How Degree Labeling Helped with a Real-time Call

Some people are perplexed by degree labeling. Here is how degree labeling helped make a real time judgement call today. If you look at the longest & strongest wave down from this morning's high, one is very, very tempted to call that a third wave. Here is the ES 5-min chart.

The problem was this: today there was no way to count off the top as a diagonal because there were flat waves for the numbered waves which is not allowed. Further, in the wave sequence for wave three, the first sub-wave would have been larger than the original first wave down. This seems to violate degree definitions. Let me illustrate.

Notice how wave ① would have been longer in price than the higher degree wave i which would violate the definition of degree. No, the above chart is incorrect! This is the way the count was resolved - again in real time.

The above chart is correct. It is what allowed me to suggest that the fourth wave location at 38-50% of the incorrect wave three might bust.

Look it over. It's the extended fifth wave count.

Have a good start to the evening and the weekend.

TraderJoe

Sketchpad Exercise

The ES 4-hr chart in this sketch has about 120 candles on it. The count could work for cash and for the lead month contract (Dec futures only, not the roll-over).

Between yesterday and today there were only three-waves-up as we showed. We don't know upward movement has ended, but we did get downward overlaps today as per the comments in the prior post.

In this count, an alternating wave 4 might prove to be a flat or an expanded flat wave. Wave iii of 3 occurs on the trough of the Elliott Wave Oscillator (EWO) as per The Eight-Fold-Path Methodology and wave v of 3 occurs on the divergence. It looks like the EWO is making a bee-line for the -10% to +40% area of the indicator panel. A retrace for wave 4 beyond 50% would be suspect.

Remember, the daily slow stochastic is still embedded and the daily bias remains lower.

Have an excellent start to the evening,

TraderJoe

Odds About 40:60 Higher v Lower

Right now, it is a fairly even situation. The Principle of Equivalence tells us to be patient, calm and flexible until 1,2,3 is proven to be A,B,C. What makes the odds so split can be shown in the daily four-block of the US equity markets, below.

As you can see, the Dow (upper left) and Russell (upper right) have already overlapped their first waves up. They are the weakest. However, the NQ 100 (lower left) and the ES futures (lower right) have not done so. It's a pretty split call but the Dow and Russell are disqualified from a further impulse upward.

Meanwhile, back on the weekly chart - as a reminder - the alternate count is shown in red, below, on the close-only chart of the ES futures.

The alternate is still alive in the ES. If the down wave ended in this neighborhood (200-day SMA), then a fourth wave, 4, would have alternation with a second wave, 2. The fourth wave has reached 38.2% retrace in 120 weekly candles. It could go lower.

Some factors that make this the alternate are 1) the up wave, 3, did not make it to a 1.618 extension. Not fatal, but of note; 2) the daily bias is still lower with an embedded daily slow stochastic; 3) prices are still in a down channel and would not really alter the count unless they closed up over the red ⓑ wave shown.

Since we are talking about a marketplace in which we are the small unknowledgeable players, I suppose a lot of the waves from here will be made by the Smart Money and the machines, particularly with the law makers as insiders on how they see the government funding bill going. They will probably broadcast their intentions only to other large money players when it suits them.

Other items that remain conspicuous in their absence are 1) the lack of a well-defined triangle before a market high, and 2) the lack of an ending diagonal sequence in anything but the DJIA to end the prior wave, and 3) the lack of an ending diagonal at Primary, Cycle or SuperCycle level to end a larger fifth wave. There is a way one could be made but price has to defeat that red ⓑ wave, higher, first.

Have an excellent start to the evening.

TraderJoe

Down to Lower Parallel

The ES 4-Hr chart shows a wave that is down to its lower parallel. As shown, the second down wave c / -i is shorter in price and time than the first down wave. Thus, it may be counted as a subwave lower as well as a completed c wave.

Again, we are showing the count this way because the roll-over contract can not be counted any other way.

At the end of the day the daily futures again closed below the daily Bollinger Band. This is where many traders get most bearish, but to paraphrase Ira Epstein "the odds of staying outside of the band are only 5% of the time. The Smart Money - if bearish - will try to come back in at higher prices inside of the band." Readers of this blog should plot the futures as was done yesterday to verify the slow stochastic is still embedded, and Ira's calculation of the slow stochastic went embedded for the first time today. The regular calculation did so yesterday as I showed.

Some features of the ES 5-min chart, below, are these: 1) three impulsive waves lower, 2) a large triangle fourth wave lower, 3) an ending contracting diagonal fifth wave lower. And this was followed by..

... an expanding diagonal wave higher. One should watch this formation carefully to see if the low holds, and/or if it morphs into an impulse higher.

Readers of this blog who are newer to Elliott Wave analysis should study the above chart, particularly to observe the alternation and styles in the downward wave. It was precisely the presence of the contracting diagonal lower at 15:20 that prompted me to reiterate Ira's warning about selling "new" outside of the lower band at exactly that time.

These things are possible when Elliott Wave is studied in detail. Have an excellent start to the evening.

TraderJoe

Lower Low Day & Turn-about

Overnight and into the early morning, the ES futures made a lower daily low. Prices then swung around with five-waves-up, and then a drop, and then another higher high.

ES Futures - Daily - Lower low & embedded

The turn-about after the lower low can be part of a fourth wave. More importantly, price is still sticking to the lower daily Bollinger Band on the way down, and today - as of the cash close - the regular calculation of the daily slow stochastic has embedded. If Ira Epstein is correct - that the embedded stochastic is the strongest signal in technical analysis - then under certain circumstances the Smart Money may be willing to sell rallies.

As you can see from the Fibonacci ruler, price has not quite gotten down to equality with the prior down wave yet.

I'm still waiting to see if the hourly SPY makes a solid fourth wave up, and then a lower fifth wave down. So far, today may have started that fourth wave higher.

Have a good start to the evening,

TraderJoe

Rollover Vs Dec Contract Only

The December ES futures contract must be where it is, regardless. But how things got here are interesting. Here is a side-by-side comparison of the roll-over contract versus December only.

ES Futures - 4 Hr - Rolled Over Versus Single Month Contract

The price differences were wild.

Have an excellent rest of the weekend.

TraderJoe

"Nothing Bullish on the Current Chart"

Over the last several days, we have been writing about how the ES futures had a downside bias because prices were closing below the 18-day SMA. The same occurred today. The daily bias remains lower. But then, too, today, prices closed in the lower quartile of their daily bar for the second day in a row. Ira often defines this as a downside breakout. Further, prices are pushing the lower daily Bollinger Band downward and outward. As we discussed yesterday and, in the comments, price has also broken both of the prior daily down (red) fractals, lower. In short, there are lower lows and lower highs.

This is all to say, "there is nothing bullish on the current chart". So, now, in recognition of the break of the prior lows, we can assign labels to the 18 Aug low and the 01 Sep high. But, because price has not broken the upward channel yet (see chart at this LINK), then we must maintain our objectivity and assign completely equivalent labels. This is just in recognition that a fourth wave could form at the lower channel boundary as a a-b-c wave down. These labels are to be read identically. That is, "It is the same as "a", as it is as "i" at the low, and it is the same as "b" as it is as "ii" at the high.

As price begins to move through equality below the 4,310 level, then we may gain a preference for one over the other. But not just yet. And one shouldn't care. If price moves lower, it moves lower. It could move through equality to 1.618 or 2.168. The count will become more apparent.

Right now, our job is just to try to utilize the downtrend, given the inevitable bounces.

Have a good start to the evening.

TraderJoe

Bias Remains Lower

Between yesterday and this morning before the FOMC report-out there were only three-waves-up. As the ES daily chart, below, shows, the 18-day SMA (or "the line in the sand") was never crossed to the upside. The bias remained lower all day.

In a still whippy session, prices then headed for the lower daily Bollinger Band and the 100-day SMA (green crosses) as shown above. We had said that if the first down (red) fractal back was exceeded lower, it could be an omen for a larger decline. So far, it has been. 

The second and third down (red) fractals back have now also been added to the chart. If price exceeds these it indicates the market is gathering significant power to the downside.

Right now, the down count - as we said in the comments for the prior post - can, in terms of degree labeling, be considered a nested 1-2-i-ii count lower. The local count can also be a diagonal (see the chart at this LINK).

In terms of any upward wave counts, one has to simply recognize that the market is making daily lower lows. Three things would be required to start any upward Elliott Wave count. Those three things are:

1. Daily higher highs
2. Price close above the 18-day SMA
3. Price breaks the first of the up (green) fractals back

Without those items it may be said the market simply lacks power to the upside. One can watch all the stock market videos or visit as many wave-counting websites as they wish. Or they can keep it simple: be patient, calm, flexible and recognize that significant downside is possible from here. For example, if things get really rolling, one might look for a 1.618 wave from the down wave that 18 Aug 2023 just for starters.

The caveat, of course, is that price is down against temporary daily support given by the lower daily band and the 100-day SMA. So, bounces could come at any time. Too, the daily slow stochastic is only in over-sold territory. But if price latches on to the lower band and if this should be accompanied by an embedded daily slow stochastic, well, consider you have been forewarned.

I am only saying that from a degree labeling standpoint, this is the first time that the nested wave possibly has lined up for a move lower in a very, very long time. So, be careful.

Have a good start to the evening.

TraderJoe

Time Wasting ?

IFF we go higher on the FED output on Wednesday, this count might explain it. The current down move seems to lack speed.

As always, watch the new potential channel. Have a good start to the evening.

TraderJoe

Lower Low Doji Day with Downside Bias

ES daily price again closed below the 18-day SMA after making a lower low day, as shown in the chart below.

In the comments for the prior post, we counted an expanded flat wave up, and it was a very weak wave at that. The daily slow stochastic has crossed lower, and that indicates that the Doji day might only be a consolidation / continuation day.

Also in the comments for the prior post we counted one plausible count of a top in half-hourly Crude Oil. There was a big dip lower, and then a deep 78% retrace. Tomorrow will help determine how that goes.

Price action is whippy. One still needs to stay on their toes and remain flexible, patient and calm.

Have a good start to the evening,

TraderJoe

Bias Shifts to Lower

Over the last two days, we suggested two ways prices could head lower. The first manner of decline did not work out and a slightly higher high was made. We called the count plausible because we could also see the possibility of an upward wave continuing. It did for a while. 

The second plausible count worked out fine and met some really quite exact Fibonacci ratios which were shown. No wave analyst gets every wave call correct. There are simply too many waves for that. Thus, we suggested patience, calm and flexibility. Now, with today's decline the price bias has shifted to lower as today's close was below the 18-day SMA (using only the front-month December contract, and not the roll-over continuation of the September contract). The daily chart of the ES futures - as of shortly after the cash close - is below.

ES (Dec) Futures - Daily - Bias Moves to Lower

The outside reversal bar actually took out the low of the last two trading days and closed lower. There was very little retrace on the day, and there still could be a large retrace on Sunday night or Monday. But if the low of 07 Sep (shown with the down fractal or red triangle) is exceeded lower, then it possibly opens the door to the lower Bollinger Band and/or the 100-day SMA, shown as green crosses. And IFF this should wind up being a crash wave - which now seems possible for the first time - prices might go much lower.

The interesting thing about today is how unexpected it was for many. Some were still counting upward because of the positions of daily moving averages. Some were analyzing volume profile gaps and also seeing that upside was possible. Few people were noting the extreme difference in value between the cash S&P and the December futures. It is possible that speculation is running rampant in a number of different ways.

For our part, we will continue to remain calm, flexible and patient: crash wave or not. Again, nothing will surprise us to the downside. Today's price moves (op-ex related or not) suggest that buying stocks or futures naked long is fraught with risk - much more so than in previous wave structures. Yes, if it's a bear market there will be sharp rallies. There might also be moments when stocks gap amazingly lower, perhaps to levels that trigger market circuit-breakers - remember those?

Have an excellent start to the evening and the weekend.

TraderJoe

Plausible Hourly - 2

Yesterday's hourly count in the ES futures did not work out quite as expected. Higher highs were made today, and upward overlap occurred. IF a decline begins tomorrow - which would be a little unexpected for a Friday - then these are the Fibonacci ratios and other criteria that might be met in the SP500 Cash Index (hourly). 

SP500 Cash - Hourly - Fib Ratios

The degree labels are for relative illustration only and will be corrected later, as needed. So tomorrow we will find out 1) should we pay attention to which wave sequence looks more impulsive or not, 2) should we pay attention to what counts more like a "five" or not, and 3) should we mind the near perfect Fibonacci ratios in price and time in a corrective-looking wave? There is (Y) = (W), and ② in the "Golden Pocket" of 62 - 78%.

We shall see. Have an excellent rest of the evening.

TraderJoe

Plausible Hourly

Especially if there is a lower low tomorrow (PPI report?), then this hourly count on just the front month contract, now, which is December on the ES, is plausible. (Hint: do not use the roll-over data as it skews the proportions). Note in this version there are no upward overlaps.

Obviously, flexibility, calm and patience are needed as the market-makers try to stall and confuse. Let's see how things go.

Have a good start to the evening,

TraderJoe

In Days of Yore

The historical record will show that the typical futures-to-cash premium during the middle of the contract period varied from +16 to -2 points. Typically, the +12 to +16 range was the result of the new contract. After Covid-19, we saw the first contract rollovers of greater than +20 point premiums. But now look at this one.

As of today's S&P 500 cash close, the premium is a full 50+ points. And this is after letting things settle in from those who rolled on Friday.

This makes little sense. Something very, very unusual and atypical is going on. Once or twice because of Covid-19 and the resulting economics - maybe. But we're now a couple of years out, and for some reason, the market really wants people to 'pay up' for the (sic) privilege of owning the futures? Is the speculation that rampant? It doesn't seem justified to me, and I would really keep an eye on things.

Have a good start to the evening,

TraderJoe

Russell 2000 Futures Count

Below is the weekly chart of the Russell 2000 futures. Once again, if there is to be a down move in this index the count is likely as shown otherwise the count would get too complex.

Russell 2000 Futures - Weekly - Count

The current count is similar to that in the ES & the Dow - a diagonal lower, and a corrective wave upward - but in this case the correction counts as a sideways triple-combination.

On the daily chart, below, a close-up of the Z wave of the triple-combination is shown.

The Z wave up likely counts as an expanding diagonal (a) wave, followed by an impulse for wave (c) which would represent excellent alternation in a corrective wave sequence.

And while it it likely that wave i down has been made, because of the length of time of wave i, it is possible that wave ii, up, is either done or may extend as a double zigzag or flat wave.

Patience is needed but the trend lines are clear, and a head-and-shoulders pattern can be detected with the neckline at the 1,830 level, the level of the prior (b) wave. If wave ii  extends it would just make a more complex right shoulder - similar to the left shoulder's double-bump.

Have an excellent rest of the weekend.

TraderJoe

'Only' If There is a Valid Fourth and Fifth Wave

As we showed earlier today in the comments, The Eight-Fold-Path Method (TEFPM) with about 97 candles on the ES hourly line chart, immediately below, provides for a potential fourth wave, 4, in progress.

ES Futures - Hourly Close - Potential Impulse Lower

IF and only IF (IFF) the fourth wave forms within acceptable limits, there is no upward overlap, and then there is a fifth wave new low, 5, then it might be possible claim an impulse lower has formed. Don't take my word for it. The evidence comes from the Elliott Wave Oscillator with the lowest trough on the EWO being marked for wave ③ of 3, and the divergence being marked as wave ⑤ of 3. (Note: the degree labels are just for relative illustration at this time.)

Since wave 2 appears to be a sideways flat, it is possible for wave 4 to be a zigzag or triangle at this point. And the Elliott Wave Oscillator may try to return to near the zero line.

For serious students of Elliott Wave, here is how we have already counted the waves since the wave 3 low on the 5-minute chart of the SPY cash ETF into the cash close today.

SPY Cash ETF - 5 min - Likely an eventual Zigzag

Note how the market is trying to use every 'trick-in-the-book' to confuse and cajole novices and pros into making the wrong moves at the wrong times. All I can tell you is that if you are serious wave student, you may wish to dig in to see why these waves were counted as they are.

Have a good start to the evening,

TraderJoe

Case for a third wave

The ES weekly close only chart is below. It shows the potential case for entering a third minute wave of a Minor 1 wave lower.

There is no amount of intraday counting or squiggle counting that will make it happen. The market itself must do the work required, or not. Because there is one way to count the drop to the October low as a diagonal, then the wave (3)/(C) down - should that form - in its entirety would likely be an impulse wave.

Have a good start to the evening.

TraderJoe

Current Local Count Update - 3

One point to note: the current down wave since the high - which may be marked as a c/iii wave - is longer-in-time than the prior b/ii wave. See the ES 4-Hr chart, below. There are now more than the 8 bars than it took to make that b/ii wave.

Right now this is just a point to note. In other words, if downward overlap with a/i is avoided, then this would have to be wave iv to avoid concerns regarding degree violations. But, if downward overlap should not be avoided, then a change in degree may be possible and a larger downward wave in price might begin.

In the comments, we said the wave since the high might be countable as impulse, particularly if the down wave extends some in the overnight.

Have an excellent start to the evening,

TraderJoe

Current Local Count Update - 2

With the information available today a,b,c is the best match so far as the market appears to be losing momentum by breaking the lower channel boundary on the ES 4-Hr chart below. Further it is diverging on the MACD.

In the event a larger wave ④ attempts to form we have provided the current overlap warning location. The main reason we would consider a larger or longer fourth wave is because of the long holiday weekend and not having as many market participants in these conditions. True third waves (i.e. IFF this were still iii) would be gaining momentum not seeming to lose it - just like wave ③ did in the same chart. But perhaps the volume is a fooler, so we're still cautious until the count clears up a bit.

Have an excellent start to your weekend and/or holiday.

TraderJoe