there somewhere that hasn't figured it out yet. But I have not seen a chart like it, ever, so I thought I'd bring it to you. 

This chart was added to this post on Saturday to better explain the local situation. Enjoy.

NQ Futures - Daily - Still in Channel

Have an excellent start to the evening and the weekend.

TraderJoe

It's All About Headlines

Lots of people want to know, "what has changed?" because the market seems to be going bonkers and is out of control. Try to keep in mind that if the Smart Money is going to be able to unload their wares on the unsuspecting you (the Retail), they absolutely must make news headlines that convince you to be the most bullish person possible. Today, those headlines include FED Pauses, Artificial Intelligence, and APPL at a new all-time high, and are not just broadcast on Bloomberg, and CNBC and CNN - but also on YouTube and Twitter and the like. Those latter social media platforms are one thing that has indeed changed since the days when RN Elliott first characterized waves. But, still, they are just news outlets, and the headlines are designed to get you into the psychological state they need so they can dump on you. 

Further, during the trading day, when you check in at the open or at noon or near the close, they must show prices near the all-time high of the session. That gets you more bullish. Those aspects of the game simply have not changed. Those who control the media control a piece of your mind if you let them. That condition is the same now as it was in 1928 before the Great Skid. What has changed, however, is the frequency of movements, and the fact that the Smart Money controls machines (and the associated algorithms) which are designed to more greatly disadvantage you and I (more about machines below the chart).

ES Futures - 1 Hr - Triangle

In the world of Elliott Wave, only certain things can happen or else rules are broken. Here is an hourly chart of the ES futures. Yesterday, we had written, "Some times FED days make good fourth waves, with a higher high after the big banks know what the FED decided." Now, add last night's overnight wave in the ES futures.

First, note how much they tried to get a structure resembling a Head & Shoulders top, so they could fail it. The banks had to do this to get enough people to consider the H&S, that they could take advantage of the situation by reversing to the upside. Hey, they did it. Not me. I just try to count waves. So, is it possible, we did indeed have a fourth wave of some degree and it was a triangle? It sure looks like the most plausible reverse scenario. And there is now what resembles the thrust out of the triangle.

I try to urge caution and patience. In a previous article I intentionally provided Ira Epstein's Guidelines for Trading or my paraphrase of it (see it at this LINK if you have forgotten). If memory serves, that was back in 2015! The central consideration in his system is that price has an upward bias when price is over the 18-day SMA. So, when people ask "what has changed?", when price moves up when price is over the 18-day SMA, the answer is clearly nothing. That is, in fact, the expectation especially when the daily slow stochastic is embedded.

Wave-counting aside, Ira is very, very familiar with the Smart Money players in the market. He interviewed many of them, and being a broker himself, he knows how the game is being played. He knows about the computers and the algorithms. His firm has them! So does my broker and yours and the CME.

The algorithms are specifically designed to trade in a way that is difficult for the retail. Remember all of my comments about the Night Desk? The Ⓔ wave of that triangle - if that's what it is - was made on the night desk - when you and I are sleeping supposedly, making it very difficult to take advantage of the situation. 

If you don't think that algorithms and machines are involved, you should hop over to YouTube and watch some Steve Van Metre videos where he advertises CTA Timer Pro which reports the positions of the largest machine algorithms in the billions of dollars. If you think our retail money is going to compete with that, then it's just not possible. 

So, what is going on? What has changed? Nothing. It might help you to realize that most of these algos make their biggest decisions on the basis of the Daily chart because the large number of players, making decisions, from all around the world, reduces sampling error in their calculation of the standard deviation of Bollinger Bands. In other words, the daily timeframe is a very consistent representation of all of the players. Who knows in any particular half-hour if someone from Japan or England will be trading the U.S. market. But, over the course of 24-hours, most of the regulars will be there. So be cautious what an intraday wave count shows. It is a possibility, but it is not a guarantee, and that's why I said today, "I don't know if the pattern holds up or not" when describing the Fib relationships.

What is guaranteed is that if I know the Fibs involved, the machines do too. And they know them, like the news, much sooner than I do. In fact, they are probably calculating them dynamically in real time - which is too tedious for the retail. Again, another advantage.

All of this is why the Principle of Equivalence must always be considered in a wave count. The alternate is just as good as the main count (a,b,c is i,ii,iii until it isn't) until the wave lengths prove them out to be something different.

And that is why I left room on the chart for higher waves. They are defintely possible in a scenario where the daily slow stochastic is embedded, and nothing will have changed. I'll have much more on the weekend. For now, I'll just say that you won't hear the above from your typical card-carrying Elliott analyst and they will sometimes break the rules. I won't.

Have a good start to the evening,

TraderJoe

With the caveat -

With the caveat that we don't know that upward price movement is over we show two charts. The first is that of the ES 3-day futures just to show the forms of the two waves.

At this point the counts remain the same until they are distinguished as different. They are (w)/(i), (x)/(ii), (y)/(iii). There is a nice parallel going on the potential (y)/(iii) wave.  For the contracting diagonal, the wave (iii) must remain shorter than wave (i) by rule. However, many times there is (y) = (w) relationship in a double zigzag. That would occur at 4545.75 or above.

Here is a close look at the daily wave count inside the parallel channel.

If the time of the b wave is taken as equal to the time of the a wave, then we are in the c wave up at the upper parallel border with a relationship of c = a at 4,473 or thereabouts. And this wave is currently countable pending the nature of a small degree fourth wave (which may have occurred today on the FOMC report). But you know fourth waves. They can be intractable and seemingly go on for a long, frustrating period of time. So, there is nothing that specifically rules out higher highs yet, although the patterns seem to be getting quite mature.

On sentiment, keep an eye on the put-call ratio still down in the 0.55 range and with the 10-day moving average of the same nearing lows.

Have an excellent start to the evening,

TraderJoe

In Simplest Terms -

The two-daily chart of SP500 closing prices is below. The Elliott Wave count is reduced to its simplest terms for the overlapping waves shown.

Don't get confused by a lot of hype or attempted overly precise market technical analysis. The two counts shown (y) / (iii) are equivalent by The Principle of Equivalence until they are not. The recent higher high might be occurring on a MACD divergence but that is not proved yet. There is also nothing conclusive that the current up wave is over. That is, there are still ways to count smaller degree waves higher. The wedge lines can be redrawn when we know where the wave structures terminate.

As we have said for weeks it is possible to form either a contracting diagonal or just a double (or triple) zigzag in this area with this wave structure. Patience, calm and flexibility is the name of the game in the summer trading scenarios.

Have an excellent rest of the weekend,

TraderJoe

Underway ?

On the daily chart of the NQ futures, below, it certainly looks like wave (iv) is underway. Sometimes the target is the prior wave iv. Flat waves and triangles are both allowed.

NQ Futures - Daily - Wave (iv) started?

In this count, overlap with wave (i) would be a rules violation for an impulse and would be a significant warning sign.

Have an excellent start to the evening.

TraderJoe

Patience - Can You Quantify It?

In these blog posts I often speak of the need for patience, calm and flexibility. It's summer. It feels lazy. Is it possible to quantify the patience one might need to be prepared for in a move? Here is that daily chart of the NQ 100 futures again.

Note that wave B/2 took close to 25 days to complete from crest to trough. Now look at wave (ii). It took nearly 15 days from crest to trough. And a key characteristic of wave (iv)'s is that they take a lot of time. So, one might expect wave (iv) to consume 15 days or longer, and to possibly go over the high again in so doing.

That's a lot of patience.

Have a good start to the evening.

TraderJoe

Short Term Pattern Continues to Play Out

Within the likely larger diagonal shown yesterday on the daily line chart, the shorter term pattern of the expanding diagonal (probably a Ⓒ wave) continues to play out. The ES 4-hr chart is below with the count shown previously.

Price did make marginal higher highs today as we anticipated might happen, and then the market gave a big meh and just sold off a bit. Note that the higher high occurred in proximity to that 1.618 extension shown with the Fibonacci ruler in red. We can't rule out a lower degree fourth wave here, so yet another trip over the high is not ruled out, but it is also not necessary to the count. It's simply that today's downward wave did not create much length, at least not yet.

Once again, if the pattern is correct, it predicts the Ⓑ wave low at 4,062 would be undercut in less time than the pattern took to form.

Have an excellent start to the evening.

TraderJoe

Bulls Need What the Bears Don't

To make a cogent case for a bullish move, Elliott Wave theory says that the move should begin with "five up" and preferably an impulsive move up in five waves. Here is the current daily closing chart of the ES futures.

ES Futures - Daily Close - Wedge

At the present it is a very tough sell in this index that there are a clear, impulsive five waves up. Currently the chart looks like it has three waves up in a wedge with a lot of overlapping structures and a diverging MACD. For weeks I have been saying that a diagonal could form but is not required. It still could, and it is still not required. In this chart wave (y) / (iii) is currently shorter in price and time than wave (w) / (i).

For the bullish consideration, either prices need to gap up out of the current wedge beyond the price length of the (w) / (i) wave, or the fourth and fifth waves of a diagonal need to form properly. While a massive gap up is possible on some news or other, I would first ask you to look at Friday's wave and compare it to the other two up waves marked by arrows. Note how those large price movements actually occurred nearer the end of their respective waves. (Right. The past is no guarantee of future results).

So, while the bearish count can tolerate a diagonal - as it might be an ending one if it forms properly - the bearish count upward simply does not require five waves. There is no reason I can see why a bearish count upward can not be a double zigzag from the low. It could even be a triple zigzag, as zigzags and not as a diagonal.

So, the bears don't need what the bulls do, but they can handle a diagonal if one is formed. The chart also shows that a fourth wave (iv) in a diagonal can not move below the low of wave (ii) or the diagonal would invalidate (actually it can not move beyond the price length of the second wave using OHLC charts).

That said 1) we do not know that upward price movement is over. In this count marginally higher prices are possible, but if the wedge turns more into a parallel channel then that would not be the right look for a diagonal wave; 2) the NQ futures may be just about to enter their fourth wave in a channel count so a valid fourth wave has some evidence going for it, and 3) the daily MACD is still diverging.

So, one still needs to be calm, patient and flexible as this wave sequence is worked through. Most people know that the ES is rubbing up against the 0.618 Fibonacci retracement of the entire down move on the weekly chart. The question is whether prices hold near here or not. The longer-term weekly chart will gain a bit more clarity once we see if there are any reactions to these levels and what the extent of them are.

It is also worth remembering that the very purpose of an upward corrective move is to convince the majority that the prior uptrend is resuming in full force when instead it intends to turn down. From a sentiment standpoint the equity put-call ratio is down to the "Zone of Speculation" again, below 0.55, at 0.52 today. It can always go a bit lower. Let's see how things go from here.

Have a excellent rest of the weekend,

TraderJoe

They Can't Help Themselves

Today was the first day of a new trading month. As we have written about many times before, the last day of the month is often sloppy trading as portfolio managers undertake window-dressing, and prune the losers while they amp-up on the winners. Yesterday was no exception with a red candle for both the SPX and the NQ indexes. 

Then, the first of the month usually sees the inflows from the typical automatic investment sources such as pension funds, 401k's, company bonus plans, dividend reinvestment schemes at the like. Today was no exception with the NQ futures printing an outside candle up. It's almost as if it is expected that markets will always give a positive return, so in goes the cash. It's one of the most reliable market seasonal patterns I can find, but you don't hear much about it.

Below is the update of the NQ daily futures continuing the prior labeling previously shown.

NQ Futures - Daily - Awaiting (iv)

The nearby count suggests that any higher high tomorrow would likely qualify as the fifth wave, v of (iii). Again, this count continues to suggest than an ending wave whether C or five of 3 should end in a five-wave sequence. So far, a completed five-wave-sequence is not to be counted. But, a correction within the local channel could happen at any time for a wave (iv) - like if the Senate stalls on the debt limit bill, etc.

Out of interest in the shorter term count, the ES futures are shown below in the hourly time frame. The chart is as of the cash close. There has been more trading since.

This hourly count suggests only three waves down since May 30 - more clearly showing the window dressing. Of note, there was an expanding diagonal c wave, shown, after an impulse a wave and an expanded flat b wave. And now three waves up, possibly three waves up of five. Short term, the count suggests that overlap at 4,200 be avoided unless a contracting diagonal upward is to be built - but there are not enough waves or enough problems to suggest the diagonal at this time.

Let's see how some of the news affects the market including whether the Senate completes work on the debt limit agenda, and how the Payroll Employment report turns out tomorrow morning.

Have a good rest of the evening.

TraderJoe