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

What will the New Year bring?

While none of us know the exact answer to this question, luckily our time horizons can be a bit shorter, and we can consider the ES 4-Hr (roll-over contract) chart below.

Here we see only a lower-high construction but not yet a lower low. An eventual lower low is likely even for a simple a-b-c scenario within a parallel (temporarily sketched in as blue dotted lines). The market opened with a gap up this evening. That gap has been quickly filled. Earlier this week and last, price twice stopped at the 78.6% downward retracement level. It is amazing how it does that to keep one guessing if a triangle is in progress or not. Upward speed lines from prominent low points have been broken lower as has been the prior down (red) fractal, showing reduced upward market momentum. The location marked :5 is also a down (red) fractal.

Price is currently below the blue EMA-34 on this time scale. Below it is negative, above it is more positive. The four-hour MACD is currently headed lower and is below the zero line. 

Tomorrow is the first trading day of a new month, new quarter, new year and new presidential term. Still there would have to be 'quite' a swing around from the characteristic sources of beginning-of-the-month inflows to change the local character of the market. Could it happen? Yes. Just that the probabilities are lower.

For a nested 1-2-i-ii count the upper parallel sketched in should hold the wave ii. A local flat could be in progress as wave ii with fair odds.

Have an excellent start to the New Year!

TraderJoe