Typical Uncertainty Surrounding a Prior High

First, here is the weekly view of the ES futures, again. On a closing basis the upper channel boundary has been breached a bit. On an OHLC chart it does not seem to be. Prices are now back in the channel, but the Principle of Equivalence suggests that minor "A,B,C, is 1,2,3" until it is not. The same will apply to the larger (A)/(1),(B)/(2) if the high should be "in" and not exceeded. Still, we remind all of the line from The Elliott Wave Principle by Frost & Prechter that states, "draw a line from the start of wave A, to the end of wave B, and place a parallel copy on the end of wave A. This often shows the location of wave C." And it often does, unless it doesn't and prices go on to impulse. For the moment, we favor the A,B,C so it is listed first.

ES Futures - Weekly - Up Channel

Next here are two methods that seem valid for counting the up wave to the prior high, and the down legs on the ES 8-hr chart. First, Method #1 - which is the 'visual' high or what Elliott called the 'nominal' high. This method sees a barrier triangle for the 4th wave (degree is for illustration only) and a 5th wave up on a divergent RSI. From there the count would be three-waves-down to the rising three-touch trend line noted. Once again, "a,b,c is i,ii,iii until it isn't".

ES Futures - 8 Hr - Method #1

The three waves down could be a completed zigzag. They could also start a downward diagonal. The zigzag could also start a larger degree fourth wave triangle - sideways. Lastly, nothing says the down wave is complete where it ended, although we could count five-waves-down on Friday and are now located directly on the lower daily Bollinger Band.

The second method suggests the larger, more complex 4th wave as might be as commensurate with the amount of time used by wave 3, and indicates a truncation or failure for the fifth wave - or what Elliott might have called the orthodox high. Again, that would be true only if prices don't exceed the wave 5 high, shown below in the future. We remind you, we saw that possibility live, and as it happened.

ES Futures - 8 Hr - Method #2

Then, it is possible to count five-waves-down to the low in one of two manners. The primary way shown in Method #2 is if there was a very large zigzag for the fourth wave, to alternate with the running flat correction we showed in yesterday's post. One item in favor of this count is the gap occurred on the break of the trend line from wave 2 to wave 4 on the Fitch Debt Downgrade. This makes a longer, faster wave as Neely likes to see from a high. The wave 2 to 4 trend line would have broken in less time that wave 5 took to form.

Again, we don't know the new down wave is over, and if it breaks away, it is possible to see Friday's Payroll Employment rally - before the dump in prices - as a second wave shown as alt: 2. This is less likely, but definitely possible. Again, it's about those odds.

So, as in many plausible-top situations, one is best served by paying attention to local technical data and announcements that might have a bearing on the situation until waves with sufficient length are made to clarify the situation.

Until then, have an excellent rest of the weekend.

TraderJoe