Weekend Video

Here's a video I made a commitment to provide, regarding the relationship between Elliott Wave Counting Decisions and Trading Decisions.

Enjoy the video, and best of luck in the markets.
TraderJoe

The Fourth Wave Conundrum And Pseudo-certainty

Pseudo-certainty is pretending one is certain of something when, in fact, certainty is not possible or likely. I specifically coined the term "The Fourth Wave Conundrum" because when an Elliott analyst is in the throes of counting fourth and fifth waves, it is less likely one will get the count correct the first time.

First, there was nothing untoward today to the down side. Voicing their 'opinions' some will say the market had a "consolidation day" after the large rise on the FED meeting announcement. Others might say "there was a failure to follow-through" and begin looking for a downward count. Others are "certain" we are going higher - but will  not show how. Those that express their certainty are often involved with trying to sell a product: like a web-site subscription or a course with their super secret keys to unlocking the mystery of the trading universe.

Few will just refer back to the Elliott Wave Principle, outlined by Ralph Nelson Elliott, and realize all the possibilities here.

Next, in yesterday's chart, we showed how we have "three waves up" so far, which could be i, ii, and part of iii of an impulse. Or, it could be a, b, and part of c of a diagonal. Today we will show a slightly shorter term chart than the SP500 2-hr chart, instead focusing on the narrower 30 minute time frame, below.

SP500 - Half Hourly Triangle Alternate

I am showing this alternate only so that you have a full understanding of how and why a precise call in the fourth or fifth waves may not be possible - at this point in time. I have not even shown this chart in the live chat room.

So, suppose the down wave from 2401 is a three-wave structure as shown to ((A)), read as circle-A. So far, the up move has been limited to 78.6% of the down move, also in three waves, at this point in time. The Dow has already downwardly overlapped the Mar 10th (A) wave. The S&P has not.

Suppose more downward wave movement is in store for the S&P500 tomorrow. We don't know that. We are just supposing. Then, it's possible the ((C)) wave down of a larger fourth wave triangle would form.

But, and this is key, we are just supposing. There is nothing yet to say that the upward wave is over. So far, there has been little more than a 38.2% retrace of the March 15th high - which could either still be an internal fourth wave or an internal second wave of a continuing upward wave.

In other words, it may be premature to label ((B)) upward as over. We could still very well go on to form 1) an upward impulse, or 2) an upward diagonal over the highs.

And anyone who feigns certainty in such a situation is largely selling you cigar smoke in my opinion. You can go ahead and buy it, but there just isn't a lot there.

Have a good evening!
TraderJoe

Parallel Remains in Tact

The S&P500 today did make a higher high than the tentative ((A)) wave we posted in the prior chart. This means for now that the upward sloping trend channel remains in tact. (Remember, ((A)) is read as circle-A).

SP500 2-Hr Chart Higher Local High

Yesterday, the down wave again challenged the lower trend channel line, and extended to the point (a near exact 78.6% retracement) that we can give it credence as "either" a ((B)) wave, or a second wave, so both upward counts are currently noted.

If it is ((A)), ((B)), then the structure will be of a diagonal. If it's ((1)), ((2)), then the structure is that of an impulse. As of the moment, I have no preference what-so-ever. However, the Elliott Wave Oscillator (EWO) has both turned green and is now above the zero line which should indicate a fifth wave in this sequence. The NQ futures have already made higher highs, while the Dow is currently lagging the S&P. And we are now at about only 146 candles, well within the 120 - 160 that are typical.

On another note, we previously showed you this example of a 138.2% wave that we labeled b:3, and said the prediction in the Dollar Index was to be below the a:3 wave. As you can see from the chart below, as of the end of the NYSE session today, the Dollar did indeed trade today below that a:3 wave. So, you have seen a prediction made days in advance come true.

US Dollar Index b:3 Wave at 138.2%

Even though the over-all prediction came true, calling this downward wave in real time became a real challenge because several of the downward legs did not follow The Eight Fold Path. For example, the first wave down down from the top (wave i) was an expanding leading diagonal. In fact, yesterday, my "opinion" of what the Fed would do resulted in a turn-around possibility saying that it was possible we had a truncated flat. But, when the Fed suggested only two more rate hikes this year instead of three, the better definition of wave iii, downward occurred. (Interestingly, in the live chat room I suggested that exact possibility later in the day).

Anyway, my purpose here has been served. I simply wanted to demonstrate a true 138.2% b:3 wave, as well as it's consequence. And that is now done. Again, this type of FLAT wave is called an Expanded Flat. It is not called by it's older name the Irregular Flat because there is nothing irregular about it. Expanded flats are one of the most common types of flats. They are seen often and regularly, so using the older name is a misnomer.

But, the lesson still is being absorbed, as long as I've been at this, not to mix opinions - of any type - with wave counts.

Here's hoping you have the best of evenings.
TraderJoe

Critical Conditions Met

Again, using the SP500 2-Hour chart (the same as yesterday), the critical conditions for a fourth wave have been met. The chart is now out to 122 candles, within the suggested range of 120 - 160 candles, and the Elliott Wave Oscillator (EWO) has retraced back to the zero line, and slightly under.

SP500 2-Hour Chart - Fourth Wave Critical Conditions Met

It can also be clearly seen that the lower trend channel line is being attacked to the down side, and we do not know that downward movement is over. (It's "possible" we are still getting an ending diagonal c wave lower or a more complex correction lower).  At present, minuet (iv) has traveled back to the area of sub-minuet wave iv, but has not closed the upward gap there, and the wave currently has a 23.6% downward retrace on wave (iii).

At this point, the only unsatisfactory aspects of a fourth wave are the amount of time taken and the "look" of wave (iv) compared to wave (ii). They look very much the same. Therefore, while we do not like to use alternates often, we must suggest that the down wave could still only be the a:3 wave of a larger fourth wave flat or triangle, so we have posted a flag regarding that on the chart.

Alternate or not, we are glad we began looking for a correction just as others began their "how high the S&P can go" postings.

Because fourth waves may not overlap wave (i), that will have to be the invalidation point for this fourth wave. Sometimes - high up in the wave sequence - fourth waves can get fairly deep.

Speaking of invalidation, if the market decides to pull a "fast one" and get out of hand to the down side, within the live chat room I did post a clear alternate count for a possible top. But, there are some things I don't like about it, yet: primarily the proportionality. And so I will leave it in the chat room for now and only show it should this fourth wave not work out as expected.

Why did I develop an alternate already? Because I am always looking for the count that would tell me where the current count is not correct. Keeps one on their toes.

Have a great evening!
TraderJoe

OEW has Lost It's Lunch - a Fibonacci Five Times Now

First came the 2015 highs in which we indicated an ending contracting diagonal as early as February of that year, which would have started in November of 2014 and continued through May of 2015. We were looking for this structure to end a fifth wave wave up. It did. OEW called for a large third wave higher to 2,200 to 2,500. It didn't happen. Prices plummeted into August instead, agreeing with our call.

Second, came the December, 2015 up wave which OEW said was almost certain to make new highs because every Primary wave before it had and that they were simply constructed (in it's view). We said, it was likely we were in a B wave up, and the B wave would likely not make a new high because of alternation with the flat wave in 2011 - 2012. Then, when OEW did not get it's new high, it called for a truncation instead, flipping around and saying the truncation wouldn't be exceeded. It later was. Wrong again. Wrong on both counts!

Third, came the February 2016 low where OEW called this tune: "When this uptrend concludes, we are expecting the bear market to start making new lows during the next downtrend. Longer term we are expecting the market to lose 45% to 50% of its value during this bear market. Ending sometime in 2017 around SPX 1100." Really? 1,100? We on the other hand clearly and unequivocally wrote in the OEW forum, that the low was Primary IV and new highs were to be expected - which as you know is what occurred. We even pleaded with the author who had told us, "the universe unfolds in octaves". Our reply was, "well if the universe unfolds in octaves, then why won't you allow a Fibonacci eight-years (from 2009) for the bull market to complete?" Silence was  the reply.

Fourth came the latest new bull move Crude Oil call, on August 23rd, with prices at (close = 48.52) in an article called Crude and the Commodity Cycle. OEW calls for this bull market within the context of a larger bear market and says, "This suggests an upside target between $70 and $85 by the year 2020." Sounds good, right?! Wrong again. Since the article appeared Crude has declined over 10% in value and is sitting at $43.23 with new daily lows. Who makes a bull market call with a 10% decline staring you in the face, unless you clearly indicate that is the likelihood, first? But that isn't the only problem with the OEW analysis of Crude Oil. The larger problem is that OEW looks back more than 50 years to fully 1970 to begin it's wave analysis. Isn't that thorough? Ha! Anyone hear of Nelson Rockefeller? Or of Standard Oil Company? There certainly was Crude Oil trading before 1970, and lower than $1 per barrel. Crude prices in the 1930's were under $0.70 per barrel according to the EIA data. So, this whole wave analysis is woefully incomplete, and likely incorrect. In fact, the OEW analysis only really starts near the time of the first OPEC "oil shock", likely right in the "middle" of a third wave. And OEW ignores the 1990 Kuwait Invasion with prices higher by only $1 per bbl. As a signature "b" wave within a fourth wave decline, it would be a key to a successful analysis of where we are today if OEW recognized it.

Fifth comes this weekend's latest OEW treatise on the disparity of the various stock indexes, which has been going on for months now. OEW has really lost it's lunch this time saying that the New York Composite Index is trading like a foreign stock index?! Really. Let's see. The DOW has 30 stocks in it's index, the S&P 500 has 502 stocks in it's index (with very little foreign content), the Russell 2000 has 2000 stocks in it's index, the NASDAQ 100 index has 107 of the largest non-financial companies that trade on the NASDAQ market place, and the Wilshire 5000 has virtually all of the stocks that actively trade in the United States. By comparison, the New York Composite Index includes over 1,900 stocks of which over 1,500 are U.S. based companies. It is very clear to even the most novice critical thinker that, because each index represents vastly different baskets of stocks, some of which trade on some exchanges, and some of which trade on other exchanges, they will trade slightly differently! Yet, the OEW claim is that the S&P500 can not be in Primary V because the New York Composite represents some foreign companies and is, itself, in Primary V. I was going to say this is the most twisted logic I've ever encountered. But it is worse than that. It's not even logic! It is words written on a page, apparently to sell a service.

You'll note that this blog is not sold for a fee! We don't even ask for donations. We're not selling a course. And for a reason. Our primary aim is to be objective and see what Elliott Wave can really do for us if we let it. So, without further delay, we'll just provide this hourly chart of the S&P500 Index.

SP500 A,B,C Zigzag Complete or Not?

Since the truncation top, our position on the market has remained that, "risk in the market has gone up" as it now takes more points to validate a wave than when were were trading from 2165 to 2195. We are pretty sure the market is only making a corrective sequence lower to Intermediate Wave (2) of a diagonal wave for Primary V. As such, Intermediate Wave (2), shown here on the hourly chart, should be a pretty simple A, B, C zigzag wave, and this one is - albeit the B wave got quite complex, that is fully allowed.

The only clues we really get are that 1) the upward retrace is only 61.8% and has not overlapped wave 1 down at this time; 2) the Elliott Wave Oscillator is in the correct position to indicate a fourth wave - by not traveling beyond -40% on the other side of the 3, or C location (as of yet); 3) right now, we have lower highs, but no real lower lows; 4) the B wave back at the 2187 level is so complex, it would appear to be the correct wave sequence of a zigzag, not, instead, as the second wave of an impulse lower, and, 5) remember second waves of zigzags are usually sharps, and this B wave is a FLAT wave.

So, we are in the situation where the C wave may have completed, and completed with the overlap we noted in the DOW, but not in the S&P. And that would be at the low on 12 September. But it is very, very difficult to count it that way. As a result, we have discussed in live chat and yesterday in the comments of this blog, that it is possible we are forming a triangle to the downside. This potential triangle may be a "pre-FED meeting triangle", but it must, again, prove itself. Such a triangle, if it completed properly, would be the fourth wave of the C wave of the zigzag, and it would indicate "last wave down dead ahead".

Right now, in the S&P 500 cash, there are enough waves and sufficient overlap to conclude a triangle has actually finished, but then a thrust down out of the triangle would be required. Yet, triangles are usually noted for taking time and moving prices sideways. And, if that's the case, there are two more ways this triangle could develop. The first way is that another wave immediately forms along the lower wave 3 barrier (putting this triangle in the class of barrier triangles). Or, further up movement could cause the triangle to expand higher one time - in an attempt to fill the gap - and form a larger (c) wave of the potential triangle., before coming back down to the barrier to form the (d) wave.

Either is completely acceptable in terms of Elliott Wave logic, but it is very, very difficult to predict. That's why the old Elliott Wave maxim goes, "Trading in Triangles is Treacherous". Given that there is a FED meeting dead ahead - from a wave counting perspective - perhaps it is wise to let the market initially sort this one out! (No trading or investment advice is intended, provided or to be inferred). Anyway, from a wave counting perspective, that is our approach.

Have a great weekend!

Today is 7-11 ! A day for me that will always be known as Primary Five Day

Some people not familiar with Elliott Wave work will wonder what all the fuss is about. But those of us familiar with Elliott Wave will recall that a major Elliott Wave service had predicted that the years 2007 - 2009 were the start of the equivalent of Armageddon in the financial markets. And while those years were, indeed, very bad years for financial assets, this same Elliott Wave service had predicted that this deterioration would continue in the form of a "three-wave" primary b wave higher that would eventually lead the markets lower in a new five wave sequence lower of unparalleled destruction.

Today marks the day when, instead of the three-wave sequence upward, a five-wave sequence was made "instead". The chart below shows that five-wave sequence.

With Today's Higher High Primary V is Now Validated

This is of some consequence, because it is further validation of my paraphrase of the Bill Williams method of counting the Elliot Wave. This method has been detailed in the posts below entitled, "The Eight-Fold Path to Counting an Impulse Wave", and the chart above shows each one of those steps carried out without fuss and bother on the two-weekly chart of the S&P500. Why the two-weekly chart? Because the very first step is, "To chose the time-frame for which 120 - 160 candles fits 'the wave of interest'." If you are not familiar with this method, yet, you can read about it at this LINK.

There are several reasons why we think stock prices have carried this far:

1. The Federal Reserve's low interest rate policy
2. From 2009, a Fibonacci eight (8) years would be 2017
3. That SuperCycle III is the longest and strongest movement in U.S. Equity prices
4. That even if the public is not buying wildly, banks can buy stocks with parked funds
5. And companies are re-purchasing their shares with low-interest debt.

Regardless of the reasons, the fundamentals are incorporated in the price changes so far, and the psychology of their application in the market is what makes the Elliott Wave above.

Take Your Pick : Impulse or Diagonal

This post puts some more 'meat on the bones' of the potential contracting Ending Diagonal Count for Primary V, now that the Brexit highs have been surpassed. It is one of only two possibilities for how Primary V can end. It can end in an impulse or it can end in a diagonal

Below is the chart of the contracting shape of Diagonal.

Potential Ending Contracting Diagonal for Primary V

For the diagonal to form instead of the impulse, then all the requirements must be met, including the fact that Intermediate (1) ‘must’ make a new all time high to show it’s ‘motive’ character. Then, all the other requirements of a diagonal must be met, as well:

The lengths must measure such that (5) is shorter than (3), and (3) is shorter than (1), and (4) is shorter than (2). Furthermore, wave (4) must overlap wave (1), and all the three-wave sequences 'must' be countable as zigzags - or multiple zigzags - only.

We'll see how it plays out. So far, the needed high of 2135 for Intermediate (1) has not occurred, but prices got to within 5 points of that level on Friday.