Two-fer

Today marked a second day that the ES daily futures stuck their heads up to the 18-day SMA, or the "line in the sand", shown in red in the chart below, and backed off from it.

One will also note that today was a "Doji" candle, with an indecisive mid-range close, that the 18-day SMA has a bear cross under the 100-day SMA, shown in green dashed, and that the daily slow stochastic is not in over-sold territory. A further observation is that the upper daily Bollinger Band is beginning to curl lower. Lastly, today's low overlapped Monday's 7,600 high bar, which puts some limitations on the count but not as many as I'd like to see.

There are still lots of ways this could play out - which may account for the current indecision in the candle. The market may be waiting for a story of significance before making another significant move. Meanwhile, we have showed some possibilities in the comments and have also been doing some local counting there, too. I'm happy to say that some people are getting the feel for it. Hopefully, others will come along.

Have an excellent rest of the evening,

TraderJoe

Bill Williams - Follow Up

The last several days are a good example of what I meant when I said, "a person has to be very well capitalized to trade the Bill Williams system on a daily basis." Let's look at the daily chart of ES futures, below, with the Alligator Indicator, and with the Elliott Wave Oscillator (EWO or AO).

ES Futures - Daily - Bill Williams Alligator & EWO

Performance in this system would depend a bit on how you traded it, but overall, the prior down (red) fractal was on September 16th at 7,575. If one took the very first break of the fractal on Oct 30th, they would have had to endure the excursion to nearly 7,693 and back before they were in the money again.

Or, if they took the fractal break on Nov 4th, then they would have had to put up with being whipped as high as 7,746 before being in the black again. And most recently unless one used another method not in the Bill Williams system to recognize the candle on Nov 6th was temporarily the end of move, then they have had to watch their profits nearly vaporize only to be slightly in the good as this is written. This is a rough way to live short-term.

Note, the Alligator indicator is "wide open" to the downside. The EWO or AO is also red, below zero and appears to be declining. So, by the instructions of this system, the trader is doing absolutely nothing wrong. The problem is the system is somewhat insensitive to wild & quickly oscillating moves because these indicators typically involve 8 to 34 bars to note a significant difference, granted that the AO does use a 5-bar moving average for part of its calculation.

But the Smart Money has figured this out and that's why the algorithms ruthlessly swing prices intraday (at least up until now) to try to knock everyone out of a trend-following system.

But it is also why I have suggested using Ira's trading guidelines around the 18-day Bollinger Bands, and its over-bought, over-sold or embedded indications to help provide some guiderails on the Bill Williams system. Further, it is also why I have adapted those guidelines to the 30-minute Intraday Wave Counting Screen (IWCS) which is shown regularly in the comments. If you can see locally what the algorithms might do - where they might go - and whether one is over-bought, over-sold or embedded, it can help one maneuver into position for when the trends again become meaningful. 

SPX500 (CFD) - 30 min IWCS - Whippy

As you can see from today's IWCS above, the market went from essentially the lower band below the 100-per MA in an embedded condition in a diagonal that we called in real-time in the comments, to losing the embedded status and going back to the 18-per MA, to going back towards the upper band and now looking to embed on the upside.

Today's move from the high before the CPI report, to the morning low was -1.35%. Think of it. The move is saying that fully more than 1/100th of the historical value of this stock index should be dependent on one single CPI report that some statistician somewhere decided clicked higher by 0.1! Well, that's certainly not the way I would design things if I had my druthers, but the Smart Money have designed it this way (with ETF's, CFD's, options, futures, single-stock futures, etc. as ways to create excessive leverage and, hence, more extreme market movement).

I shake my head, and drop it slightly because nonsense is nonsense, and there just is no way around it sometimes.

Stay cool, calm and collected, and have an excellent rest of the evening,

TraderJoe

Triangle - What Triangle?

Several weeks ago, I indicated that I saw the possibility of a triangle near the top in US equity indexes. For days and days price required that I bide my time - while many of you asked, "where is the triangle? where is it? I don't see it?" Why did I wait? Because the mood at the time was so incredibly bullish that 8,000 was due in the SPX that few others could foresee their prized index declining so far in so few days. People would have called me out of my wits. So, I just waited until you can now see the potential triangle, plainly and in full view. The best way to see it is on this chart of the weekly NDX, below. It may not be what you expected. It is a potential expanding triangle, not a contracting one.

NDX Index - Weekly - Last-Chance Triangle

You'll note that the wave count in this chart is shown in red. That is because it is still an alternate count. Why is it an alternate?

Well, first, this downward leg currently meets the EW 'rule' for an expanding triangle that this down leg remains roughly 150% of the prior down leg, or less. Regular readers of this blog and students of the EW should perform that measurement for themselves. I have. So that 'rule' is so far met. But it could easily bust next week depending on what the Smart Money decides to do with prices closing beyond the lower daily Bollinger Band on Friday. And beyond that, the NQ100 futures have already overlapped the prior wave 1, up, in the roll-over contract as clearly annotated on the chart.

So, there's a bit of judgement here. Is the minor futures overlap to be allowed, or did price already top at the Ⓓ wave position like the S&P500 may have?

One interesting note is that in Mastering Elliott Wave, Neely indicates in several places in the book that the fifth wave up after an expanding triangle might not completely make a new high. More so, it is not likely to. Here is just a clip from that book to illustrate the point.

Expanding Triangle Schematic

In fact, Neely states the 'rule' that the (upward, in this case) breakout of an expanding triangle is always shorter than the widest width of the triangle. So, this would suggest another price failure should the pattern even complete properly.

So, whether this pattern comes about or not, we have some waiting and measuring to do to see if 1) the e:3 wave becomes longer than 150%, 2) whether cash NDX overlaps downward, 3) whether there is a real attempt at another five-wave rally.

Thus far, Friday's price movement was not all that encouraging. It certainly seemed like more consolidation. But we offer the possibility of this wave formation for completeness including an attempt to analyze the odds. And they seem, "fairly low at this point, but not impossible". And IFF it occurs, it might have something to contribute to the other indexes. And if it does not occur, you have the criteria to be able to measure and judge for yourself at your leisure. We'll have to see. Meanwhile, we need to follow the local technicals.

With that said, have an excellent rest of the weekend,

TraderJoe

Next Best Number

Regular readers of the blog might be getting - let's call it a little impatient - that I have repeatedly stated that the potential diagonal upward, if it is a C wave, must be retraced fully in less time than it took to build to consider the diagonal as being confirmed. That remains true. I can't account for others' patience or the lack of it. But I will offer a Next Best Number that comes from the study of degree labeling. It is shown here on the ES 2-day chart (roll-over contract).

So, to be right to the point, degree labeling suggests that if we correctly identified the March low as the minute ⓒ wave low of the Minor B wave, then any down wave that is longer than that one should be identified as a Minor degree wave or larger than a Minor degree wave down, or certainly it must be as large as the previous minute degree wave ⓒ, and that would be at minute degree. And that number is 7,207 in round figures.

Notice that would also undercut the prior minute-ii (circle-ii) wave lows, as sloppy as they are. So, given the appropriate backing-and-filling, the odds would likely increase from roughly 95% of the diagonal being confirmed to about 98%.

Why not 100%? Well, there is a reason for the expression involving a certain rotund woman who has a singing voice. That is because a diagonal is what it is. It is a structure of a type. And if the structure is to be meaningful, then it must predict something. In this case, IFF it is an ending diagonal, then it must predict its lower low in less time than it took to build. So, we must leave 2% on the table for the possible error that it is a leading diagonal instead of an ending one. This high up in the wave structure, a leading diagonal seems completely incredulous, but who knows what the FOMC will do? Or what the government will do? So, there are low odds - very low odds we suggest.

Otherwise, if the number is exceeded, we may go down into the free-fall area back to the April lows or beyond.

But anyway, here is a new fairly exact number to ponder over. I'll have more to say on it should the number exceeded. But for now, let's see how it goes. Remember, if we are entering a bear market, stiff retraces can occur at any time, so trade accordingly.

Have an excellent rest of the evening,

TraderJoe

For Five

There is now a simple way to count five non-overlapping waves down on the ES futures 4-hr chart below in a bit of a wedge shape from the truncation top, as follows. (Once again, please ignore the absolute degrees of the waves shown; these are just for relative size at this time.)

Note the wedge shape is only that - a shape. I do not believe at this time it would be a diagonal. It has an extended third wave, and a non-overlapping 4th wave. It is not anywhere near certain, clear or confirmed that the fifth wave is done. With the longer third wave, the fifth wave is free to extend if it wishes.

Keep in mind on the daily chart, price is currently below the lower daily Bollinger Band. The bias is still lower, and the daily slow stochastic is in over-sold territory. In my head I could almost imagine that Ira would say something like, "this is normally a place where the Smart Money might take some profits off the table". This is not trading or investment advice - just some context.

Have an excellent rest of the evening,

TraderJoe

Tricky Treats

As I stated in prior postings, no amount of downward movement will be a surprise. We got only a typical smaller portion, Halloween-sized, morsel of that on Friday, and then a rebound. The most ghastly of facts surrounding this decline is that my proprietary bullish sentiment model shows the percent bullishness as still being on the longest average sustained romp over the 60% level that has ever been recorded by this measure, as shown in the weekly chart below, as of this weekend. 

Bullish Sentiment - Weekly - Longest Ever Sustained Push Over 60%

Now for a real fright: compare that level to that shown on the CNN Money Fear & Greed Index, shown below.

This, market-basket approach, is showing outright fear and labels it as such. The indicator-basket is made up of a mishmash of moving averages on a number of factors, and it's trying to tell you people are thinking differently than the survey data, above. Quite honestly, I've looked over their indicators and to me they are confusing with the overall index ill-constructed. So this may amount to an unintentional but never-the-less nasty Trick being played on you - much like when the high-school kids on Halloween night think they're only going to flood your window-well with the garden hose, but instead the whole basement gets drenched.

We know that daily price now has a lower high (or a series of them) and now a lower low. So, does the market offer any costumes that might be more informative, and not just hip & cool? Well, for that we turn to the work of Master Trader, Bill Williams. Bill wrote the book Trading Chaos and offered some indicators that are still in wide use today. A few of them are used in the chart below. They are 1) the Alligator, 2) the Elliott Wave Oscillator, or AO, and 3) fractals.

The first thing one can note is that the truncation high, if it remains so, did occur on a confirmed divergence with the Elliott Wave Oscillator as shown in the bottom panel. That divergence is given the term confirmed precisely because there was a daily higher price high on a lower EWO value, and then the EWO dropped below zero again.

The next thing to note is in the upper right - the presence of a trap fractal. That is defined as a price that exceeded a prior fractal, in this case, green or up, and then promptly reversed to exceed a fractal in the opposite direction, in this case a red or down fractal.

So, think about the characteristics of either 2nd waves or of B waves. Their job is to try to convince you that the trend prior to the last wave is really reversing. In other words, you didn't see a 1 wave or an A wave, down, in this case, before the 2 wave or B wave up. No, that down wave was a sham, a ghost, as it literally didn't happen. That is what the trap fractal tries to do. It tries to get you to buy into the reversal back into the prior up trend at precisely the incorrect time.

So, in the Bill Williams system, there is now a fractal break well below the alligator. Several down (red) fractals have been broken lower. And the daily gator appears to be turning lower. And, while this is a sell signal in the Bill Williams system, keep in mind, as I have written about before, to follow this system on a daily basis requires a very high level of capitalization relative to risk. So, what that means is one either has to be extremely wealthy already not to care about the inevitable retracements relative to one's potential market gains, or one has to remain out of the market until one of those retraces occurs, or one has to keep their position sizes extremely small (in either futures or options, say) until the gator fully "opens up" to the downside. In short, extremely conscientious risk-management must be practiced or the consequences might be suffered.

Lastly, should the market continue lower the chart is showing the first two price counts along the way, noting that the 2.618 Fibonacci level is also a measured move should the neckline of this bobblehead be significantly broken lower.

Have a terrifying, hair-raising, and blood-curdling rest of the weekend - just kidding, of course.

TraderJoe

Main Truncation Count

The main truncation count (*) on the ES 8-hr chart, currently counts like the chart shown below, and is somewhat based on earnings performance, so far.

But this count has to prove itself by making new lows. A clear invalidation is shown. At the present the count is channeling well. If there is to be a third wave, it should shatter the lower channel line and try to make a 1.618 wave, lower. That is because the up wave, b/ii, is slightly greater than a 62% retrace.

Have an excellent start to the evening,

TraderJoe

Pump Err or Dump Err

One way or another mistakes will be made. We don't know what the FOMC will do, although the consensus is they will hold rates steady tomorrow. Today, as shown in the comments for the prior post, price can be interpreted to have made 'five-waves-up'. Price got back near the 18-day SMA, the 'line in the sand', and then backed off a tad.

Will they pump em' on the FOMC, or dump em' on the FOMC & buy-em back the day after? This remains an open question. Because of the likely exceptional volatility, uncertainty and opportunity for mistakes, Ira typically would say something like, "take the day off - at least until you know the report, the chatter in the press conference, and/or then how the big organizations and other countries respond the day after".

In Ira's method, the main trend is trying to be determined for either entry or reversal. Right now, the daily bias is down. Will it stay that way or will price close way above the 18-day, flipping the bias to up? The daily slow stochastic is still over-sold, so this is still a bit of a warning sign from momentum as well.

And, as I showed before, there is still a count, for example, that allows another nicked ATH to be made. It is the one below on the 2-day chart shown. It's a little far away, yet, but, if the 18-period does not restrain prices. This count definitely works.

It is what I referred to earlier as a larger wave 3, although, still in a diagonal. However, the key question to ask is how much does one want to be whipped around inside the daily bands where the 'house' typically has the edge? Being near the 18-day average basically means the odds currently are roughly 50-50. Not very good for large decisions.

Have an excellent start to the evening,

TraderJoe

Crying Over Spilt Milk

This post explains, in part, why I designed The Principle of Equivalence for financial markets. There is another reason, too, but I will leave that for later. This example is from the current US500 equity index. Two panels of four-hour charts are below. We know the market has traveled lower a bit - it has spilt some milk.

US500 CFD - 4 Hr - Two Logical Interpretations

As you can see from the left panel, it is possible to count the current wave structure as a series of three wave structures which might eventually go on to complete a contracting diagonal. Please ignore the degree of the labels for the moment. They are just for relative size illustration at this time. In the left panel you can see that purple 3 is shorter in price and time than purple 1. So, to complete this count, the wave structure needs a 4 that is shorter than 2, and a 5 that is shorter than 3, hopefully in three-wave sequences. The potential wave 4 already overlaps the potential wave 1, so that part of the job is already done. The MACD is diverging, so that could fit, too.

But now look on the right panel. It is also possible to consider the truncation at the red asterisk (*) shown, followed by an impulse for the first wave, blue 1. Then, in a parallel, there is a second wave, 2, followed by a smaller degree blue wave i. Because this wave is shorter in price & time than the larger degree wave 1, then we are allowed to also consider a nested count for a down move. And there might be an expanded flat brewing for the smaller-degree second wave ii. It is currently shorter in time than the larger wave 2.

So, there you have it. I'll bet you think it is pretty spiffy that two different counts can potentially work with all their wave degrees in-tact. Every wave that needs to be longer is longer. Every wave that needs to be shorter is shorter - and this is in both price and time. A purple count and a blue count. So, you'd be doing anything but crying over that spilt milk, right? You know what to do in either one of two cases, right?

No, a key reason why I designed the Principle of Equivalence is because of the chart below. Same panel on the left. Different panel on the right.

The count in the right panel is still a truncation count. But because the brown x wave shown is also shorter in price and time than brown 1, then it is potentially legitimate that the market is making an even larger second wave, 2. This wave could be in the overall flat variety. It could turn out to be a regular flat wave, a "running flat" wave that does not cross over the w wave, or even an expanded flat wave to make a deeper second wave, 2.

And this is a key reason why The Principle of Equivalence was designed. "With the current state of prices available to us at this time, there are literally three possibilities which, if prices were random, could each occur". Not two, three! That means there are roughly equal odds of the outcomes - purple, blue and brown - and those odds are roughly 33% each.

I have showed you intraday where examples with 3% or 4% odds routinely happen. So, are roughly-equal 33% odds anything to stake a claim on? I suggest not. It would be gambling at the very least, and maybe just plain irresponsible, especially with an FOMC meeting, more earnings, and probably POTUS war or peace tweets in the near future.

No, this is why I implore readers here to measure, measure, measure both price and time to see what fits in with various degrees of waves (which waves are actually larger and which waves are actually smaller) and remain patient and flexible until the situation clears.

To be truthful, I watched one veteran wave-counter's YouTube video this weekend and I watched him agonize how sloppy the market was, and what it was doing to the fund he runs. I mean he was almost crying on-line about how useless the wave principle was and how no counts currently fit his currently uber bullish scenario.

Rather than agonize, I long-ago developed a full-fledged equivalence principle that tells me what I must do in such situations, and why. It is not because of darned Elliott Wave. It is because there is a principle of wave counting that says, "lengths of price & lengths of time actually MATTER". And, like throwing a rock in a lake, you just don't know how big or small the waves will be until you either see them, or until you see the size of the pebble or boulder than goes into the water. 

Yes, from an investing or trading perspective, you want like the dickens to know how big those waves will be in the future. But, in actuality, all you have is odds. So, act accordingly until things become more clear.

Have an excellent rest of the evening,

TraderJoe

Golden Slumbers

With apologies to the Beatles lyric, I was asked back in July if I thought Gold had bottomed. At the time I said "not likely because of the three-wave sequences at the low". Practically the instant I said it, Gold, as measured by Gold futures (GC), went on a tear higher as the chart below shows - traveling about $700 higher. But a new all-time high was not made - nowhere near the $5,600 high - and this set up a huge bull trap, because, as the chart below shows, Gold for December has made a new contract low over those July lows.

Now to be fair, the November contract, and the roll-over contract have not made the new lows yet. But they might. That is to be determined. So, the question now is, "what is to be made of Gold, now?" Well, my original count was that we were making a contracting diagonal lower into July, as the weekly chart below shows. The five-wave contracting diagonal could easily be the Intermediate (A) wave of a zigzag, lower. This seems to be validated by the lower low just seen.

So, the new low in the December contract could be one of two things. First, it could be a stumpy (C) wave which may or may not be over. It can currently count as five-waves down, nearly complete. And remember, a 'C' wave could truncate. They certainly do happen. And the three-waves down, now, might start a larger Flat wave - but that is not required as the damage is being done.

So, with the five-waves-down now suggested when it ends it might start the larger upward move. We will have to watch closely to try to verify it, but an upward move would be confirmed over the (B) wave high. Other counts are possible, too, such as the start of a very, very large triangle. But there is insufficient evidence to begin a count like that at this time.

Have an excellent rest of the weekend,

TraderJoe

Someone Say "18-day"?

Prices in yesterday's daytime session pipped up over the 18-day SMA and tried to close strong-ish with a close above that average as the ES daily chart shows below. That seemingly would turn the bias up, but the swingline indicator had no up-trend. But, after the boring earnings conference calls from Meta and Tesla started - which were long on promises and short on details - prices began wavering. This morning they are falling off fairly sharply and are again below the 18-day SMA.

ES Futures - Daily - Intraday Lower

Prices could head back to the 100-SMA and/or the lower daily Bollinger Band, and a key question is whether or not a daily fractal will break lower or not. If so, then the next immediate target would be the up-gap fill from the daily close of 31 July. The daily slow stochastic is not yet in over-sold territory, and there is some chance it might start the process to embed lower, but we need to take that a step at a time. First, we need to watch the red (down) fractal to see if it is exceeded.

Again, no amount of down movement will surprise us. So far, the price action is consistent with my primary EW count and the potential truncation. Let's see if it holds. If you are a newer reader here, I will point you to my paraphrase of broker Ira Epstein's guidelines for trading here at this LINK that I have summarized from his publicly available videos back in 2015.

Have an excellent start to the day,

TraderJoe

Break-ie, Break-ee

Attached is the daily chart of the ES futures (rollover contract) with the steps for potential diagonal confirmation clearly shown. The chart uses the Zigzag indicator, so the wave terminals are accurate.

The first confirmation step may be checked (or tic'd, as they say in the UK) as complete. The remaining are yet to be seen.

What happens if confirmation is not obtained? Then, one must look for a different structure, such as a large Flat at the high, or possibly a triangle, or something similar - even a larger diagonal.

Let's see how it goes. Have an excellent rest of the weekend,

TraderJoe

Current Suggestion

Tops of any degree can be darn difficult. In our local case, we don't know for sure that a truncation has occurred. But, if it did occur, it could have happened in one of two places. Those are both shown in the SPX500 (CFD) 4-hr chart below, market with the red asterisk and question mark.

SPX500 (CFD) - 4 Hr - Channel

So, the best suggestion at this time is to draw the parallel, as shown and see if today's high is exceeded higher. If it is, then the A/B/C count lower may best pertain, especially if there should be upward overlap. Otherwise, it will be harder to claim a larger degree "five-down" until or unless there is a new low from here. Then, if there is, there could still be confusion with the nominal high made on 6 Oct. And that is why there is also a purple 1 & 2 shown in the count with purple 1 near the low.

If the market is to truly be weak, then it must show that character. If it is to be stronger, it could still wheeze upward into a larger diagonal. So far, the buying has persisted into yesterday. If the market can truly be perceived in a down trend at this time, that buying would seem a bit odd - unless the buyers are ignoring all the warnings (or those doing the buying have nothing to lose - like government officials, etc.)

So, caution, patience and flexibility are still highly recommended until the market speaks more clearly.

Have an excellent rest of the day and start to the weekend.

TraderJoe

Caution Flags Flying

Because today 'can' be currently counted as 'five-waves-down', there is some probability that, contrary to the 8,000 hype, the upward count is over. Note, this count, the truncation count, still requires better confirmation, but it should receive serious consideration because of the sloppy upward progress of the last several sessions.

The count is shown here in the ES rollover contract, but cash would be similar. There is no reason that a throw-over of the upper wedge is required, and those who think this must happen might be abandoned by price. The RSI hasn't quite broken a larger trend line from late July, yet. But it could.

We will have to wait and watch for both that and further confirmation signals in upcoming days.

Have an excellent rest of the day and start to the evening,

TraderJoe

Nary A Touch Lower

Overnight the ES futures (and the SPX500 CFD, below) made a higher daily high near the R1 daily pivot level. But, as the SPX500 30- minute intraday wave-counting-screen, IWCS, shows, price could not close outside the lower band this morning.

SPX500 (CFD) - 30 minute - IWCS

Further, price could not close on or below the daily Pivot level (P) and is headed back for the 18-period intraday moving average after the intraday slow stochastic lost its embedded status.

Short-term we continue to follow the local technicals as prices continue to try to resolve to a fuller EW count.

Have an excellent rest of the day.

TraderJoe

EWaves Envy ?

As you might know, Elliott Prechter, the son of Robert Prechter from Elliott Wave International, has spent a LOT of time and money developing the EWaves program which is purported to automatically scan thousands of markets or stocks quickly and look for their conformance to Elliott Wave patterns. I have no doubt that with today's computer capabilities that is largely or at least mostly true. For my part, I am just here to say that at least for daily and weekly charts, you can "mimic" what the EWaves charts look and feel like, just by using the Zigzag indicator on TradingView as the daily chart of the ES futures (roll-over contract) shows below.

ES Futures - Daily - ZigZag Indicator Wave Counting

This chart is current as of today. EWaves intentionally avoids using circled letters and numbers for clarity and, instead, uses larger or smaller numerals, and/or colors for wave-degree distinction.

If the ZigZag indicator is used in TradingView, one just hides the price series so that the overall form of the wave appears. The purpose of this ZigZag indicator is to provide the true "terminal points" of the move - which are often inaccurate if just closing prices are used.

When you look at this chart, among other things you might ask, "why were the letters A & B assigned to the blue labels?" It is because B wave retrace is only about 38+% which is typically smaller than a second wave, which is most often 50 - 62%. That is really the prime rationale, but the other portion of the rationale is the look of A wave - which has the look of a non-pullback wave. These no-pullback waves are often either A or C waves.

Now, we don't claim this method can scan a lot of stocks or indexes. Nor does it do the automatic labeling that Ewaves does. But if you have a few that are of interest, you might try this method to improve your own wave-labeling skills. It is very, very possible that EWaves is on to a real advantage here - and one that can take out some of the emotion. But it likely may be too pricey for some individuals and seems largely targeted to subscription services and institutions.

Have an excellent start to the evening,

TraderJoe

Everyone Raise their Hands

This is the question that literally everyone knows the answer to: When wave three is shorter than wave one, how long can wave five be? Don't everyone raise their hands at once. Of course, it should be (for a valid Elliott Wave count) that wave five should not be longer than wave three. That is because in any count the third wave is never the shortest wave. So, in the daily chart, below, a measurement is possible.

ES Dec Futures - Daily - Measurement

Thus, in the lead month futures contract (ESZ2026), if the count above has the third wave at the August high, then the fifth wave simply should not exceed 8,093. Yup, that is the question everyone knows the answer to. We know that today the NQ futures and cash S&P500 and SPY did go on to make higher highs. Interestingly, the ESZ did not, as you see above.

But the question a few more are hesitant on is, "what if the third wave is still in progress"? If there is a misinterpretation that the late-July, early-August up wave is actually a "5", and not a "3", then perhaps price is making a diagonal "(c)" wave of minute-iii, ((iii)), or circle-iii. That is possible at this point.

I've seen diagonals do a lot of freaky things to try to stall before the inevitable. This one might also - given that index pricing could easily be driven by a large leveraged bet in a high cap name. If that is so, then a third wave could become longer in price which might drive the fifth wave to a higher high than shown.

So, while there are quite a few ways price could take a steep plunge from here - that we are on our toes for - there are still ways for the market to delay, to frustrate, to whip, and to mislead. We will not be surprised if the market does that.

And we are calm, patient and flexible, not only until an ending count can be determined but also until there is decent confirmation of a turn. We remain vigilant if a truncation should occur. We continue to follow the local technicals as we did today, paying keen attention to prices being over the upper daily Bollinger Band in an over-bought condition on the daily slow stochastic. And we are monitoring the intraday wave-counting-screen (IWCS) to give clues to more immediate price direction. But at the moment, price is still well over the 18-day SMA, so the daily bias is up at this time. That could change. There could be an outside reversal bar at any time, but until there is, there is mostly the "hard right edge of the chart".

What else is there? Well, there may be a time when the right question becomes, "what is a good time to build a core position for a turn lower?" Don't everyone raise their hands with the answer.

Have an excellent rest of the evening,

TraderJoe

So far ...

Prices have come soooo far since 1932, since 1974, since 1987, since 2001, since 2009, since 2021, and so far, prices still have the right look for both a larger and smaller contracting diagonal. We have shown the larger two-weekly one many times, and it has the right look on a log-scale chart. The daily one is below is shown, and it has the right look currently on either scale.

The initial B - to - ((ii)) trend line was broken in what may be the underthrow for the overlapping fourth wave. And a fifth wave may be in progress. The PPO indicator currently diverges on each subsequent peak, and has touched the zero line twice since June. The upper trend line has multiple touch points. The only item that would be nicer would be if the retraces for the second and fourth waves were closer to 62% or more.

On Friday, the Payroll report gave prices another lift higher, but then they stalled. It seemed like an ideal time to take prices over the prior high, but they just wheezed. We're not making too much of it. We're just remaining calm, patient and flexible pending short-term technical developments. The NQ futures did go over the high again. Still, the four hour chart can give one some markers, as below.

At the moment, the odds slightly favor the uptrend in force. But one needs to watch the recent trend line and Thursday's low for a presumptive invalidation of the uptrend should it occur this week (with better confirmation below 7,575). The prior high is certainly a target for a continued move higher. If slightly higher highs are made, it may wind up only be the minuet (a) wave of minute ⓥ with a (b), and (c) to follow.

But, make no mistake, ES prices are stretched to inanity, and declines should not surprise. I say that because so few stocks and or indexes are participating in the rally. The NYSE Advance/Decline line is clearly not at new highs at this time.

Sentiment is also stretched to an extent not seen before - with my proprietary bullish sentiment indicator indicating more consecutive weeks over 60% bullish than at any time in the past. It's not the highest reading ever, but it is more sustained than in prior runs. People are rotating from "Good news is good news", to "Bad news is good news". In other words, they want to see economic weakness to drop interest rates some to lift stocks more. This has happened in many prior cycles too. It may be a sign of hope developing. And remember, a bear market skids on the slope of hope - should one begin.

One can argue that the Dow and the Russell 2000 have begun significant declines. If so, the Dow especially would just be validating the longer-term two week contracting diagonal. It had quite a few days down, which might indicate  a turn of degree, but one would want to see a greater price extent.

Have an excellent rest of the weekend,

TraderJoe

Outside-Day-Down

Today, we were counting downward for the potential Ⓔ wave of a triangle representing the end-of-month and end-of-quarter window-dressing. We warned that the current scenario supported multiple counts, and we got one which broke the triangle lower in the futures - after the cash SPY had broken yesterday. The selling into the close was sufficient to make an outside-day-down, after we had counted three waves up. So, the conditions of the chart, below, are now an outside day down, and a swing-line indicator with a lower high and a lower low, and a close below the 18-day SMA.

ES Futures - Daily - Outside Day Down

The daily show stochastic is no longer over-bought, it has 'worked-off' that condition, but it is also still above the 50 level, and so, it is not over-sold. So, an analyst like Ira might give the advice that "until the high of the outside day is exceeded higher, then price might try to make a run for the 100-day, the lower daily Bollinger band, or - even possibly - the 200 day SMA."

And any low below the low of 16 Sept might set off the potential truncated top shown by the red asterisk *. So far, it looks like if we go up, it might be by diagonal, and if we lower there is one way it might be by impulse, but there are insufficient waves to show it yet.

So, tomorrow is the first-of-the-new-month, and the first-of-the-new-quarter. We'll see how many money managers want to fire all their bullets at the first of October, and who want to keep some powder dry. Since, a truncated top is a real possibility, no amount of downward movement should be perceived as out of the question. The question is whether further upward waves can be made or not. If they are, we have one count for that, but it would invalidate below that 16 Sep low.

Have an excellent start to the evening,

TraderJoe

Stuck at the 18-day SMA

Five of the last six days have at least seen prices touch the 18-day SMA in the ES Dec futures, just the lead month, as below.

Today made a lower low in the SPY cash ETF. It did not in the ES Dec futures, and instead price just scampered back to the 18-day SMA to close near there. The market currently is quite sideways. The Elliott wave counts we posted yesterday, and have been following for months and years, allow it.

This is just a reminder that tomorrow (Wednesday) is the last trading day of the month & quarter, which often sees window-dressing and portfolio adjustment. And then Thursday is the first trading day of the new trading month/quarter which often sees the typical inflows from passive investing, Corporate bonuses, 401k rollovers, dividend reinvestment schemes, pension fund contributions, etc. So, step gingerly - if at all - through that and remember, some very large corporations have announced huge stock buy-backs, which the retail trader might be swamped in (Nvidia announces $150 billion buy back on Sep 28th, the largest in Corporate history according to Yahoo! Finance) should the buy-back become 'active'.

Have an excellent start to the evening,

TraderJoe

Roll-Over Beethoven

I said that if prices made a new high in the ES futures contract I would address the possibility of a third wave as an alternate. Well, like the NDX, the ES rollover month contract has done that - made a new high. So, the current count and best alternate fit like the ES! daily chart below.

ES! Futures - Daily - Rollover Alternate

Unfortunately, neither cash nor just the lead month contract can be counted in this (alternate, red) way because the new high needed for circle-iii, minute-iii, is just not present for them yet. To count them as a diagonal would be in the current count with a potential failure if price can not soon establish new all-time-highs. Please remember there is an end-of-the-month and end-of-the-quarter scenario ahead to be followed by the potential of the first-of-the-month, first-of-the-quarter passive inflows on 1 October.

Have a good start to the day.

TraderJoe

Whippy

Today was whippy - as we warned. The news background fosters it. The brokers love it. The odds are all in the middle-of-the-road here. Play at your own peril. There are only certain markers that will establish new wave counts: higher than the prior all-time-high or lower than the prior two-day fourth wave low, below (use OHLC for the exact number). Simply said, nothing in the last couple of days has changed the progress of this wedge.

It really is that simple. You can make more of it or less of it as you like. IF the new high is made and there is not the failure, then it might also be possible that minute wave-iii, circle-iii, will get an extension. But the new high remains to be seen first. We'll address any extension later. Things are already incredibly overlapping in the ES futures - which tends to indicate some exhaustion going on.

Have an excellent start to the evening,

TraderJoe

Oh, No! Not Again!

Once again in the SPY cash index, the Kennedy Channel technique is not quite applicable (this is also  known as the "base channel" technique by R. N. Elliott). As you can see from the SPY 15-min chart below, a parallel channel drawn around waves i/a, and ii/b does not afford the result of a third wave popping out of the upper channel boundary to announce itself. Maybe it will tomorrow, but it hasn't yet.

And, yet, in about 106 candles the EWO is darn-near down to the zero line: certainly enough to be in fourth wave territory. So, The Eight-Fold-Path-Method says the two sets of labels are equivalent until something comes along to distinguish them. We need to see if a valid fourth wave can hold up without overlap, or we need to see if wave three stops downward travel here and extends, or if the fourth wave busts as so many have done in the past.

The odds are only ever-so-slightly in favor of the impulse because the third wave is slightly longer, but just. Again, in a situation where the odds are nearly even it is either pure guess-work or near-gambling to test those odds with ones own money. My approach is simple, "we need a bit more information".

Have an excellent rest of the evening,

TraderJoe

Bing, bing, BING!

No. Ricochet Rabbit yells "Ping, ping, PING!" (or often heard and written as "Bing, bing, BING!") right before shouting his own name - Ricochet Rabbit - as he bounces off objects. This was confirmed in autographs signed by the voice-over cartoon actor. But today, the ES futures on the daily chart, can be seen bouncing off the bottom Bollinger Band, and without hardly stopping at the 18-day SMA, ricocheted to the upper Bollinger Band.

The Principle of Equivalence says there are at least three good ways to count this formation. They are listed below.

• First is minuet (a), (b), (c) of minute ⓥ failure. This formation would seem to 'rush' the count as degree labeling can not be used to confirm the lengths of (a) or (b), we don't know the up movement is over, and there is no overlap of concern at this time.
• Second is smaller degree sub-minuette i, ii, iii of minuet (a) of minute ⓥ. The supporting evidence for this is that the hourly MACD is on a high, we don't know the up movement is over, and there is no overlap of concern at this time.
• Third is even smaller degree micro Ⓐ, Ⓑ, Ⓒ of i of diagonal minuet (a) of ⓥ to extend the entire sequence in time and try to get the waves to survive until the end of the year.

There is, of course, still the option of a third wave up because in contracting diagonals, the smaller up waves, and the smaller down waves still fit in with the nested 1,2,i,ii scenario which always, always, always makes counting diagonals tricky.

At this point, the middle scenario is the most reasonable. This is counting the three up waves as i, ii, iii the three sub-minuette waves of minuet (a) until we know more, there are some confirming overlaps or news reports that dump prices. This would also still allow for the Elliott "over-throw" if that should occur, after the under-throw that we wrote about in the prior post.

At the moment, the daily bias has instantly turned from down to up. But there is no swingline trend: just a lower swing-line low, and a higher swing-line high. The daily slow stochastic is not over-bought yet, but I'd watch tomorrow's readings. Further, as things were still settling out, on the NYSE there were only 1,527 advancing issues versus 1,226 declining issues on a day which could easily have seen a ratio of 5 or 6 to 1. It didn't. And, again still settling out, there were only 26 new 52-week highs on the NYSE versus 154 new lows. So, some stocks are behaving against the rally - which is interesting.

For our part, we continue to measure & count; measure & count. Can I say it again, "measure & count" as best we can and look at the evidence. We'll not predict the future - especially not when The Principle of Equivalence tells us there are multiple scenarios with odds spread out amongst them. The odds above can be roughly rated as 25%, 50%, 25% for the three scenarios. Today you saw how fully seven closes occurred over the upper intraday Bollinger Band which had odds rated at 0 - 2%, and yet that occurred before prices closed back inside the band. Granted it was an intraday chart. Still. if 1% events can happen, one has to be very, very judicious with 25% events - or else one is just gambling, not using wave-counting skills for what they are intended for.

Have an excellent start to the evening,

TraderJoe

Eclipse

Like a full solar eclipse, sometimes you are in the right place at the right time and can gleefully shout, "I saw it, I saw it" along with the full other range of phenomenon that day - like sky darkening, or Bailey's beads. You can say you were there to experience them all. In today's market, if you draw the daily closing trend line up from the April low, you might see what is famously termed the "Elliott under-throw". Here is that daily chart in the SPX500 (CFD), trend line included.

If you look to the day of September 16th, you might see what Elliott termed the "under-throw" in a contracting diagonal. This is price action that breaks the trend line to get people more bearish, and then begins to recover to potentially make a fifth wave, and which can then result in the more famous "over-throw". Clearly from my post of 4 Sep ("How Nasty") I was prepared in advance for such an event, and now the sudden reversal higher.

If prices make the new high, then the under-throw will likely have been confirmed and then you can say "I saw it, too!". Further, Elliott will have been proven correct at an extraordinary degree of trend. And even if prices don't make the new high, and instead fail, he would still be correct.

Did the under-throw drive some fear into the market? Well, the CNN-Money Fear and Greed Index was last down to 27 (Fear) from its August highs in the (Greed) category near 66, so it looks to have had some impact.

The only item a little dissatisfying about the diagonal currently is that the retraces are not 62% or better as in the 'guidelines' for wave formation, but they are just that 'guidelines', not rules. So, to follow the rules now, the wave structure only needs a fifth wave that is shorter than the third.

We'll see if that happens. If not, we'll adjust. One adjustment 'could be' that the third wave, ((iii)) or circle-iii is still underway. Have an excellent rest of the weekend.

TraderJoe

Another Clue

For months and years readers of this blog know I have been watching the cumulative NYSE Advance/Decline line for signals as to when topping might occur. Without this index diverging, I said it would be difficult for any true bear market to start. An updated daily chart of this technical index is below.

Readers can see that as of yesterday's FOMC day, the index has fallen off 'almost' as much as it did in April, but not 'quite' as much. The two arrows lengths are copies of each other. Now I'm not saying it is 'required' for this technical measure to make a full diagonal like price might. It is possible this might fail to make a new high while price goes on to make a higher all-time-high. But, clearly, there is already overlap with the March peak after a shorter wave up in length.

So, market breadth conditions should again be watched as prices rise to see if there is any divergence again with the average stock at the exchange level on significant rallies. Further, should the April low in this measure be undercut, that should start to send out some additional warning signals related to how frothy price might be, and whether or not speculation is ruling the trade or whether price rises accompany economic expansion of a more meaningful type.

So far, we have had economic expansion, some from data center build-outs. Some from programmers being hired to build A-I, some from increased retail sales, partly due to inflation, and some from higher commodity prices themselves, not to mention, unfortunately, those economic increases that accompany a military conflict.

Should the market decide to once again undertake its 'discounting mechanism' role, we'll see if it leads changes in any of the aforementioned sources of GDP growth. It's definitely worth watching.

Have an excellent start to the day,

TraderJoe

 

Clue

This morning in the wee hours, a lower low was made below the Prior Low (PL) of the previous post. As such, the upward variety of expanding diagonal invalidated in a bout of sheer whip. The SPX500 (CFD) 4-hr chart is below.

This now leaves the potential downward contracting diagonal as a way to end minute ((iv)). This count is subject to the usual rules for a contracting diagonal. First, we don't 'know' that wave iii is done, but it would have to remain shorter than i for a contracting diagonal. Then, too, when wave iii is done, wave iv would have to remain shorter than wave ii. And, of course, in this scenario wave iv can and would likely overlap wave i but not travel beyond the end of wave ii. If that succeeds, then wave v would have to remain shorter than wave iii.

This is also a reminder that wave v in an overall (c) wave of minute ((iv)) is allowed to 'fail' if it wants to in order to signify the end of a downward wave.

None of this is locked-in-stone. It is all contingent, but the lower low does provide a clue as to possible price direction. Again, nothing lower will surprise us. There is a way for price to have topped in this and in other indexes. But this is an effort to give the broader market a ending pattern at large degree. We'll see if that happens.

I will also note that some other Elliott Wave analysts were expecting a (ahem) [iii], up, here. I guess they got fooled by the new low, and we did not. But, I've been fooled before, too. Very few readers read the prior post, so, if you haven't, you may wish to review it now.

Have an excellent start to the day,

TraderJoe

Up For Grabs

Overnight, the market as measured by the ES futures has more than overlapped the prior possibility for a 1st wave up as shown below. But it has not taken out the prior low (PL) either. The chart below is of the SPX500 (CFD) 1-hr timeframe.

So, the primary way to make an 'A' wave up is with an expanding diagonal. But, if the 2nd wave marker is undercut, then there is no way to make an expanding diagonal, up and still follow the 'rules'. On the other hand, if the low is exceeded, then perhaps look for a diagonal downward to end the fourth wave, minute ((iv)). A contracting diagonal is the more likely downward, but we'd also have to look for the expanding possibility if the contracting variety should not be valid.

IF a diagonal is being made, in either case, then the internal waves could be quite whippy, instead of trending, and trading might be quite difficult. So, patience, calm and flexibility remain key tools to success.

Have an excellent start to the day,

TraderJoe

Full House

Think of it like a full-house hand in poker. You have three aces and a king & a queen. The question is what will be pulled from the deck.

We're just patient until the cards are dealt. The degrees are difficult to consider because the lengths are quite similar. Also, in the futures it is very hard to count that initial (a) wave up in the first diagram as it is very hard to count five-waves-up. And, if it has a truncation it may be the c wave in the second diagram making an overall (b) wave up in that diagram.

Have an excellent start to the evening,

TraderJoe