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