Patience, Patience

Before further analysis this weekend, I wanted to post this chart of my own construction showing current three-touch trend lines on the three-monthly log-scale chart of the S&P500 cash index.

SPX Cash Index - Three Month Bars - Log Scale Trend Lines

And while I encourage you to review the monthly RSI below the chart, and its current divergences from price, it would be helpful to post a couple of cautionary notes. Let me lead out by saying that the wedge itself outlines a certain level of risk that one might want to pay attention to. The upper wedge line would have to have prices break up through it and cause the upper wedge line to go parallel to reduce the risk. This is plausible but certainly hasn't happened yet. And the lower wedge line could be in play.

But if the ES futures have made '5-down' and overlapped certain waves, cash has not overlapped the most important down wave yet - the Aug/Sep 2024 high. The roll-over ES futures contract has not yet, either. But the NASDAQ (NQ) futures have overlapped that same peak, and that must be paid attention to.

Further, the Dow Jones Industrial has not yet made a lower local low over their January 2025 low. And that is curious. It may be that there is rotation out of tech and into stocks perceived to be more stable. So, we said earlier that stocks might go over the high again with a reduced probability. That is still the case and may depend more on the index being tracked.

Clearly, the three-month wedge might indicate a fourth and fifth wave inside the wedge to complete the upward count. But it doesn't have to. We'll try to indicate why later in the weekend.

But for now, the task at hand is to understand if the downward diagonal is ending or leading as the SPX 2-hr chart below shows. We have provided some minute degree wave labels for the wave as ⓐ, ⓘ or ⓒ at the wave (v) low. These follow from The Principle of Equivalence as related to market probabilities.

SPX Cash Index - 2 Hr - Diagonal

The Principle of Equivalence tells us to mind our p's & q's unless & until a retrace occurs that does not go over the high. And the patience comes from the fact that it took fully three-weeks to make the down wave. It does not have to, but it could take three weeks or more to make a corrective wave upward. Any upward impulse might take less time.

This is the part of the wave principle some people do not like. But if one wants to see a first wave down, then one simply must accept the necessity of allowing the market to make a decent second wave up. I hope to have more insights in further posts before Monday.

Have an excellent rest of the weekend,

TraderJoe

Five Down

As of today, it is possible to count five-down as a contracting diagonal on the ES 4-hr chart, as below.

This is currently a 3-3-3-3-3 diagonal. It would have been nicer to see a 5-3-5-3-5 diagonal as it might have eliminated one possibility.

As it is The Principle of Equivalence tells us we must be patient and wait to see if there is a retrace wave that does not go over the high before being more committing to a down label. The wave is either ⓐ, ⓘ, or ⓒ. Because of overlaps on some charts, we have listed the ⓒ wave potential last with the lowest odds. I'd rate the odds roughly about 40:40:20 based on the overlaps. That does not mean going over the high again is impossible. It just means it has lower odds.

Yesterday, we said the 18 cross 100 SMA on the daily chart could lead to a lower low today. It did.

Today broke the November low on the ES roll-over contract, and price closed below the 200-MA on the daily front-month contract. Price is at the lower daily Bollinger Band and so Ira's "elbow" warning applies.

Have an excellent rest of the evening,

TraderJoe

Now 18 Cross 100

Today in the ES futures was an inside range day. A lower low was not made, but a 90% wave down was. So, this has the effect of turning the local swing-line up temporarily, but as long as price is under the 18-day SMA, a new upward trend is not in effect, even given we recognize some price gains we made today. The daily chart is below.

Other items on the chart include a close of price above the 200-day SMA, the brown rising curve, and the fact that the 18-day SMA now has a cross under the 100-day SMA. Often, not always, that cross leads to an additional lower low. We shall see. We have not had such a cross in more than a year. The cross has only occurred on the lead month futures contract, and not the roll-over contract, yet.

So, price is still in a down trend until it isn't, and the daily slow stochastic (regular calculation) flirts with embedding and losing that status. So, the wave structure is a mixed bag at the moment on the daily, and we are counting locally in the comments and have provided some ideas on the nearby wave count.

Much more than that can't be expected. Is it possible to return over the high? Yes, it is possible, but the odds are dropping rapidly every day we stay under the 18-day SMA. By the discipline, we shouldn't begin an upward count until / unless price closes back over the "line in the sand".

Have an excellent rest of the evening,

TraderJoe

Too Far ?

According to The Eight-Fold-Path Method for Counting an Impulse, with 120 - 160 candles on the chart the guideline for a fourth wave in the Elliott Wave Oscillator (EWO or AO) is +10% to -40%. The daily ES chart, below, has 145 candles on it - well within the desired range. The Method is the Featured post on this blog, and the link for it is located under the Purpose and Ground Rules on the upper right-hand corner of the main blog page.

ES Futures - Daily - EWO -69%

The EWO on this chart is currently at -69%. So, even though there is no downward overlap in the continuous futures contract - like there is in the lead month only - as best we can tell the upward count is over. We drew this chart earlier in the day, noted that it had the right look for an impulse and wanted to check the EWO at the end of the day after the expected rebound. The EWO remains out of range. The fifth wave truncation count was shown earlier in several posts and comments.

Any further lower lows would more strongly suggest that Intermediate (3), up, is over, and Intermediate (4), down, has begun.

Have an excellent rest of the evening.

TraderJoe

Two Options

Nothing in the ES daily chart has yet invalidated or been proved. Today price headed down to touch the 200-day SMA on the front-month futures contract. This is shown by the brown rising curve below price. In earlier posts, we said it could. It did. We don't know anyone else that outlined that possibility. As shown by the dashed lines, there are no lower lows, yet, leaving the two options shown.

The triangle doesn't look particularly good, but it counts acceptably. So, we must still be patient and see whether the truncation count applies or not.  These are very close calls, and one would have to have an excellent set of market metrics (usually not available to retail) to tell the difference as of the close today. Essentially, the question amounts to whether or not price will take a strong bounce of the 200-day SMA. It's a reasonable expectation that it would, but it is not required.

Have an excellent start to the evening,

TraderJoe

Window Dress, then Front Run

The ends and the beginnings of the months are getting somewhat predictable. We suggested there would be end of the month "book-squaring, or window-dressing", and then preparation for the "first-of-the-month" money. That's what happened. We also warned readers to beware below the lower daily Bollinger Band. Yes, price might try to touch the 200-day MA, but it did not have to. That warning, too, was prescient as prices whipped around to close back inside the band. So, for today, the chart below is still just an alternate, but because of the length-of-time of the pattern it is the preferred alternate. The chart is a 2-day chart of the ES (rollover-contract) futures.

Nothing has invalidated a barrier triangle's measurements, and this one looks better when this starting point is shown, along with the 0 - 2 trend line.

We note that today there was overlap with not only Minor wave 3, on the downside, but then also upward overlap on the internal down wave of the ⓓ wave. Lots and lots of overlap & sideways price movement ... if it looks like a duck and quacks like a duck ...

Have an excellent start to the evening,

TraderJoe

With All Due Respect

With all due respect to wave counting, which is a lot of fun and very useful, today the market as measured by the ES daily futures stalled in its up wave right at the 100-day SMA (green dotted line) and then fell off in another whippy wave as on the ES daily chart, below.

ES Futures - Daily - Reversal from 100-SMA

Further, we see prices closed outside of the lower daily Bollinger Band which only roughly happens about 5 - 7% of the time. Further, we see the 200-SMA, the brown line, is sneaking up from under the market. It would not be unusual if they touched, or more. Price has not hit the 200-day in more than 300 days - as we mentioned earlier. It is due.

Ira notes that often the retail gets most bearish when price cracks the lower band. And while that is true, the Smart Money often uses the lower band to come out of their short positions entirely, or at least partially, perhaps letting some profits run.

With about 5 - 7% odds, lower prices can happen. So can whipsaws. Which this will be remains to be seen. We do note that the daily slow stochastic is currently only in over-sold territory. It has not embedded. Embedding would be the best sign that that Gorilla-Glue trade to the downside might occur, where price latches on to the band and doesn't let go for days. But, as stated, embedding hasn't happened yet.

Perhaps price will just touch the 200-day, and bounce; it will be interesting to see if there is any reaction. Still, according to Ira's methods, there is nothing bullish on the chart until or unless price closes back above the 18-day SMA and the swing-line indicator turns up. Right now, the swing-line indicator has a lower high and lower low, so very little can make it outright bullish, either, at this point in time.

There are still multiple ways to count this beast. This weekend I will review some additional wave degree information. And while nothing to the downside will surprise me, one of the few ways I could see a true top at this point is with a truncation - as follows.

ES Futures - Daily - Alternate Truncation Count

For the truncation count, both of the Key Levels shown would be expected to be undercut is relatively short order. One issue to note is related to the Elliott Wave Oscillator, EWO, or AO. Note that after it turned down into the January 14th lows for what looked like a fourth wave, it subsequently rebounded to give the appearance of a short fifth wave, above the zero line, and has since turned back below the zero line. So, that is one sign - albeit not definitive - that waiting for a longer in time Minor 4th wave for too long may not be the most prudent.

We shall see. It is still The Fourth Wave Conundrum (that happens at every degree of trend) until it is not. Remember that tomorrow is the end of the trading week, and the end of the trading month. So, some book-squaring may occur tomorrow waiting to see if First-of-the-Month inflows from the previously identified sources are waiting to be invested.

Have an excellent rest of the evening,

TraderJoe

Critical Milestone

For the first time for this alternate, we can count a legitimate triangle in the ES daily futures that goes back to October 2024 high. We have been very, very patient waiting for the three-wave sequences and overlap that make this alternate even possible. Further the ⓔ wave dipped further below the 62% level today and broke the prior daily fractal lower.

As with the remainder of The Fourth Wave Conundrum counts, we have some probability associated with it, but it is a low number (in the 20 - 35% range) because of the number of possible patterns.

The benefit of this pattern is that it cuts off the 0 - 2 trend line in the right location, making everything to the right of Minor 3 part of the potential fourth wave.

Can the pattern devolve lower into a Flat? It can. It just hasn't yet. Still there is absolutely nothing to the downside that will surprise us. Can the minute ⓔ wave develop further sideways into a triangle, itself? It can. That is because so far it only looks like simple zigzags make up the legs of the potential triangle.

Maybe the pattern is waiting for some significant economic news. We shall see.

One word of caution regarding a Flat wave, is, as we showed, the New York Composite Index already has overlap on its first wave up. The triangle might help to rectify that if it comes to pass.

We're following it closely. We can't rush it. We think this is a really excellent lesson in fourth waves and why I coined the term The Fourth Wave Conundrum. It is interesting. It is trying. It is fatiguing, and it is instructive.

Have an excellent start to the evening,

TraderJoe

Either in a Parallel

Either count in a parallel might result in five-waves-down on the SPY 15-min chart. It is often typical for the fourth wave to be longer in time than the second wave.

Readers of this blog know we were well-prepared for the downturn at the end of the day, even calling for a potential b wave downward if there was downward overlap, which there was. There could be more downward. Nothing in the downward direction will surprise us.

Have an excellent start to the evening,

TraderJoe

Running Away from the News

The economic reports before and during the stock market open were almost uniformly negative, indicating declining economic activity - which inversely should argue for lower interest rates in the future and higher stock prices. Except that the University of Michigan Consumer Inflation Expectations came out at 3.5% vs 3.3% and may dissuade the FED from lowering rates. The stock market, as measured by the ES daily futures, ran away from the upper band yesterday, traded below the 18-day SMA and closed darn near the lower band. This temporarily both changed the daily bias to lower, and temporarily - at least - caused the daily slow stochastic to lose its embedded status.

Further, the drop was low enough, being 62% of the prior wave, that for the first time we can count a triangle on the daily chart, as follows.

Is this count correct? It is still difficult to say. For the first time, the trend line up from the January low was exceeded lower. Triangles often do this. Further, the MACD is as flat as a pancake and this, too, often happens during triangles.

But the item of concern is that the ES lead month contract (ESH2025) has simply not made a higher high since December like the cash market has. So, the formation might be a barrier triangle. And we're OK with it if it is.

But we ALSO can see the possibility of any of the following: 1) a larger triangle with the b wave where it is shown in red, 2) a lower ⓔ wave or 3) an even larger fourth wave flat for Minor 4 because the up wave is at least 90% of the down wave.

So, we must bide our time and count locally until we get a breakout or further breakdown. Yes, it is somewhat exhausting trying to count and wondering which pattern is playing out.

But, what else should one expect if we are getting a longer sideways pattern for a fourth wave? So, we look forward to what Monday brings to see if further information can be gleaned. IF there is an immediate, swift reversal of consequence it may reinforce the case for a triangle. But that remains to be seen.

Have an excellent start to the evening,

TraderJoe

ES Embedded

The lead month contract of the daily ES futures came within 1 tick of hitting its upper daily Bollinger Band, yesterday, and today it sold off a bit, but not to below the 18-day SMA.

Of note, the regular calculation of the daily slow stochastic embedded today. This suggests that under certain conditions the Smart Money will buy breaks (like today), and 'try' to reach a target of the upper band. They might continue to do this until / unless price closes back under the 18-day SMA or the daily slow stochastic turns back down under the 79 level from where it is now - this would lose the embedded status.

Today's small down break overlapped some waves but not others, so there are still multiple ways to count. (Yes, you can see triangles, and/or contracting diagonals as you might like). But the down wave did not break a trend line from the January low, yet. And neither has price closed below the 18-day SMA. So, the bias remains up until it isn't any longer. Still, to paraphrase Ira, he wouldn't even tell his worst enemy to buy new over a daily Bollinger Band - because the odds of price closing outside of the band is only about 5% of the time. He might advise either a) to come out entirely depending on the risk, or b) to take some partial profits and let some run, knowing the risks are high. 

Have an excellent start to the evening,

TraderJoe

Primary and Alternate

The daily primary and alternate counts for the daily ES futures are below. There is little to distinguish between them at the moment.

The daily Bollinger Bands recently squeezed together, so an impulse up "could" result, particularly if the slow stochastic embeds - which it hasn't yet.

If the market runs into trouble with the bands, then the alternate count would be a diagonal. But there is little justification for it at present - except if the market runs into problems with the Bollinger Bands and the daily slow stochastic should not embed.

Have an excellent start to the evening,

TraderJoe

First (b) wave possible

The ES 2-hr futures have lost the look of a triangle, while technically they still could be in one, the proportions are now strained. Still there could be a double-zigzag (w-x-y) lower for a (b) wave as indicated below.

The absence of a formal lower low currently indicates some strength in the count. That could change but it hasn't as of this time. If the count plays out, we could make the (c) wave up of a continuing diagonal or a larger X wave of a downward count, still to be determined.

Also, we should note it is possible to see a Minor 4th wave completed in the fashion below, if a diagonal is not playing out. A double-combination of this type is diagrammed directly in The Elliott Wave Principle by Frost & Prechter. In this case, the minute ⓨ wave is a triangle. And it does overlap one location for a Minor wave 3.

Again, as with most structures in The Fourth Wave Conundrum, the count is a bit more speculative in nature and requires better confirmation in the future. The one item we will say is that Frost & Prechter outlined the above structure in The Elliott Wave Principle, and we have never, ever seen one before. So maybe this is a real first.

Have an excellent start to the evening,

TraderJoe

ES at 78.6%

We showed a potential uptrend with a triangle count on the ES 2-hr chart. It is repeated below. Today we noted the up wave got to 78.6%.

We don't know that the up wave is over. We are monitoring for that. If the up wave should be over, then a reciprocal 78.6% down wave might occur IF we are in a triangle. It should exceed the ⓑ wave of the b wave, lower. Remember, a triangle can not be called until all five waves and their measurements are in the market.

This could all be a part of the "battle at the 18-day SMA" on the daily chart.

Reminder: FED Chair Powell is expected to speak to Congressional House members tomorrow.

Have an excellent rest of your evening,

TraderJoe

GOLD (GC) at Three Fibs

We have been trying to count a Intermediate (4)th wave in GOLD (GC) futures, and more specifically, the Minor B wave, up. The market has been having its fun with the count in typical B-wave fashion. But now the measurements show one location for a possible turn at the confluence of three Fibonacci ratios as the daily chart below, shows.

GOLD (GC) Futures - Daily - Three Fibs

The three ratios shown are 1) B = 1.382 x A, and 2) ⓨ = 1.382 x ⓧ, and further 3) B = 1.618 x the low of (b), which is directly below (a).

And, as the four-hour chart below shows, there are still ways the count can go marginally higher. And there are ways it could fail at micro ⑤.

GOLD (GC) Futures - 4 Hr - Possible (a), (b), (c)

For example, IF the up wave extends the B wave can turn into a portion of a triangle. But we are not near there, and it might appear as if a diagonal is forming at the high.

Given this, it seems like the next two or three days are critical to see if a top formation and a turn are in the cards.

Have an excellent rest of the weekend,

TraderJoe

Up Count Paused, At Least Temporarily

We said we were counting upward until something prevented it. Today, the ES daily futures made an outside day down, as shown in the daily chart, below, and wound up at / below the 18-day SMA. So, "outside day" guidelines are in effect (if the high of the outside day down is exceeded in the next two daily session, then it constitutes a trap for the bears).

One interpretation of the up wave is that it is a five-wave "a" wave, up. The wave is shown below with the five-count in a wedge on the ES 2-hr time frame. The chart clearly shows the reason we paused the up counting today, with two levels of overlap (L#1, and L#2) that overlapped both of the first waves up.

IFF the five-wave sequence is counted correctly, then it could be a larger a/i wave up. The wave ended with a contracting diagonal that we showed on the 2-min chart. The start of the diagonal was then exceeded lower in less time than it took to form, validating the prior structure as a diagonal. So, this down wave could be a b/ii wave down. If so, an awful lot of different structures are possible. In the case of the b wave, even a triangle is possible. It's a situation rife to trip up both wave-counters and traders alike.

The only thing that can cause invalidation of an up count once the down wave is in progress is trading below the start of the wedge. And yes, marginal higher highs could be made if b/ii turns out to be an expanded flat.

So, patience, calm and flexibility are again called for as measurements are the key at this point.

Have an excellent start to the evening and the weekend,

TraderJoe

Daily Bias is Still Up - 2

Price has been whippy and making a wedge on the ES 2-hr chart. There are likely three waves up and a possible fourth wave down.

ES Futures - 2 Hr - Waves in a Wedge

Because there are no overlaps yet, we just keep counting. Have an excellent rest of the evening,

TraderJoe

Daily Bias is Still Up

As long as price closes over the 18-day SMA, then the daily bias is still up. Yesterday's 'no man's land' squeeze that we showed on the ES hourly chart resolved to the upside today. So, we just keep counting until we can no longer. 

The chart below is of the SPY cash 15-min chart. A few things about the degree labels are noted below the chart. The count itself has no preference from me at the moment, so that a/i, b/ii, and c/iii are to be read as being equivalent until they are not. They are not to be thought of as 'alternates'. They are to be thought of as unresolved. Unresolved means that 1) the lengths can still be developing, 2) there is no reason to assume upward (or downward) price movement is over, and 3) there are no disqualifying overlaps.

SPY Cash - 15 Minutes - Local Count

Some notes about degree labeling:

1. Within c/iii wave ① is smaller in price and time than i.
2. Wave ② is smaller in price and time than b/ii which is a Flat (just a compound Flat).

We also note that today's wave is entirely above a 0 - b/ii trend line at this time. Wave a/i is a true diagonal, and diagonals are often a waves, but that does not mean price cannot go over the top if it measures as c = 1.618 x a.

Have an excellent rest of the evening,

TraderJoe

ES (SPY_ CFD) - Hourly - No Man's Land

Here is a current interpretation of the waves off of Sunday/Monday's low. Right now I am just drawing two converging trend lines and looking for which breaks first. If the low breaks it's possible to have a i, down, and a ii, up. This is currently the alternate count.

The preferred count is that a flat wave might be in progress, and if the upper trend line is broken and is successfully back tested, then higher highs might result. There's no magic here. We're in the middle of the range. The odds are roughly 55-45, with the slight edge being given to the up count only because daily price is currently trading above the 18-day SMA, so the price bias is positive.

Have an excellent rest of the afternoon & evening,

TraderJoe

Also Possible

This count remains possible on the daily ES futures. Still keeping track of degree labels as best as possible then it is possible to get a ⓥ = ⓘ relationship. The close-only chart is shown to highlight the form of the wave, the channel, and some measurement relationships.

The advantage of the count is that there is a clear invalidation on the chart. Since wave ⓘ is an impulse, then wave ⓥ could eventually turn out to be a small diagonal, as well. There is a possibility that the Dow can do better than this as its wave (3) is not as long as its wave (1), yet in that index.

Have an excellent rest of the weekend,

TraderJoe

ES Hourly - Current Count

Below is the current wave count on the ES Hourly chart. There appears to be a minute ⓐ, ⓑ, ⓒ in formation. We were able to count out the triangle in near real-time, and there has been one pop above it followed by a deeply retracing wave which could be a (i), (ii). Or wave (ii) could extend in time if it wants, but not below the ⓑ wave low. And interesting, the way the CME settlement works, there is a fake gap between yesterday's settle and tonight's open because they settle at 4 PM ET while the futures still have an hour to trade.

The usual triangle targets are in play - the widest width of the triangle added to the breakout point - until they are not. One has to wonder how many elements of a barrier triangle are here, and whether that means the break-out will be stunted or not. Certainly, the market has gone through major gyrations to see if it could close the open gap on the left. It may do it tomorrow (being Friday) and/or it may go higher to make a new all-time high. For example, a ⓒ = ⓐ would be at 6,180 if that occurs, and that would be a new all-time high, above the prior 6,178 in the front-month contract & above 6,162 in the roll over contract. A new high is possible (in a potential diagonal that we showed earlier, and in a possible ⓧ wave, ⓑ wave or ⓓ wave of an expanding triangle, if we lower the degrees above by one degree). But such is not required in a continuing Minor 4th wave. Refer to yesterday's diagrams.

Right now, the market is content to whip back-and-forth, and back-and-forth making for some difficult waves. But the good news is that by the Principle of Alternation, if wave ⓐ was a diagonal, then wave ⓒ should be a straight-forward impulse, perhaps where only the (v)th wave of ⓒ is a diagonal.

Lots to think about. Have an excellent rest of the evening,

TraderJoe

Options - The Fourth Wave Conundrum

While there is a tendency here to call your favorite pattern, and bend or break the rules to do so, there is usually no need. As we showed last week, the up wave was literally ambiguous: it can be counted as either a three-wave OR a five-wave sequence (although we think it 'best' counts as a 'three'). So, there is one way the market could have topped, and that is with a failure in some indexes and the new all-time-high for the S&P500. That is shown as the second option, in the upper right, below, in red as it must be an alternate at this point. An alternate, yes, but still a fairly high probability one (roughly 25 - 30% odds).

But other patterns the market could be sketching out include the expanding triangle (upper left), the double-combination Flat (lower left) or a continuing fifth wave or diagonal (lower right). They have similar odds.

We do note today that the downward retrace of the recent upward wave is 62%. That gives the best option yet that there may be a diagonal in play. But there simply is no telling for certain.

It is what I have termed The Fourth Wave Conundrum: the thirteen patterns possible from just three-waves down off a recent high, and it occurs at every degree of trend.

What is important now is to monitor for new highs or new lows and to continue to follow the rules to determine the appropriate pattern.

Have an excellent rest of the day,

TraderJoe

Chomp! Chomp!

Here's something you haven't seen in well over a year. While not fatal, one measure of over-blown sentiment is the 5-day moving average of the Equity only put-call-ratio ($CPCE).  The daily chart for the last year is below.

$CPCE - Daily - Five Day Average at 0.40

As you can see, buyers of calls have not been this bullish in over a year. Again, while this is not fatal for the market and may even persist a while, it does indicate that bullish investors have been gobbling up call options with abandon. Meanwhile the CNN Fear & Greed ratio is stuck in 'Neutral' because it has a mish-mosh of other (some non-sentiment) measures mixed in.

This indication should be considered a warning, and only a 'warning', as should be the McClellan Oscillator which was just in very over-bought territory of +300.

For our part on the EW front, we showed that on an hourly basis, we can still easily get a fourth and/or fifth wave higher (see chart at this LINK). This can happen, but it does not have to based on current wave options (i.e. like a ⓑ or an ⓧ wave at the high).

Have an excellent rest of the weekend.

TraderJoe

It's Official !

Almost as if were a pronouncement from the NBER that there was a recession, it is now official! The cash S&P500 Monthly Index now made a longer wave than the up wave from 2020 to 2021. See chart below.

As you can see, it didn't happen until today but at 6,118.72, the up wave surpassed the 6,118.34 needed to make a longer wave in the cash index. This happened before in the futures, and I commented on it. But it had not happened in cash, and it was quite perplexing as to why not. Now, we know we likely made a fourth wave of the Minor C wave up. The up waves do not have to be done yet, but the minimum requirements were met. So far, wave Intermediate (3) is longer in price and longer in time than wave Intermediate (1), which was also pointed out before. And clearly one can see - even on this time scale, the Elliott Wave Oscillator has a higher high as well - which was also pointed out on smaller time frames.

So, all we can say is that the minimums are met. This might happen in the Dow, as well. We'll see. Then the expectation would be that wave (4) would be longer than wave (2) and come down to overlap wave (1) without going below the low of wave (2) in the dreaded megaphone pattern that the market has been giving us practice with recently.

Please read carefully what I said about the upward waves not having to be quite done, yet. I can see ways they can extend. And we still need to take it one step at a time. So have patience, be calm and be flexible until we see something meaningful.

Have an excellent rest of the evening,

TraderJoe

Premature

The recent up wave on the ES 4-Hr chart is very ambiguous. It CAN BE counted as a five-wave channel wave. It also can be counted as just a three-wave sequence. As such, it can be considered as 1) a fifth wave failure or, 2) as a B wave or an X wave at this time, or 3) as the start of another upward sequence. It has reached in excess of 90% up of the three waves down to minuet (c). 

Even though the sequence has shown some signs of topping - such as an ending expanding diagonal in the ES 5-minute futures that counted perfectly well - it seems premature to draw any firmer conclusions. One would want to see some substantial downward movement that can be counted impulsively, a break of the recent parallel channel, and a retrace that does not go over the high.

Note: we could just be range-bound. That would fit with a potentially larger Minor 4 wave, lower yet. We could add waves that go over the high, in furtherance of a larger expanding triangle or other structure.

So, we keep the options open and count locally. We don't interject larger opinions at this time.

Have a great start to the evening,

TraderJoe

Mag 7 Weekly

In the last couple of posts, I showed some of the differences between indexes that have less influence from the Mag 7 stocks and their capitalization weighting in an index, notably the NY Composite Index (NYA), and the RSP (or Equal Weight S&P500). Today we return to the world of the Mag 7, specifically the ES roll-over futures on the weekly chart, which is below. You should take some time to look over the features of this chart. Your criticisms are welcome.

ES Futures - Weekly - x(5) Count

First, I developed The Eight-Fold-Path-Method in an effort to eliminate guessing, using one consistent time scale (120 - 160 candles) and one consistent indicator, the Elliott Wave Oscillator, developed by Bill Williams which was built by him using Supercomputer analysis for this purpose. Look, the Method has some shortcomings. It works best on extended third waves, and there is still a lot of flexibility needed as to the timeframe to analyze. But it is time to put it to the test. The first thing we see is that the weekly chart from the low has 118 candles, very, very close to the effective range for the method.

So, in the wild world of, "just where are we on the chart?", the answer would seem to be able to be located as "within Minor 4, but it is too short, yet".

This is arrived at primarily by considering Minor 2 (that "Problem-Child" wave I previously wrote about) as the longest correction in price and time. That means that Minor x1, before it, was a 3-3-3-3-3 Leading Expanding Diagonal. As such, it is the extended wave in the sequence.

We almost all counted some kind of Impulse for Minor 3, and it is, but it is on a clear divergence. It has now topped and formed a potential parallel channel, the bottom of which has not been tested yet. And neither has the Elliott Wave Oscillator returned to near the or under the zero line to indicate a fourth wave. And, so far, we have only had an a,b,c down at some degree.

Given the reality of The Fourth Wave Conundrum that I have documented which occurs at every degree of trend, this wave could be a real stinker, as there are literally 13 varieties it could take. One factor that might eliminate some possibilities if we look at it is alternation. The minute ⓧwave in wave Minor 2 went over the top. So, some possibilities that don't include a higher ⓑ wave might be, a double-zigzag, a triple zigzag - like one in the form of an expanding diagonal - and then there are contracting triangles and expanding triangles.

Let me be clear, any triangle in a fourth wave position provides alternation. So, while one could get a contracting triangle, one could also get a very long-in-time expanding triangle that looks like this, and still have the needed alternation provided.

ES Futures - Daily - Expanding Triangle Idea

Clearly, this is labeled as a "Speculative Idea" and might help outline a path of just increased algo volatility as they absorb the news and try to decide direction. Again, the expanding triangle would provide the needed alternation. But, so, too would the expanding triple-zigzag or double-zigzag outlined below. But, if the expanding triangle idea plays out, it's legs "by rule" are limited to 150% of the prior leg. Try to keep that in mind because it can help set some invalidation levels.

ES Futures - Daily - Expanding Dzz or Tzz Idea

The triple-zigzag is shown. In the case of the double-zigzag just end the pattern at the ⓨ wave. Again, another speculative idea. But both of these might line up with the positions of the Daily Bollinger Bands which seems to be the current "brain" behind the algo market movements.

So, thanks for the chicken-soup, all. I drank a lot of it. But I noticed that Kool-Aid was not on your list of remedies, so I still haven't drunk that yet.

Have an excellent start to the week,

TraderJoe

Vive La Difference

Sorry, my biorhythms are low today. It's cold and flu season in a lot of places, and some of us are feeling yucky. Then, too, there's a lot of bad news out there (CA wildfires, etc.) and I just didn't feel like doing a lot of work today. But one thing I did want to look at after the New York Composite Index was the "Equal Weight S&P 500" symbol RSP. The daily chart is below.

There are two levels of overlap indicated. Overlap L#1 should prevent us from seeing a fourth wave from the August 2024 high, almost definitely. And Overlap L#2 should prevent us from seeing a fourth wave from the July 2024, as well. Again, that is in this index with less influence exerted from the cap weighting and the Mag 7. I also can't find a good spot yet to create a triangle in this index.

So, we'll have to see how this plays out but one often notes inter-market divergences accompanying a significant high.

Have an excellent rest of the weekend,

TraderJoe

Still Possible

Just as a matter of record, based on the measurements in this chart, the contracting ending diagonal for Primary ⑤ remains a viable form for the NYSE Composite Stock Average ($NYA). The market has drawn the trend lines pretty exactingly, and price has started down where it needs to have from the 0.786 internal extension of wave Intermediate (1) - see the Fibonacci ruler on the left for that measurement.

Clearly, this index is not as much under the influence of the Magnificent 7 as other popular indexes are. Now the question becomes, will this index head down far enough to create overlap with wave (1)? The Fibonacci ruler on the right shows that overlap in this index is indeed possible with a wave that would be shorter than wave (2) as required in a contracting diagonal. For this reason, in this index, for this count to persist, new highs before overlap would tend to disfavor this scenario. It's quite a large monthly bar that got started, and it has not retraced much, yet. So, confirmation of the candle is what's needed.

Let's see how it goes for a potentially very clear count on an Index that includes all the stocks traded on the NYSE. Have an excellent start to the evening.

TraderJoe

Turn of Degree?

In general, many, or even most, non-professional traders don't like to measure. Certainly, people seem to shy away from such when commenting on this blog. Yet, one of the purposes of this site is to try to help explain how much more sense an Elliott Wave analysis makes when one takes the time to make the basic measurements. The following measurements are true in both the SPX cash index and the ES daily roll-over futures.

SPX Cash Index - Daily - Longer Down Wave

Now, looking at this chart, the Fibonacci ruler reveals that the current down wave is longer-in-price than any of the down moves labeled as P, Q, or R. The Fibonacci ruler for the R down wave is not shown because that is obvious from exceeding its low. (The letters chosen were such as not to confuse with EW labels - which they are not.)

So, if the meaning of the term degree holds, then for those looking for a fourth wave-type structure, the likely way to do that is to pair the fourth wave up with the N location. In other words, now draw a line from the top of the N wave through the all-time-high, with a parallel from the N wave bottom. The odds are likely about 90% that this is a new wave down for two reasons:

1. If one were trying to construct the longer diagonal of sub-micro (1), with this as (2), then - as a second wave - it would be longer in price than its higher degree previous second waves. This would violate the definition of degrees. So, for that reason I think any upward diagonal already occurred as previously identified.
2. If one were trying to suggest that the first (a), (b), (c) lower - shown in the prior post were the first minute ⓐ of a triangle, then, it, too, would be larger than the higher degree P, Q or R waves. So, the only way to pair a triangle would likely be with the N wave.

And one caution about considering a triangle at this location is that usually (most-often) the ⓐ wave of a contracting triangle is the most violent. This wave has been halting & start-stopping - just about the opposite of a violent characteristic (yet). Still, I see no objective reason that an expanding triangle couldn't develop from here. But, again, this would be paired with wave N.

So, these are some items to consider going forward even though seemingly violent and substantial retracing waves can occur at any point.

Note on the daily chart both the MACD and the signal line are below the zero line with the MACD line currently crossed lower.

Have an excellent rest of the weekend.

TraderJoe

Black and Blue

With all the whippy price action near the high, traders might feel a bit like a punching bag with certainly some black eyes to show for it. This would be expected. On the 4 Hr chart of the SPY below, today's low beneath the low of 20 December 2024 at least suggests that sketching in the base channel as we proposed a few days ago was the correct exercise.

SPY Cash - 4 Hr - Base Channel

Still, the Principle of Equivalence tells us not to go over the deep end at this point. The black and the blue counts should be viewed as equivalent within the realm of probability, with a slight preference for the black count. Why? Well, let's look at three prominent features of the chart. 

The first is that there may be a failure swing on 06 Jan 2025. Note: it's clear that because the ES did not make a new low on 02 Jan, but the SPY cash did, this is likely a "b" wave flat location, and the up wave is a strong "c" wave. And because of the failure, it could signal a strong downward wave to come. The second is the number of gaps to the downside, so far. The count is getting third wave-like but just doesn't have the needed length yet. Third, if the up wave is a second wave, it is quite deep for a second wave. Possible - but also in "(b)" wave territory of 78.6% or so. The first two factors provide the slight preference for the (i), (ii) count. The third factor leans in the direction of the blue count.

Once again, although this blog is not about buy or sell signals per se, price is below the 18-day SMA and so the bias is to the downside on the daily chart. So, almost no price movement lower will be a surprise. But we need to get out of the whippy 1-2 type conditions and see additional acceleration for impulse characteristics lower. 

Also note, although daily fractals are breaking lower on the daily chart, price is down to the lower daily Bollinger Band combined with the 100-day SMA.  The daily slow stochastic is also in the oversold area. Further, on the weekly chart, price has just closed below the weekly 18-SMA. So, for now, the weekly bias is lower, too. But the weekly slow stochastic is not in oversold territory or near it.

Have an excellent start to the evening and the weekend.

TraderJoe

Crude Interlude

While we're waiting on resolution in the equity indexes, it seems worthwhile to have a look at the overall trend in Crude Oil (CL) futures. The chart below is monthly. Hopefully it is relatively self-explanatory.

Corrective wave sequences often occur within a rather clear channel. So far, only half of the channel is filled. The count shown is a straightforward Intermediate (A), (B), (C) corrective count, lower. Only the (B) wave looks complicated as a Minor W, X, Y where the barrier triangle is the Y wave. This type of combination wave is allowed under the Rules and Guidelines of the Elliott Wave Principle. Prices started falling off today in what might be the end of the Ⓔ wave of the triangle.

Clearly, the powers that control oil prices have been doing all kinds of bargaining and saber-rattling in order to stave off a decline in oil prices. But if the economy loses strength this becomes more & more difficult.

Note, the (A) wave down is a protracted and halting-type wave. This suggests that any (C) wave down might be steep and short-lived.

Have an excellent start to the evening,

TraderJoe

Can't Yet Rule It Out ...

But it seems less probable. Any number of people are trying to make a triangle at the highs in the market. Currently, the only valid triangle I see would be like the one below. This is the daily chart of the cash QQQ index.

QQQ Cash - Daily - Potential Triangle

Today was a pretty heavy down day (1 : 2 adv-dec) in this index. But the daily EWO is in a place where a fourth wave could occur. Because today was a down day, and price is below the 18-day SMA in the ES futures, this tends to suggest that the daily bias is down, not up. For that reason, this triangle must remain an alternate until its structure is more proven.

But there are things not to like about this structure as a triangle. First and foremost is the size of the Ⓑ wave leg. It is greater than 1.618 which tends to suggest it is its own impulse. Further it is not clear that this Ⓑ wave is indeed the required zigzag. It isn't obvious. There is no big bend in the middle of the wave. Second is the fact that price is not really that near the apex of the triangle.

Still, is it possible for such a triangle to exist. It is just less likely. So, if it does occur it won't bug me much. At this point the triangle is legal according to the rules of Elliott Wave. Just bear in mind that seeming triangle patterns can break down (as diagonals or 1,2,i,ii) as well as up. So, be careful.

Have a good start to the evening,

TraderJoe

Some numbers ...

I thought it might be nice for people to know that the S&P500 Cash Index has not touched its 200-day simple moving average for 296 days, as the chart below shows. The last time it touched was Nov 1, 2023, when it touched from the underside. The next day was up over the average, and there has not been a touch since. The brown curve below prices is the 200-day MA.

Now the uninitiated might think something like, "well shouldn't price touch the 200-MA every 100 days or so in order to average out to 200 days? And shouldn't it trade both above and below that average in order to produce an average?" Well, no, not necessarily so. Maybe it would touch more often if price generation was a more random process. But if there is a cause to the increase in prices - not random - this does not have to happen. That cause, is, by now, clear to most. Companies sell stocks to shareholders, and then they buy them back to show better profits. Company buy-backs have not stopped. They were last at an all-time high. (Read about the record at this LINK). They can continue to engineer their stock prices higher until they are faced with a bad earnings report, a change in leadership, or a significant increase in interest rates or other terms that affect their financing making the buy-back more of a poison-pill than a golden egg. Still, 296 days seems to be pushing it a bit.

Today the S&P500 cash index held within the tentative down parallel shown and came back at the end of the day to close on its 18-day SMA (another number worth noting). It could still go higher. There are ways to do it. But it is not required. So, now just another number for grins.

IF the market were to make a simple 1.618 downward extension - as shown in the chart - look how close it might come to that 200-day MA. That just seemed interesting.

Have an excellent rest of the evening,

TraderJoe

Waiting for definition

On the way up in the wave count, using the 0 - 2 trend line was effective in helping us determine counts. You can see the last one on this ES daily chart from the lower left wave iv to the lower terminal of wave ② and breaking this suggests that waves ④ & ⑤ have been made.

ES Futures - Daily - Rollover Contract

It takes time and patience to identify this line and to use it as intended. For example, on the right-hand side of the chart, there is only one point which could be identified as a second wave in a base channel. And while this is possible, there is a > 90% down wave, and no lower low in the futures yet. When people see a wave that is > 90% down it should almost immediately raise the hairs on the back of the neck and shout something like, "B wave or Next Impulse or Barrier Triangle". That's what I'm forced to think every time. That means the situation is under-defined at this time. The "B" wave option should be obvious now to readers of this blog. It suggests a return to the 6,100 level from here. And the barrier triangle option should also be easy to spot: a = 5,866, Ⓐ = 6,100 Ⓑ = 5,870, Ⓒ = 5,990 or greater, Ⓓ = 5,866 and Ⓔ = 5,950 or greater as b to be followed by a c wave down. Remember that even a barrier triangle, with its flat bottom would temporarily point lower.

Meanwhile, the "Next Impulse" option may not seem that obvious, but it is shown on this four-hourly chart, below.

The key to this count is that the recent Ⓐ-to-Ⓑ leg down only looks like a "three", although it may be a truncated 'five'. And, if it is a "three" then just the "recent" up wave might be a Flat construction and not the entire wave sequence. The current up-leg could then become a 'five' to make the 3-3-5 flat sequence. Then, it is within the realm of possibility that a wave iii downward begins.

Thus, we must wait and get a bit better definition while the algos whirl and whip within the range until they breakout. So, what is the benefit of the exercise with these many options? Well, each option provides "hard stops" where the wave counts invalidate. For example, the barrier triangle invalidates above 6,107. The nested count invalidates above 6,050, as it would be outside the declining trend line which would attempt to form the better-defined 0 - (ii) trend line; this is also the upper limit of the current "base-channel". And the large overall flat option would only invalidate beyond the prior ATH.

So, with clear knowledge of these invalidation points, depending on where upward movement ends - if it does - it can help determine which count is in force.

Have an excellent start to the week.

TraderJoe