The Expanding Triangle Idea

Several of us on the blog have discussed the idea of the Expanding Triangle as a way both to make a wave that is deeper in price for a correction, as well as to make a wave that is long-enough in time to be a companion to the Minor A wave, up, in the diagonal Intermediate (5)th wave. The good news now is that there are enough waves to visualize this possibility, using ES daily closing prices in the chart below.

A key feature of an expanding triangle is that each wave should be longer in time as it expands in price, and so far, that criterion is working out. Second, the ⓔ wave of the triangle must do two things. It 'must' both cross the center of the triangle lower again, and it must go on to make a lower low than ⓒ - at least intraday. If the lower low is not made, it would be difficult to distinguish the pattern from a failed flat.

Typically, the waves in an expanding triangle are limited to 150% travel, by rule, which so far has held up.

The advantages to considering this pattern are that 1) it might help provide divergence with the $NYAD, the NYSE advance/decline line before a more final Minor C wave, up. 2) it might be another way to explain to explain the stuttering of prices and very hesitant price drops other than by a diagonal, 3) it might be a way to burn time before the mid-term elections. Note that many Elliott waves end with a triangle in the next-to-last position. This would be that triangle.

The disadvantage of the pattern is obviously the difficulties of trading any triangles with the abrupt starts and stops, the periods of grinding ranges, the sharp drops and the eye-opening retraces that seemingly come out of nowhere.

That said, this is still an alternate at this time. It's a very good alternate. The pattern itself is recognized both in the Prechter & Neely descriptions, although Neely refers to it as a horizontal triangle, and so it should be kept in mind as price progresses to see if the pattern is validated. In the Neely description, though, he suggests that the ⓔ wave can progress to the 1.618 or even 2.618 level. I'm not so sure where he gets the evidence for the extensions and wish he would have provided a live example, or two. I'm not sure if those come from the currency or other markets, but I don't recall seeing them recently in the equity markets.

In any event, this is the second post since Thursday. Have an excellent rest of the weekend.

TraderJoe