Into the Real Mess - 3

A lot of people are expecting a wave three to "cut-loose" to the downside now (when some - not necessarily the same ones - were screaming for higher prices before). On the way up. I just urged caution, patience and flexibility, and on the way down - the same. Today ES futures prices DID complete the contracting diagonal from yesterday, and - so far - prices have not invalidated either lower or higher. So, let's give some credit where it was due. We saw whippy behavior, called it, and got it.

But what IF prices do cut loose tomorrow - say with an overnight gap and follow-through lower. This could happen. I am agnostic. But how would one count it? I can see two ways - which still makes this down wave part of the real mess.  Here is the first way: The Truncated Top.

In cash SPY, a contracting diagonal count does not work as well as it does in futures. This suggests the above option of a truncated top, followed by a minute-degree wave ⓘ, lower. Elliott himself, Prechter following him, and Neely following him all suggested major turns might see a truncation at the top. Then, following minute ⓘ, there would be a minuet (w), (x) and (y) wave up to the second minute wave, circle-ii, where minuet (y) is a failure wave. It is very important to pay attention to degree labels here, and not think every down wave is a "1" wave when it goes nowhere. 

The problem with the above scenario is that minuet (x) and minuet (i) - which are supposed to be smaller degree waves than minute ⓘ are actually longer in time than minute ⓘ is with the truncated top. This is not supposed to happen. This is why degree labels are important.

So, if this solution doesn't work, is there one that does? Well, first keep in mind we do have the valid contracting diagonal in the ES futures still on the table, which meets all guidelines in both price & time. And we simply do not know what the overnight and morning will bring yet. But here I think is the better alternate for cash.

As several of us discussed earlier, it is possible to get an expanding diagonal where wave minute-iii, circle-iii, is not completed yet. Notice the following attributes of this count:

1. The prior wave ends at the prior all-time high, where Minor C, and Intermediate (3) is shown. Then there are "three-wave" sequences downward as zigzags.
2. Following minute ⓘ, down, the minuet (a) wave diagonal, down, would be shorter in price & time than all of the minute ⓘ wave. Minuet (a) is supposed to be a smaller degree wave than minute ⓘ, and here it is in both price and time.
3. Next, notice the minuet (b) wave up. It is shorter than all of minute-ii, circle-ii in price and time. Fantastic, it follows degree definitions, too!
4. Then, notice sub-minuette i, down. It is shown looking slightly longer than (a), down, right? But that would violate degree label definitions, wouldn't it? YES! That's because the i portion of that wave actually ended at 512.00, and everything else after it in the correction is an expanded flat for sub-minuette ii! So, then degree definitions are not violated.
5. And so-on goes the minute-iii, circle-iii, wave until it maybe reaches the 1.618 Fibonacci extension - the level of which is shown on the chart.

Folks I simply can not do this every night, wave after wave, adjusting charts which do not consider wave degrees and Fibonacci ratios, so I simply will not. There are too many errors that others can make for me to suggest fixes. I have clearly outlined the problems with degree labeling that most ignore. (Refer to Neely interview if you haven't already at this LINK: Avoid the Top Five Mistakes Counting Elliott Waves.)

I am looking for people who put as much thought into a chart as went into the one above.  Notice "one thing" about the chart immediately above: it gives a clear & specific invalidation level to the count. If your charts do not do that because you don't consider Fibonacci levels or degree definitions then it could seriously hurt your trading also: because a bad wave-count can lead to a bad trade. And the second chart is just an alternate, too. It does not have to be the real deal. But it uses sound rationale and follows the rules, guidelines & degree definitions. So, if it busts it would likely not be because of something we did, but more likely because the Smart Money saw something we did not have access to.

Anyway, have an excellent rest of the evening,

TraderJoe