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