Weaks Away?

(Pun intended). Is the Dow Jones Industrial Average, and its futures contract, shown below, days or weeks away from a major top? With 109 candles on the 8-hr chart, the pattern we posted in the comments of a prior post can still be playing out. It would be that of that overlapping expanding diagonal pattern with the 3-3-3-3-3 internal sequence, which is classified as a terminal pattern.

DJIA (YM) Futures - 8 hr - Expanding Diagonal

The three-wave sequences of a-b-c's are clearly shown. There is good form & balance with every numbered wave on an opposite side of the EMA-34. Nothing looks rushed, and we are trying to give the last wave as much time as it likes to play out because typically the waves expand "in time", too.

Sometimes, the last 'b' wave in this pattern will be a triangle. That can stretch the timing out some if the market wants. But the overlap seems like a key clue to this pattern. And there is a lot of room for algorithmic back-and-forth within its daily Bollinger Bands.

Unfortunately, I'd have to say that while a higher high often, and most usually results in this pattern, it simply does not have to if it is the true end of a larger pattern. The last wave can fail - which will also make it a bit of a cat & mouse game. But the (v)th wave has already exceeded the length of the (iii)rd and so the pattern is 'qualified' by the rules.

Further, also as previously noted, the expanding pattern shows up clearly in the waves of the Elliott Wave Oscillator (EWO or AO).

The b wave can be quite intractable, as usual, and it can be 'any three' including zigzags, multiple zigzags, flats, expanded flat or a triangle as noted.

But the last c wave, up, should be countable as a 'five' even if it truncates.

I'm really happy to see that the once mighty Dow, the once king of the indexes, has lost its following at this time, and everyone is all "NASDAQ & Mag10, and don't bother me with anything else." Maybe this once great index will still have a story to tell.

Have an excellent rest of the weekend,

TraderJoe

The Battle of Juneteenth

This famous historical battle is being fought at the 18-day SMA on the ES daily chart below. The snapshot was clicked about 9:30 am - just a few moments ago. It's hard to get closer than that.

So far, the correct answer to the question of, "will the up (green) fractal or down (red) fractal be broken first?" is, well, neither. Reminder: Globex only has a partial day today.

Have an excellent start to the day,

TraderJoe

Warsh-It (2)

Gesundheit.  Whatever you thought of the new FOMC Chair's performance today, the market sneezed enough to flip the daily bias to lower with a close on the daily ES futures below the 18-day SMA, filling a daily gap in the ES futures in the process. This condition needs to be monitored as to whether the new up (green) fractal is taken out before the down (red) fractal or vice-versa.

ES Futures - Daily - Bias Down

I've seen a lot of corporate CEO types come & go. I've worked for some. Yea. They always start with "what a great team we have here", and "things are gonna change beginning now". And, when they don't know what to do so immediately, they typically create lots of committees to 'study things'. 

As the reporter said at the press conference, "if you were serious about cutting inflation, you would have raised rates today." He didn't. He listened to his other peers who likely told him, "You're gonna have a bad enough market reaction just saying you're serious about inflation without the rate hike. Raise rates too and you're going to see real problems".

Instead, he let his jawboning both take the edge off some assets and raise rates over in the bond market too.

And, ironically, he said he needed a task force to "study" the reason for inflation. Meanwhile, everyone on the committee and in the room is snortle-chuckling thinking, "uh, don't we create inflation by printing money and destroying the value of the dollar? We need a task force for this, huh?"

And, when asked whether financial conditions were easy or tight, he rightly answered, "well, they are certainly different in the housing market than elsewhere." Boom, chacka boom. And what organization was it that raised interest rates from 0.25 to 5.25% in a couple of years? Oh. Meanwhile, his speech today raised interest rates marginally on the longer ends of the curve: the end of the curve housing depends on.

So, all-in-all, it's a "kick-the-can-down-the-road" performance, just as many of Jerry's later ones were. Of course, the three blind mice (Bernanke, Yellen & Powell) weren't really blind, except to inflation. They just knew if they stopped printing money, then asset prices might fall. Meanwhile, prices at the imaginary Grocery have just about doubled (i.e. 100% inflation). And, the Grocery is only imaginary because it's not counted in "Core PCE". I don't know about you, I think they just about have the "core" backwards. I need to count on food & energy the most, right after shelter, so it shouldn't be excluded from anything.

But, when you make decision by committee, this is what you get. Committees are fine except you have to watch out for a committee's natural tendencies to 1) be too polite, 2) water things down too much, 3) stall and ask for more time, 4) ignore the more vocal - and usually the more correct members - because for some reason, they seem to have a temper. When, really, the answers are simple - just painful to implement. And no one wants the pain.

Have an excellent start to the evening,

TraderJoe

Warsh-it

When I needed my clothes cleaned because I got them muddy as a young kid, I would ask my mom to wash them. Apparently, when something is muddy in the Midwest (particularly 'round Ohio, Indiana and Illinois) you ask to have them warshed - well you say it that way. The wave counts are currently a bit muddy, maybe the meeting tomorrow can help make them cleaner again. The hourly ES futures are below.

It looks like - at the moment - there are three waves down from the high, but they currently count best as two zigzags, starting with the diagonal "a" wave we pointed out yesterday from the high.

Of interest, the second wave down is 1.618 x the first. And price got under a prior overnight low. I'll be a good boy and not suggest that it means that upside & higher all-time highs can't happen. I won't suggest that maybe the ES & SP500 will truncate. I did not say that. You did not hear that. Being over 78% it could still be the fifth wave. With an FOMC meeting tomorrow a lot could happen. And much could happen over-night. I would keep my eye on that overlap warning level, and on the 18-day SMA which price is still above.

Today was an inside day. A day of rest. Have a good start to the evening,

TraderJoe

Risky Business - 2 (Why It Can't Be Any Other Way)

Today did not take out the risk area proposed in cash or either sole ES futures contract (JUN or SEP), but it did exceed it in the roll-over contract (SEP stitched to JUN on the volume roll-over-day). The risk area could be history in the next day or two - especially with a FOMC meeting coming up. Or it might hold. But the odds favor the former.

Any number of people complained about the ugliness of the market movements today, and how ugly structures are made or typical technical levels broken just to trick the public into different counts. I want to tell you why it has to be so. Think of it like this ... I do.

Hint: You are Not Dressed in White

Look when - as a trader - not an investor, you sign up with a brokerage firm, they know everything about your finances - which is all they care about. They could care less about whether you're a Moving Average Trader, or a Breakout Trader, or a Range Trader, or an Elliott Wave trader.  Not relevant.

You sign up (if with a futures firm) and you must agree to the following conditions: A) a Clearing Firm will clear all of your trades - that means they know which trades you put on and where you put them on in the market, and where you take them off. B) They know the size of your trade. Did you just trade one micro at the market? Did you trade 10 E-mini's on a limit-entry? Regardless, they know. C) They also know your margin - and in fact, display it back to you in real time (big hint: they are tracking it!). They are required by law to track it, so you don't wind up in a margin call. D) They also know historically when you trade. Do you usually stop trading at the close - possibly because of margin? Do you usually stop trading at 11 pm so you can get some sleep. In short, they know. They know you. E) Your brokerage agreement also specifically states that your brokerage firm may take trades against your position. Really? You heard it. And if that isn't bad enough, F) Your margin may be swept by the brokerage firm, so that they can earn interest on the balance or use it otherwise. Listen to that again: let's say you go short a futures contract. You post the margin to do it. The clearing firm sweeps that margin balance to your brokerage, and the broker can use that money to trade against you.

Your money being used against you. This is just as long as they segregate your funds for the brief reporting period at the end of the day, so they can account for what is yours and what is theirs (they robbed from you). All of that became clear in the MF Global bankruptcy and following settlements.

Now can anyone tell me they signed a brokerage agreement that says, "This Brokerage will not keep a historical record of their client's activities over time."? Well, certainly not. The brokerage might need that information to defend themselves in court. And what says they won't store such data to build a profile of you - including your typical risk tolerance? Is Bob ok with a $1,000 loss usually? Does Janet usually bail at $450 in the red?

Do you get the picture here? Look at how much information they have about you. Period. Now ask yourself, "what do you honestly know about them?" Do you know what trades are on Blackrock's servers? Not a chance. That is proprietary information. Do you know what Megacap company is going to do a buyback, on what date, in what size & what time of day? Not a chance. That is proprietary information, too. Do you know how much money Goldman allots to the "closing buy-back" that usually lifts the market at the end of the day? Not a prayer. More proprietary information. (Although this is a documented fact that their customers once publicly complained they were not keeping a big enough balance at the close to keep driving the market to higher highs). Oh, and let's not forget the FED & the Treasury. Do you know when the Treasury is going to force a change in currency spreads to work a balance issue? Do you know exactly when the FED is going to reverse-repo somebody out of a problem?

They know. You don't. They can usually trade on it and mange it. They have the size and the capitalization to give them flexibility. You most assuredly don't know when. And if you did, you probably don't have the size to manage it.

Now look, nobody - but nobody - can manage this market & economic complexity without computers, and probably without A-I. We know there are so-called market-making algorithms to handle the trades. We already know Blackrock is using A-I. You think they're doing it to feed your account?

See, if you're a trader, you actually signed up for this. It's all part of the Ponzi scheme. They win, and if you place enough trades over time, you will probably lose. You might have good weeks, good months, but it is hard to beat their track-records with the information they have and that you don't. And it is legal that they win. There wouldn't be a brokerage business if they couldn't.

So, you think I'm done with this rant? Heck no. I've only hit the tip-of-the-iceberg, above: the legal stuff. Never, never, never doubt there is illegal stuff being done to you, too. Besides Congressional insider trading, and possibly higher, I'll give you one other example.

I'll never forget when Gary Gensler, then Chair of the Securities and Exchange Commission came on a TV interview and admitted, shortly after the pandemic, "look, during Covid, I had to literally call these several hedge fund managers up and tell them to stop texting each other with 'trading ideas' that would be otherwise be considered as 'market manipulation' as we were keeping a record of it at the SEC." They stopped. Did anything become of it? Never heard of any prosecutions as a result. But they had already done it!

They have to keep the music playing. The game must go on. One OTHER small problem is most of us can't see the nano-trades. In today's market, algorithmic trading accounts for roughly 70% of ALL trades, including the High Frequency Trading but other arbitrage & similar schemes, too.

All I can say is "the prices are in the waves", the trade details are not, except a bit with volume. So, if it were me, knowing the above, I would trade like there's a robot facing me, saying "Go ahead, punk. Make my day."

Have an excellent rest of the evening,

TraderJoe

 

Risky Business

In yesterday's post, I said the area between Friday's high and the all-time high in the ES futures (or CFD) was a "risk area". A daily CFD chart is shown below. The cash market has not even opened yet. The Dow futures and the Russel futures are at new all-time highs. That suggests that if the risk-area gives way in the ES futures, then a very non-proportional count like the one below has to be considered.

Because a potential fourth wave, red circle-iv did not downwardly overlap, even though it is exceptionally disproportionate looking, the rules say it can be considered. Further (x) is shorter than circle-iii, up, so it works by degree labeling there, but how about that (y) wave down? It would be longer than minute-ii, circle-ii, the previous wave of one higher degree. And that is likely a violation of degree definitions. So, it's either 1) a second wave up still in the ES, or 2) this or 3) we'll have to later switch to a diagonal structure if a new higher high is made.

The problem is the (y) wave down can be counted as three-waves to a new low in the futures. It can not be in the cash market (SPY).

In the ugly fourth wave count above, circle-iv, then the fifth wave still is restrained by 7,607 as it would otherwise become longer than circle-iii, which would break the 'rules'.

So, things are getting good & ugly at near a top. That's the way they're supposed to be. A second wave in the ES has not broken yet. It could. Risk is risk.

Have an excellent start to the day.

TraderJoe

The Main Event

Like some fake prize-fight, which may be fixed or not, this is the Elliott Wave count on the ES/SPY (CFD) on the 8-hr timeframe whether I like it or not.

ES/SPY (CFD) - 8 hr - Minor C Wave Count

It's a count with an extended first wave. The RSI is diverging at each new peak. Wave ii up does not come close to a 38% retrace, and that is one key to an extended first wave count, as this is. Further, waves ii and iv show good alternation on the way up. The timing of this first down wave a/i was perfect such that a fifth wave up, v, did not exceed the length of the third wave up, iii, as it is shorter than the first wave. Why would that happen if this wasn't the local count?

The test will come either this week or next as to whether we make a new low or not. It depends on how much time the b/ii wave wants to take.

There is lots of thin structure that can be retraced below the market (free-fall zone?).

The reason the first down wave is currently labeled as a/i is that it is always possible for a wave-set lower to start out with a diagonal, either as an overlapping 5-3-5-3-5 or 3-3-3-3-3 or as an impulse, and the market will have to be watched for clues.

I honestly think if there was a good local alternate, there would be something wrong with the lengths of the waves at the moment, and I just don't see it. The count does have a clear invalidation, and that would be if there is a new all-time high in this index or the ES futures.

Given the above, this makes the distance between b/ii and the all-time-high a clearly definable "risk zone" when the phrase risk-reward is thought of with the reward possibly down to the B wave low.

Well, if there isn't a good close-in alternate, is there a longer-term alternate? The answer to that is "yes". We can suggest two possibilities if Primary ③ becomes longer than Primary ① in the chart, below.

ES Futures (Roll-Over Contract) - Monthly - Alternates

They would take the form of the impulse or the expanding diagonal. But we will deal with these more in upcoming days if needed.

For now, enjoy the rest of the weekend, and get some rest.

TraderJoe

Borrrr....roar...oarrrr...ing!!

My blog is boring (and you thought the market was boring). People might be asking themselves, "why don't you follow the NASDAQ to count your Elliott Waves?", or "what's wrong with the Russell 2000?", or "why don't you follow some hot stocks to show what people are thinking?" Well, here are some cold facts just for you to consider in the form of a three-block chart of daily volume. The top chart is SPY, the middle chart is QQQ, and the IWM is the bottom chart. 

SPY, QQQ, IWM - Daily - Volume Peak & Average

I'm not sure how well you can read the chart (please expand to fill the monitor if you can), so I'll provide the salient facts below.

Tradeable                   Peak Volume              Avg Volume

SPY                            164.16 MM                  53.78 MM

QQQ                           116.27 MM                  48.24 MM

IWM                             99.62 MM                   29.68 MM

Clearly, in terms of volume, the SPY is hands down the winner with both greater average volume for the one-year period studied and greater peak volume. These are simple facts. Hopefully they are not up for dispute.

And Ralph Nelson Elliott suggested that the purpose of the Wave Principle was to help assess the overall level of mass psychology in the markets.

So, this suggests using the tradeable that has the widest following, the widest participation. And that is hands down the SPY and its counterpart the ES futures at the moment to best gauge overall technical sentiment regarding equities. 

Please don't hear this wrong. It doesn't mean that the NASDAQ is not important or that the MAG10 didn't really create a significant price spike in the market. But what it does mean is that if one excludes the major tradeable from consideration, then one is losing 53 - 54 million votes per day. Why throw those away from your bullish or bearish read on things?

And let's say one was solely focused on the Russell and its ETF or futures for trading. OK. But then one is losing roughly 102 million votes per day, a number of votes far outweighing the constituents of the index being followed if one is trying to use wave theory. And with so many fewer votes, it means that a large trade in any one stock or by any one operator can have a more sizeable influence on the price level of that index.

Folks. Elliott was an accountant. How Borrrring!!!! is that. But he understood averages, and he understood weighted averages. And he used the averages to smooth out the spikes of emotion and ego that rule the trading world. For him, it provided an edge.

For us, it means that if we try to use Elliott on an individual stock, or a sub-market index, we need to be aware that we may be getting less than the full picture and probably are getting less than the full picture. 

Think of it like people voting with their money to buy something or not. And, oh, yes, it sure is sexy when the App crowd decides they're going to do a short squeeze on a certain stock. But how often do such individuals know 1) when to get in, 2) how far, and 3) when to get out. Sure, they may play it by ear and strike the big one. More power to them. Or they may not, and they may be one of those that got in later and got hung out to dry - either by price - or by the regulators for market manipulation. 

Either way, it's not Elliott. Elliott is boring.

Have an excellent rest of the evening,

TraderJoe

Time, Time, Time ...

...see what's become of me. With no apologies to Simon & Garfunkel - who certainly don't need mine - the purpose of this post is only to note the time relationships between the down wave and the up wave in the ES/SPY (CFD) 2-hr chart below.

As of right now, there are only roughly half the number of up bars as down bars. And strictly speaking that's ok, but slightly lower odds. Often times corrections take as much time or more as their motive wave counterparts. So, in the comments for the prior post, I outlined some ways that this correction - which certainly looks like a Flat - could extend in time as a multiple flat or a Flat-X-Zigzag.

Predicting such is horrible stuff, and the market could always decide that the downward pull of a third wave (C wave, or not) is simply too great for now and a next wave could break lower at nearly any point. Keep in mind, today's up wave was made on news and sometimes those form weaker waves because only the pros/bots/machines get to react other than retail stops being hit.

Nonetheless, I do think the presence of the Flat wave - whether it continues or not - with its lower "b" wave argues more for a follow-on wave lower than an immediate return to the high. This is all a game of odds, and the Flat tilts the odds a bit in favor of a continuation wave lower.

Looking at today's daily bar, it was an outside day up with a close still below the 18-day SMA. Also, it is the second bar after the outside day down on Tuesday, so a trap was not set for the bears. But being an outside day up, it's low should not be taken out within the next two sessions or it would constitute a trap for the bulls.

The daily slow stochastic is still over-sold.

Have an excellent start to the evening,

TraderJoe

Meanwhile ... back on earth

I realize everyone is focused on Friday and a certain IPO that is about to transpire. But, here - back on earth - the debt clock is about to register $40 Trillion.

And look whose logo is in the lower right. I could have sworn that when the debt was only $35T, a certain POTUS hired a certain CEO to get the debt down through reduced government spending. Gee, what happened, it 'mysteriously' seems to have gone up by roughly 12 - 14%?

So, let me get this straight, people are just gonna schlepp their money over to a huckster who was hired to correct a problem & didn't? OK. That shows truly great skill and demonstrates both acuity and integrity, right? Yeah, right (not). If I were applying for a CEO job, would that "previous employment" section show up on my resume? I'll bet he still got paid for it. You gotta think. Let me see, would I trust this guy to get me to Marz? Um ... since his A-I has been trained with all the earth data known to man and monkey there is no way I'd trust it on the Redd Planet.

So, what's up? It's pretty simple, the guy is just selling you something to make him rich(er). He doesn't care if its SpaceChex, Teslex, RobotEX, Cutex or Riddex. Just buy something, please! As long as it has an "x" in it. It's what every carnival huckster does, and it's completely legal.

Am I jealous of this guy? Well, a bit envious? Not quite. It's hard to be those things when you're just tired of being taken... and taken...and taken by a few with little concern for their peers. And you "are" his peers. You just won't say so. You'll just stand there gawk-eyed and not do a darn thing about it. Do what? Like enforce anti-trust laws and deconcentrate corporate wealth though business law and the tax code.

Ah, well. Not to worry. Why should one worry? Ask Ray Dalio who is trying to help people see what is coming. Search YouTube and watch one of his recent videos if you haven't already.

Meanwhile, back on earth...

Have a great start to the evening,

TraderJoe

Band on the Run

With due apologies to Macca, today we made a fifth wave down that pierced the lower daily Bollinger Band - and ran it a bit - but did not fill the futures gap as per the daily ES futures chart, below. While the futures are still trading as this is written, if the close remains near here, then there is an outside day down.

I had cautioned in the comments to be cognizant of that lower daily band as the Smart Money often like to take profits there. And there was a significant rebound back inside the band to near the open of the bar. So, with five-waves-down, according to the Principle of Equivalence, all we can claim is that there is an a/i at the low of the day.

Today's rebound is very short in time compared to the length of the down wave, so there is a way it can persist for a while. Further, the down wave has downwardly overlapped some additional up waves. It is possible price can go sideways inside the band for a while as the daily slow stochastic is now in over-sold territory.

Today being a weak outside-day-down be careful of the high of today's bar (ES 7,491) for the next two trading sessions as if it exceeded, it might set a trap for the bears.

Make no mistake, this down wave now measures too large to be a simple correction to the up wave. Probably there will be at least one more down wave to follow it, maybe more.

Have an excellent start to the evening,

TraderJoe

LL MC

Today was a lower low (LL) day for the ES futures, with a middlin' close (MC) as in the daily ES chart below. While the futures are still trading as this is written, we don't expect too much change before the end of their session.

Some interesting elements were 1) there was a lower low overnight in the futures which keeps the swing-line currently headed lower below the 18-day SMA, 2) there appeared to be at least initial rejection at the 18-day as price settled lower, 3) price did not reach either the lower daily Bollinger Band or the prior May 19th low which is still intact: it could, 4) the daily slow stochastic did not yet enter into over-sold territory, and 5) I showed one futures gap earlier from May 22nd that closed. I'm showing above another such close-to-open gap from May 4th which might be the next to close.

All-in-all today still feels like the fourth wave of a downward impulse until/unless that should change. But with price having two closes below the 18-day SMA for the first time in a while, the daily bias has flipped to lower for the present.

Have an excellent rest of the evening,

TraderJoe

Brother, Can You Spare ...?

...no, not a dime, but a few years? The depression question, of course, was "brother, can you spare a dime?" But this post refers to the fact that there is a "time" relationship in a potential ending diagonal and a 'prediction' that the chart below makes. The chart is of monthly log style in the S&P500 cash index using the Zigzag Indicator to get the price vertices correct. And it has a lot going for it including a rather nifty overall look.

S&P500 Cash Index - Monthly Log Scale - Degree Resolution

The degree labels seem to resolve really well. Inside of Primary ⑤, Intermediate (1) is log shorter than Primary ③ the previous higher degree wave in the same direction. Primary ② and ④ look well-coupled and, for alternation, whereas Primary ② is a "running flat", Primary ④ is an "expanded flat" with a more extended Intermediate (B) wave and a lower Intermediate (C) wave.

From the indicator, the peak of the RSI is on Minor 3 of Intermediate (5) of Primary ③, and the first divergence is on Minor 5 of that same wave. The RSI is diverging since.

The Prediction

So, the prediction from the wave structure is that since the low of the diagonal was in 2020, then the entire diagonal should be retraced down to its Primary ④ beginnings in less time than the diagonal took to form. With the current year being 2026, that means it has about six years to accomplish this. Often, though, in an aggressive down move it can take 50-75% of that time, there being no published "rule" to this effect - just a tendency.

We know that traders tend to be an impatient lot as a group. They want to see fireworks to kick this thing off. That could happen. We have yet to see a 1-to-10 or 1-to-12 down day on the NYSE Advance/Decline line. But those have happened before, so we'll be on the lookout (BOLO) for one fairly soon to start a breadth thrust to the downside. We're not going to assume this will happen. It simply won't surprise us if it does - and we wouldn't call it a 'capitulation' as the financial media will likely try to say. Rather, it probably would be a "kick-off" to any downward wave sequences.

Epic Fail

Could we go higher from here? I suppose it is possible, but I can't yet find another good count to do that with. We have already tried one alternate ending diagonal, published it on this site as an alternate, and the market simply wouldn't have it. That failure seems to be one more signal that the market is more intent on correcting at the moment, than in going higher. So, we'll monitor closely for other alternates up to a point, but not for long. In the interim we'll listen to the market and see what it's telling us.

Meanwhile, have an excellent rest of the weekend. This is the second post since Thursday and if you have not read the first one, you might want to check that one out, too.

TraderJoe

Don't Assume

Every Tom, Dick & Harry internet analyst will tell you about how they recognized a possible top today. They used their cycle work. Or they reviewed their "volume profile" and saw how rarified things were getting up here. Or they used their AVWAP (Anchored Volume-Weighted Average Price) and the five-day moving average and saw the breech of them. Or they used their support and resistance lines to tell you, "Once this level was gone, the next level was so & so". Or they will tell you how their upper Bollinger Bands "acted as a brick wall yesterday to stop the price advance". They will typically do this to try to sell you some subscription or some market service, or to get more clicks for their YouTube videos (and, hence, ad revenue). 

I will not do that today. I will instead plead with you not to assume anything. I will offer you one chart, with more discussion below the chart. The chart is of the S&P500 daily in September & October 1987.

I beg of you to look at this chart and learn its lesson. The decline started modestly enough with about ten down days in late August & early September. Then there was almost a month of dickin' around in a flat wave back to about the 50% level before the October decline started. Some people probably felt pretty good about the rebound. But here is the lesson. When the decline got started, did it stop at equality (100%)? It did not. Did it stop at 1.618 level for wave three? It did not. Did it stop at the 2.618 level for wave three? It did not.  It kept going until the Fibonacci 4.414 extension level was reached, wiping out all those might have assumed at the 1.618 level there would be a turn for a fourth wave. And it took only two days from 1.618 to 4.414!

So, then what? Is that the end of the assumptions? Heck no. One would then have to think (sic) with a down wave being so large in price, there simply must be a fourth and a fifth wave to make another lower wave after that to finish the impulse. Right?  Well, as the chart shows - while there was a new 'closing' low, price did not ever make a new intraday low. The bottom in December was what we call a truncation - and a fair sized one - and the rest is upward history.

So, on to today. Yes, today was impulsive well enough. But there are only three-waves-down from the recent all-time high. So, what are we to think? Well, not too much. There must be a fourth wave the adheres to the 'rules' and then a fifth wave lower than it and at least roughly equal to wave one to claim an impulse. Is it likely it will happen? It has odds. The odds are better than 50%, but not by much. Why not? Because with only three-waves down, the market could 'by the rules' form a diagonal structure to move lower. So based on the state of knowledge right now, the odds might be 55-45. Then, depending on the overnight and the open on Monday, the odds can be updated. In other words, look to see if it happens, but don't assume it will.

Let's extend the lesson to today's wave.

Here we see the three waves. Did today's wave stop at equality? It did not. Did it stop at 1.618? It did not. Did it stop at 2.000? It did not. Did it stop at 2.618? Well, we simply do not know yet. There is no proportional turn to the second wave in the series. The Elliott Wave Oscillator (EWO or AO) is still bright red and pointing down on this hourly timescale.

Does that mean we should expect a fourth wave overnight on Sunday into Monday morning. No! We should not expect it. It has odds! Maybe you and I rate the odds as pretty good. Maybe someone over in Japan or England - that couldn't sell when they wanted to today - has other ideas and wants to unload at their earliest opportunity and not wait for more pain to set in. Maybe it's a true crash wave and hits one of those larger Fibonacci numbers hardly giving anyone time to react (like the two days in 1987). Those scenarios can change the odds.

Or maybe there's news announcements during the weekend or on Monday that overrule the urge to sell, and it all stops here or only slightly lower for the time being.

The point here is not that Elliott Wave is useless. It has some benefits in the market. But, rather, the point is that the market is a wild non-linear and chaotic system. And it's going to give profit to some and knock others out as it sees fit to accommodate the buy & sell orders it receives or does not receive.

So, if you can't necessarily count on Elliott Wave, what can you count on? Well, I'm here to tell you to be careful. You might wake up one morning to find the internet out, and so orders become difficult to place. Or you might wake up to find a limit move in your favorite stock or commodity and you become trapped in your position. Stock & index futures trading have limits and halts, too. I truly hope these things do not become bothers for either you or I. But market history has a way of saying different at the worst possible times.

So, please do not assume anything, particularly as regards Elliott Wave. How you trade is strictly your own business. I am here to show you - among other things - it's not always what it might seem. And especially to remind you that people with much, much more money than you or I have can make a rational or an irrational decision at any moment and it can affect the retail trader greatly. Further, the government can affect markets with announcements good or bad at any time - and I can assure you they won't consult me first.

So, be patient, be calm, be flexible and realize to most market opinions there are associated odds which may or not be in your favor. You might assess something as 70-30, but it's the 30% that comes through for some reason you might not be able to see. You might not be considering the truly big money and what they have to gain or lose. Or you might not be able to assess it accurately because they can act irrationally, too. Or, they think they are acting rationally, but all they do is scare people. Like the story that comes out today with the headline, 

Social Security recipients may lose $500 monthly in 2032, report says

Great. Good job people. Thanks for getting everyone all riled up and thinking they might have to sell some investments earlier because they will lose some Social Security. This kind of stuff is what helps make the market so chaotic. Even if no one acted on the specific story, you have salted the very idea of it in the back of someone's mind. 

So, try to remember that IFF we enter a bear market, everything will be backwards from a bull market. All of the assumptions that went into financial planning (you know the 60-40 balanced stock-bond allocation kind of stuff), interest rate assumptions, home value assumptions, etc. all get turned on their head. For example, right now there are people on the internet telling others what specific combination of new ETF's can guarantee them X% return per month. And a lot of these people assume linear growth in the A-I stocks. It's a warning flag. And they assume these products will trade in all bear market conditions. Another flag. Some of these things are untested.

Be careful out there. Some cities just fixed the potholes from two winters ago - if you get my drift.

Have an excellent start to the evening,

TraderJoe

Provisional Top - 2

For today's post I said in the comments I would post the potential alternate count found after the overlap was made in pre-market session in the ES 4-hr futures. I mentioned I couldn't find one last night, and this one wasn't made possible until the lower low this morning.

There are things to dislike about the alternate - which is why it is the alternate - but as you probably know price in today's session has already gotten up to 78.6% of yesterday's down wave. So, either count is on the table. We'll see if the down movement after the close creates a gap-n-go or not.

One thing I was monitoring all day - as I do every day - was the intraday wave-counting-screen. Overnight I had noticed that it was possible the futures & CFD were getting an expanded flat wave that never showed up in the cash market, as below.

And it was interesting to note that the level of 2.618 x a-3 added to b-3 was right at the R1 daily pivot today. My personal confidence in this expanded flat is only about 60-40 by-the-way. That's because while second waves can be flat waves, they are a little less typical than those made from zigzags.

In the cash session, price broke the three up (green) fractals in the middle of the chart and never looked back until the close. It was also interesting to note that no additional fractals were made, up or down, until the closing candles which made an up (green) fractal. So, this is where a wave-counting-stop would go in my book. The market has made sure to widen out the risk of a fractal trade to all the way back down at the early morning low for the time being. That might change overnight.

So, either a top is "in" and we had an expanded flat at the low. Or, possibly, there is still a triangle working given the 78% retrace. In either that case or the diagonal, it is possible to go over the top again. We'll see how Friday goes.

Have an excellent start to the evening,

TraderJoe

Provisional Top

Here are two charts providing the provisional count to a top. The first chart is the ES futures only on an 8-hr close-only basis. The count consists of five minute-degree waves from Minor B to Minor C which would form the Intermediate (V)th wave of Primary ⑤. Under this count the wedge at the top would likely not have been a diagonal; just part of the overall wave Minor C which is part of the monthly diagonal shown in many, many posts on this blog. Within the five minute-degree waves wave minute ⓘ is the extended wave in the sequence. There are ~140 candles in the chart and the wave four indicator on the Elliott Wave Oscillator (EWO or AO) circled right where it should be.

The next chart is of the ES/SPY CFD on the 30-minute timeframe showing how the day unfolded into the cash close. The top shows a tiny truncation (*) in the ES futures, but not in the CFD or SPY.

ES/SPY (CFD) - 30 min close only - looks impulsive

Note there is a five-wave structure to potentially end the move on a divergence with the EWO. Then, there appears to be the start of an impulsive wave lower. (As this is written the after-hours just made another lower low past the daily S2 level to 7,550 in the ES futures, only, so far). Note there is a 2.618 wave down for a third wave.

If this top holds, it would end the contracting diagonal from 2021. The reason the count is provisional is that post-pattern behavior is required in three forms: 1) an impulsive wave in good form should be confirmed, 2) there should eventually be a retrace wave that does not go over the high, and 3) there should be a lower low that significantly exceeds the  low of the original impulse.

The confirmation steps, above, are in the future. It is difficult for me to see an alternate at this time due to degree labeling and current overlaps, but I will keep looking.

Have an excellent start to the evening,

TraderJoe

MOAD

In the ES futures (and SPY CFD) 30-minute chart, is it possible we are in the Mother of All Diagonals (MOAD)? This is because of 1) the prior triangle - which could be a 'b' wave, 2) the new overnight high, and 3) the current numerous overlaps as the 'first-of-the-month money' has helped send price to capture the intraday 18-period SMA at least temporarily. There are also some downward fractal breaks to consider.

ES/SPY (CFD) - 30 min - Intraday Wave Counting Screen

At the present time, the diagonal could point either lower or higher (with higher currently shown). But the invalidation of the upward diagonal is clearly shown.

Have an excellent rest of the day.

TraderJoe

The Nothing Bagel

Is that a plain bagel, or a nothing burger? While the world waited for a decision on the situation in the Middle East, nothing was delivered. It's like the Uber driver entrusted with keeping the meal warm, ate it for themselves on the way to your house. Meanwhile, back at the market, prices made a new higher high and then appeared to put in much of either a triangle or a Flat. This was the likely end-of-the-month sloppiness known as window-dressing.

It might be that the message was deemed to be best delivered when the potential 'first-of-the-month' money, the passive monthly inflows that usually occur around the first trading day of the new month, could reliably blunt any news that was perceived negatively - even if it was supposedly good news.

Bear in mind a flat or expanded flat could potentially challenge 7,560 - 7,530 on this chart if a triangle should not be in play. But, as far as the potential triangle goes, its centerline, the wave 3 peak, was crossed over again toward the end of the futures session, as shown. (Degree labels shown are just for reference and will be adjusted later.)

So, let's see how things go on Monday.

Have an excellent rest of the weekend,

TraderJoe

The Everything Bagel

Sorry I really meant the everything bubble. But like one of those bagels at your favorite coffee shop that has every conceivable manner of topping and seed on it, this market has now really taken on the characteristics of an 'everything bubble'. We knew about the debt bubble, we knew about the equity bubble, we knew about the housing bubble, we knew about the crypto bubble - to name a few. But now we also know we have an A-I bubble, and further, a war bubble. And that means bubbles in commodities, like oil, and even still Gold. Some would even add that we have a bubble in war babble. And now you can add a bubble in government owned enterprises. Intel was not the first. A former President had the U.S. government buy a lot of shares of a flagging car company called General Motors. Of course, that was at the bottom of one of the more notorious financial problems in 2009. This is near a market high. It certainly feels like the stakeholders are truly getting "all in".

Maybe I'm wrong, maybe we need a bubble in planet ownership. Oh, wait, yeah, there is a certain IPO scheduled for 12th June isn't there? Something about rockets and space exploration, I think.

Meanwhile, back at the chart ...

ES Futures - Daily - Days since 18-day SMA

This is just a reminder that price has not hit the 18-day simple moving average in the last 35 bars. That is almost twice the length of the average. And all-day today after the 10 AM bar price did not even hit the intraday 18-per on the ES 30-min chart. No worries. I'm sure the algorithm is going to do what's best for us all in the end. Right? Ha. Meanwhile, can I interest you in some cream-cheese?

Have an excellent start to the evening,

TraderJoe

Best Alternate at this Time - 3

The daily picture in the ES futures still looks like the chart below. Nothing has changed there, yet. We are still waiting to see if a fifth wave, minute ⓥ, completes and if it completes with good form. Since the third wave in this configuration is shorter in price than the first wave, the Fibonacci ruler is shown to see if the fifth wave stays shorter than the third. There isn't an upward length violation at this time. If there should be, we will adjust.

As far as the local count on the SPY cash 30-min chart, there is a leading expanding diagonal first wave (where the zigzags first started coming from - because they initially couldn't be counted as clean 'fives'), then a second wave zigzag, then a third wave which just notches out a wave that is longer than the first. This chart starts with minute-iv, circle-iv, or ((iv)) at the lower left. From there, this would be the minute ⓥ wave.

There is one way to count the pattern as complete, but it doesn't match up with the futures. A further way to see the pattern ending would be with a ivth wave triangle. Right now, a parallel is being maintained. If a triangle forms, the parallel could be breached. We note the Elliott Wave Oscillator is not near the zero line yet on this timeframe.

Have an excellent rest of the day.

TraderJoe

Best Alternate at this Time - 2

The ES daily futures got within 90% of the prior high, qualifying for the 'b' wave of a Flat, or the next impulse, higher.

The upward wave 'currently' counts best as a double zigzag. That could change. But the wave is high enough to wonder a little bit about a truncation.

One might want to keep an ear out for the news over the long weekend.

Have a good one.

TraderJoe

Best Alternate at this Time

Like an 'eighties John Travolta movie with Bee Gee's soundtrack if this market decides it is Staying Alive then this would be the best alternate I can offer on the ES daily timeframe. The market has been very hesitant and whippy in its declines. There is some possibility it is a fourth wave.

The down wave is the longest decline on the chart in the up series from April already, so the degree may have turned. But it has not yet overlapped - a key sign of a loss of momentum. The down wave might continue to the 18-day SMA (see prior posts) or it may go much farther than that.

The MACD has only just curled over from its high peak reading. Yet, the wave is currently in a parallel that we will acknowledge until/unless broken lower.

And wild cards are 1) the FED meeting minutes tomorrow, 2) NVidia earnings after the close, and 3) the geopolitical news background.

Again, nothing lower will surprise me but did I want to cover my commitment to review reasonable alternates to the wave count. And, if the third minute wave is shorter than the first minute wave, then the fifth minute wave should be shorter than the third if it occurs.

Have an excellent start to the evening,

TraderJoe

Watch the Embedded Reading

Monday's session ended with the ES daily slow stochastic below the 79 level at 78.90, and tonight the reading is around 71 - 72. The only day the market can gain back the embedded status immediately is for both the %K and the %D lines to close back up over 80 in Tuesday's session. This is not impossible, but it will take a large rally. The daily chart is below.

If the embedded status is not regained, it becomes more probable that price and the 18-day SMA will try to come together. As it stands right now the daily bias is still somewhat positive as the closing price was over that 18-day average.

Today - in the comments for the prior post - we said that any potential expanding diagonal upward invalidated in the Sunday night session. It's good to have that one off the table.

Whippy and grindy - as it is - this is my best estimate of the what the down and the up wave counts are in the half-hour ES/SPY (CFD).

ES/SPY (CFD) - 30 min - Count

The overnight waves, and those made in the cash session best count as a Flat wave, so far. There are two fourth wave locations nearby - shown by the blue box. But the lower low in the cash session may have been a tip-off.

In a perfect flat, the a-3 wave can be taken out and exceeded higher. If there is some overnight news or for some other reason (like a big whale gets the willies, or something) the flat can truncate. Don't put anything past this market. Attempt to count what you see.

Have an excellent rest of the evening,

TraderJoe

Pinbar

Don't exhaust yourself this weekend. Every YouTuber, stock trader and technical analyst will try to sell you their wares (trying to at least get your attention for views, clicks, and/or to get you to purchase memberships, ads, or subscriptions). Don't bother. Get some rest and relaxation instead. The ES futures made a weekly "pinbar" or "spinning top" candle - the likes of which we have not seen in months. It is not confirmed yet. Still, it is a green pinbar which is a tad weaker than had it been a red-bodied candle.

ES Futures - Weekly - Pinbar

A one-candle pattern is not necessarily the end of the move. It could be, but it isn't confirmed. So, next week could confirm the candle - or not. We can count a five-wave-move, up, at several degrees of trend as we have exhaustively covered in the prior posts and charts. So, this could be the end of the wave. But the market today refused to rule out an (admittedly lower probability) hourly expanding diagonal option which is another way to make a more definitive high.

So, it is simple. The candle is either confirmed with a significantly lower confirming candle next week - or it is not - and it is invalidated with a higher high candle. Elliott analysts know how to handle both.

Have an excellent start to the weekend,

TraderJoe

Thin

It's getting thin up here in the SPY (cash) ETF contract. Volume is seriously declining as prices are rising. Sure, there could be a couple more days up. The question is, "is it worth the risk?"

SPY (Cash) ETF - Daily - Versus Volume

At least some bulls are apparently thinking, "maybe not". And what do the bears think? Try to find one to ask one.

Have an excellent rest of the evening,

TraderJoe

Continuation of Channel Count

The ES 2-hourly chart is below, continuing the count that was shown on the weekend. The count is both very mature and it is full of risk.

This count provides alternation between wave ii and wave iv. Elements of risk include 1) there was not yet a new higher high today, 2) today broke a closing only line on the ES 4-hr chart, and made a back-test of it (interested readers should verify this), 3) multiple RSI divergences are shown on this timeframe, 4) a wave structure this steep in so few days could wind up in a final diagonal, a final triangle or even a count failure, and 5) we have noted the current news risk several times already.

So, for now, a wave-counting-stop (WCS) has been placed below today's low.

Have an excellent start to the evening,

TraderJoe

There is No Emergency; Stay Calm

Unlike others trying to sell subscriptions, newsletters and trading services that try to get your emotions going so you will buy their products & services, we have always just urged calm and an educated approach to try to count waves in the best spirit of the wave principle as aligned with the rules. If you would have listened to every time a major EW service 'screamed from the top' with suggestions to go 'double-short', 'or max short', the market would have proved them wrong and your account would be the worse for it. Part of staying calm is to actually take the time to review the information at hand. There just aren't that many pieces of available data on which to make a judgement, but one should not throw away the key ones by forgetting to consider them. The chart below is an example.

Daily Put-Call Ratio Five & Twenty Day Moving Averages

This chart shows the 5-day (blue) and 20-day (red) moving average of the equity only put-to-call ratio (symbol $CPCE on Stockcharts.com). And one can see that the 5-day (blue) made a new yearly low during April. OK. But now the 20-day (red) has not only made a new yearly low, it has also made a new three-year low. That means for about a month of trading days options players have been aggressively purchasing more calls than puts. And more so than in the past three years. So, it is becoming clear there are more players on one-side of the boat (as they say).

Keep in mind this is a market-related measure. It is timely, and it is not subject to the wave counting techniques of an individual or company. It simply is what it is.

Am I urging you to do anything with this information? Well, nothing more than put this information arrow in your information quiver as you make decisions.

It is much like the fact that the daily ES (and the weekly) are bumping up their upper daily and weekly Bollinger Bands - like in the daily chart below. More arrows for your quiver. 

ES Futures - Daily - Bollinger Band ~95% of the Time

The chart is only telling you that the odds of closing outside of the band are about, roughly, nearly only 5% of the time. This is a statistically based approximation founded on the standard-deviations from a moving average, adjusting for market volatility. It's not exact. Nassim Nicholas Taleb, author of The Black Swan, would argue with the loose statistics involved and blow them out of the water as not properly accounting for the market's tendency to make 'fat-tailed distributions'. OK. I get that, too. But when used as a 'rule-of-thumb' the algorithm does a good job of containing the market 95% of the time or more. The algorithm doesn't regard the market as an 'emergency'. You shouldn't either. And if you combine it with knowledge of what Ira Epstein determines as "the strongest market technical signal", that of the embedded daily slow stochastic - also shown above - you might avoid some pre-mature market signals, too.

If you want to be a trader that FOMO's in and out of the market, then listen to the subscription services and the financial news networks for recommendations (as opposed to just for information) and let them make up your mind for you. You'll be like a weathervane snapping back & forth in the wind.

But if you want to make more confident decisions, then learn to do the work for yourself. Learn to count. Review the few indicators the market has of sentiment, and of momentum-strength and make your observations in an organized and documented manner. Practice counting. Maybe put some of your counts out in public to get feedback on them (from a counting viewpoint).

Or don't. The only difference between traders and investors is their timeframe. Maybe investing is better for you. Maybe some of both. But I thought an investor was supposed to "buy low & sell high". The market is making all-time highs, not recognized bear-market lows.

Have an excellent rest of the day.

TraderJoe

For the First Time

Long-term readers of this blog know that for about the last five years the favored wave count proposed has been the Contracting Ending Diagonal (CED) to end Cycle V of Supercycle Wave [III]. We have posted; we have showed chart after chart. But, this week, for the first time you can actually see on the monthly log chart all of the Minor waves that may be involved in the Intermediate waves to make up the Primary waves. That is because this current wave, if it is correct, would be the Minor C wave in the count.

I don't know about you, but it is gratifying to me to see it. It is much better than repeatedly calling for tops that don't occur. So, here it is. On the chart. And Intermediate wave (5) is currently shorter - in log format - than is Intermediate wave (3) so the count has some merit. The invalidation of the Minor B wave did not occur, so this marker will be removed from the chart.

The next marker is the invalidation level of the pattern which is above 8,513. At that price wave (5) would become log longer than wave (3). And that would simply break the 'rules' for a contracting diagonal.

The price action this week actually feels like a throw-over. It's been gappy, non-stop, and very, very news related. Further, price is nearing both the upper daily and weekly Bollinger Bands, where the Smart Players often take some profits off the table.  The technical indication on the monthly chart is that the PPO is diverging as the market is making new highs. The technical indication on the two-weekly chart is that the Elliott Wave Oscillator (EWO or AO) is diverging at these new higher highs after having signaled the fourth Intermediate wave (4) by dropping below the zero line with the requisite 160 candles on the chart. (Interested readers of this blog should verify this finding on the two-weekly chart).

So, this count is on track at present. But it could invalidate. It hasn't yet. But if it does, then the Elliott analyst just moves on to the next most likely pattern. As we have covered before this would be the expanding ending diagonal. But, right now, the subdivisions of those waves just don't add up in this pattern. Maybe they will at some point. They just don't now.

So, we are faced with this staring at this chart and wondering, "Hmmm?". It isn't yet a great idea to act on this uncertainty. The first confirmatory indications would be 1) significant reversal candles, 2) filling of up gaps, and 3) price closing below the 18-day SMA. Maybe this would be accompanied by a covering news story. Maybe not.

For now, it is enough to see the picture and to wonder, "just how in the world did this get here"?

Have an excellent start to the evening,

TraderJoe