Fives or Not ?

Are we trying to count by fives in the upward direction or not? That is the very basis of the Elliott Wave Principle. The Eight-Fold-Path-Method tries to better quantify a chaotic and non-linear wave form by always examining the time frame that looks for between 120 - 160 candles. (If you have questions, see the post in the upper right-hand-corner of the main blog page under the Purpose and Groundrules). This chart has been shown several times in the past. The bar count is currently up to about 153 two-weekly candles.

The chart is of the S&P500 Cash Index using just the Zigzag indicator to provide accurate wave termination points and illustrate the overall form of the wave.  The RSI indicator and the Elliott Wave Oscillator (EWO or AO) are shown and are currently diverging. The distinctive fourth wave signature can clearly be seen with the EWO briefly dipping below zero before quickly rebounding.

Although it is possible to count a top here long-time readers of this blog will understand that one objection to doing that is the NY Advance/Decline line is at an all-time high this week and last. Few, if any, true bear markets have started in this condition - with the advance broadening out and little divergence seen.

Countering this, though, is the NASDAQ Advance/Decline line which is diverging.  And, remembering that it was the "A.I. trade" that largely built this wave segment, one could wonder if just a few high-tech stocks were largely responsible for the advance, what will happen if they seriously decline? And, we're not even entirely convinced every Mag-7 stock has topped for good.

With that in mind, the Principle of Equivalence says to be patient, be calm, and be flexible as the market overlaps in this area. As the red arrow towards the end of the price series, above, indicates we could easily see a deeper drop for a B wave, before a final C wave advance that provides more in the way of divergence.

The bottom line is 1) we are attempting to count-by-fives, 2) it is possible we are topping now, but we question only how likely that is at this time, and 3) therefore no amount of downside will provide a surprise to us as the risks continue to mount and mount.

Just remember, if we are attempting to count by fives, then this up wave, when over, would be (5) of ⑤ of V of [III] with [IV], ahead, and [V] after that. If you would like to see the difference between counting by fives, and not counting by fives, you should have a look at a fairly recent NeoWave blog post at this LINK. I have learned a lot from Glenn Neely, but it's very hard to say Elliott would agree with his counting technique.

Have an excellent rest of the weekend,

TraderJoe