Weekly Review - Two Plausible Scenarios & Just One Preferred

Some websites want to send you back to the beginning of recorded stock price history in the U.S. to tell you why their Elliott Wave counts, which don't seem to work out when viewed under close scrutiny, must work out in the future. Just recently, one (ahem) shall we call it alternative Elliott Wave site, which claims it is objective, was projecting higher and higher third waves - which, as you know now - never developed. But, the odd thing is the authors of such sites rarely, if ever, say, "we got it dead wrong". How can a site be objective if it won't admit when it's tools and techniques just don't work? Wrong at the May 2015 high. Wrong at the 2016 bottom. Wrong at the March 2017 high.

I on-the-other-hand prefer to stick to real Elliott Wave analysis, as I understand it. And I think many, many people really don't understand it that well yet either. That's why I try to help show you how real wave analysis works - on any time frame from 5-minutes (as in yesterday's post) to weekly, monthly or more. I prefer to live with some uncertainties of true Elliott Wave analysis because I know that's what mirrors life. There is almost always a choice. There is almost always an alternate. This week I will show you the two most likely Elliott Wave Counts on weekly charts, and tell you which I prefer and why. It is no change from the past several weeks.

SP500 Cash Weekly - Primary 5 Impulse Count - ALTERNATE

The first count above is of the potential Primary 5 impulse wave upward. As of this point in time there is nothing that breaks any true Elliott Wave Rule in this count. It would be made up of five Intermediate sized non-overlapping waves higher, and that would normally be fine. Just, if Intermediate (2) were a flat with the higher B wave, as shown, then one would expect Intermediate (4) to be a triangle or a more simple zigzag to provide alternation with the flat wave (2). That could still happen.

But, there are five reasons why I don't like this count that go beyond 'simple' wave analysis, and proceed to more modern wave analysis as it has been further delineated by the likes of Glenn Neely, and Bill Williams.

Fibonacci Five Reasons for Alternate Designation of the Impulse Count

1. Part of Wave (3) breaks the Primary wave ((4)) to (2) trend line, indicating loss of momentum at that point. Wave 2, as you can see, drops below this lower channel line, and it is more extreme if the real zero-to-(2) trend line were drawn in. 'Usually', 'most-often' all of wave three is above the zero-to-two trend line except in diagonals.
2. Wave (2) does not have a very deep pull-back - it is only 38.2% at maximum. 'Usually', 'most often' second waves are between 50 - 78% or more except when the first wave is the extended wave in the five-wave sequence. But, the supposed third wave is longer, ruling out wave (1) as the extended wave in the sequence.
3. Wave (2) is not a sharp wave. 'Usually', 'most often' second waves within true impulses are sharp or zigzag waves, and this one is a flat. While not a deal-breaker, it is a cause for concern.
4. Sentiment. As you know, we track sentiment weekly. And you can see from the chart below that while sentiment is falling off - as expected - from the high of March 1st, it is nowhere yet near the lows of prior waves. I would expect, before an upward turn, that sentiment will fall lower yet.
5. Finally, the NYSE Advance-Decline line has recently made new all-time highs. 'Usually', 'most often' the $NYAD will diverge with price before the all time highs are made. That just hasn't happened yet. 

Sentiment Chart

Weekly Bullish Sentiment is Not Yet Near Prior Wave Lows

For the reasons above, and not because of any sacred mystical cycles or hidden proprietary analysis, the count below is currently the preferred one.

SP500 Weekly Cash - Ending Diagonal Count - PREFERRED

As you can see, because there is no Intermediate third wave yet, this count eliminates all of the problems with a third wave breaking the zero-to-two trend line. In fact, in this count you can see from the channel that minute wave ((iii)) exactly lives up to that guideline. Yes, it is not a rule, but it is a guideline we would rather waves live up to than not. Also, there would be four more Intermediate sized waves in the near future to show divergence with that advance-decline line.

So, that's the rationale. We can see both sides of this coin, but clear and unequivocal reasons are provided for preferring one over the other. The real item of interest is that in either the Intermediate Wave (4) wave in the Alternate, or the Intermediate wave (2) in the Preferred count, it is very likely that that down wave could have the form of a zigzag! And that is the amazing part. And that is why the ES 8-hour count published previously may be taking the form of the downward expanding diagonal that we have been showing for weeks now - because in a true zigzag, a real minor A wave is needed - made up somehow of five minute-sized waves.

But, the most important thing is that it is regular Elliott Wave analysis. There is nothing mystical about it. There is nothing mysterious about it. There is nothing here that doesn't already appear in two or three books, and a couple of videos all of which are available for only modest cost or no cost.

Are you learning your Elliott Wave? We hope so. Can we be wrong? You bet. But when we are, you hear it here first - along with why!

Have a great rest of the weekend.
TraderJoe

SUPPLEMENTAL: At the request of a comment that asks good questions, I am posting these two one minute charts from the live chat room  that were done in real time.

SP500 1-Minute April 21 1546 PM ET

The first chart shows the detail that is possible today with good measuring tools and speedy equipment. At the time of posting this in the live chat room, I intentionally left all of the wave marker data on the chart, so a person could see that the measurements are exact for an expanding diagonal. Wave ((v)) is longer than wave ((iii)), which is longer than wave ((i)), and wave ((iv)) is longer than wave ((ii)), overlaps wave ((i)) but does not travel beyond the low of wave ((ii)). They are all three wave internal sequences that look like zigzags to me because they don't have "pull backs" in them.

But, this is  the key to me, if it is really a diagonal that I had identified, and not a series of one's and two's higher, then, it should have - as a prediction - at least a deep retrace if it is a Leading Diagonal wave up, or a failure lower if it is an ending diagonal. And here is what the result was ...

SP500 1-Minute Chart April 21 1559 PM ET

Well, there it is! Another Elliott Wave prediction come true. So, please be careful about criticizing building up larger fractals from smaller fractals because they are definitely there! But, stop being amazed there, and think. Look at the very top of the wave in the first chart. You notice that I did not call ((v)) done by placing it on a wave bar? That was because I couldn't find an ending formation yet.

And when you look at the second chart, what do you notice? C'mon now. There is a perfect little ending contracting diagonal for the (c) wave of ((v)). I just didn't draw in the trend lines. Can you?

Last Chance 4th Wave

In yesterday's post, I noted that trading below 2,335 in the S&P cash would start to signal a problem, and the count of a diagonal in the major indexes. Today, I'd like to show you where that calculation comes from.

The S&P500 4-hour chart below, now has the needed 120 - 160 candles to be indicative of The Eight Fold Path methodology. It actually has 185, but any lower time frame results in too many candles, and any higher time frame results in too few. The count below is one that was established as an alternate on the ES E-mini S&P 500 futures. This is just the extension of that count to the future.

At this exact point in time, it should be seen as an "equal alternate" to the counts shown yesterday.

SP500 4-hr Chart : Last Chance Fourth Wave?

The rationale for this potential count is that usually, most-often, fourth waves and second waves can travel a similar net amount. The black rectangle shows the total number of points traveled in wave 2, from low to high. And, the blue rectangle is just a copy of the black rectangle and shows a near exact measurement for a wave 4 at this level. This morning cash hit 2336.45, narrowly missing that 2335 level.

This count would provide the needed alternation for an impulse, as wave 2 would be the sideways holiday trading, counted as a double combination w-x-y, with the y wave as a triangle, and wave 4 would be a sharp - and simpler - (zigzag) correction.

At a level of -16, the Elliott Wave Oscillator is just  barely hanging on to a -40% of the peak of +40-2 on this chart.  A UBS strategist said it well this afternoon (paraphrase), "the market has decided to make this vote on health care the decider as to whether a further correction begins here or not".

In this count wave 3 is shorter than wave 1, so a wave 5 would have to remain shorter than wave 3. And, by way of invalidation, in no case, could a wave 4 overlap wave 1 (in this count).

As I said in my weekend video having clear alternates - and clear rationale for them - is an item that helps keep an Elliott analyst's ego in check. Breathe. Enjoy. Stay patient and flexible.

Have a good evening.
TraderJoe

Anything look familiar?

If you watched my weekend video, you might see some patterns here that look familiar. If not, might want to watch it a second time - with popcorn!

SP500 Half-Hour : Patterns in a Potential Triangle

By the way. We know that the five waves up to (c) at 2389.70 on FED day, Wed, March 16th, were, in fact, an ending contracting diagonal - as we had surmised in live chat - because the start of that diagonal has been exceeded lower. Now, it looks like we have another contracting diagonal lower.

This suggests in the very short term the next move will be up, then down. A triangle is not a certainty. It is only a probability until it proves itself.

Have a good evening!
TraderJoe

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