We Tried to Prepare You

On April 28th - over two weeks ago - our post clearly indicated how "Sentiment Soared" and we asked, "who is drinking the Cool-aid now?". Then on May 13th we clearly stated in regard to the triangle count, "The immediate implication of a vth wave up (especially if it results from v = i), would be that a minute ((c)) wave down should occur as a five-wave sequence to end Minor 4."

Then, on Monday of this week we said, "Just keep in mind, the likely (now validated) triangle, and the deep nature of the Dow's wave iv both suggest a loss of momentum, and may be occurring just prior to the last wave-set upward. And keep in mind - since we are likely dealing with a pesky overall ((b)) wave higher - there would be nothing unusual if a truncation occur at or near the top since we are likely in a fifth wave already now." (Underline emphasis added.)

And with those quotes in mind, here is the update of the ES E-Mini SP500 Index 4-Hr chart.

ES E-Mini S&P500 4-Hr Chart Upward Count Completed

And it should be clear, that we are most likely in the minute ((c)) wave down of what will likely be Minor wave 4, on the daily chart.

So what about that Dow? In live chat we clearly indicated the truncation count in the Dow. It did fail to make that 90% level by just a few points, but, in our count, it does have five-waves-up, overall and we did provide a warning to you to expect just such a truncation in a squirrel-ly ((b)) wave count. And certainly, neither the S&P500, the ES, the NQ nor the Russell missed the 90% level - with them making new all-time highs.

DJIA 2-HR - Truncation in the Minute ((b)) Wave Up

We note now how devastating the decline is now that the market algorithms are on a "search and destroy mission" to fill the gaps.

We urged caution, patience and flexibility. We still do. Whippy market behavior is still expected as the $VIX is back up over the 15 level, today.

Take care, and have a good night.
TraderJoe

New All-time High Confirms Triangle Completion

Today's new all time high in the S&P500 verifies that "at least" a triangle upward has occurred properly in the cash index as well as the ES E-Mini S&P500 futures we have been showing you. Here is that triangle count on the futures, again.

ES E-Mini S&P500 Futures Potential Triangle

Today in the live chat room we added the EMA-34 to show how this triangle now has "proper form and balance" because every significant wave in the count is on an opposite side of the EMA-34. Notice that even the new ((E)) wave crossed downward over the EMA-34 to express this counting guideline, and how the ((E)) wave also crossed back down over minuet wave iii to show that it is corrective to it.

The futures have not made the new ATH high yet. They might tonight in the overnight hours. While we are waiting to see if that occurs, here is the same count in the SP500 Hourly Cash Index.

Hourly S&P500 Cash Index with Validated Triangle Shown

Regardless of the specifics, we have a wave that "has moved price sideways, taken up a lot of time, and occurred on low or declining volume". Besides the 3:3:3:3:3 structure of the zigzags in the triangle the previous verbiage describes the essential nature or personality of a triangle.

We note that while the DOW is making good progress in it's attempt to make the 90% level representing the possible minute ((b)) wave of a flat, it simply isn't there yet.  Here is the updated chart as of today.

DJIA - 2 HR - Good Progress on the 90% Level

Because the Dow has not made the 90% level yet, we may see more upward waves in this move. And if we do, that is fine.

Just keep in mind, the likely (now validated) triangle, and the deep nature of the Dow's wave iv both suggest a loss of momentum, and may be occurring just prior to the last wave-set upward. And keep in mind - since we are likely dealing with a pesky overall ((b)) wave higher - there would be nothing unusual if a truncation occur at or near the top since we are likely in a fifth wave already now.

Give it all some thought, and thanks for hanging in through some of the technical difficulties.

Have a good night!
TraderJoe

Update on Potential Triangle

Here is an update on the potential triangle in the ES E-Mini S&P500 4-HR chart. If this triangle completes properly, it may allow for a new high. And if a new high occurs in the S&P500 Index, then it might similarly allow for a new higher local high in the Dow Jones Industrial Average.

ES E-Mini S&P500 Futures Potential Triangle

Essentially, all of the requirements of a triangle in this index have been fulfilled. All of the waves internally overlap and wave ((E)) overlaps wave iii, downward, demonstrating that the potential triangle is corrective to it.

Wave iv would now be much, much longer in time than wave ii, and the triangle may represent the wave before the last wave up in both indexes. If the indexes do struggle to a new high, it would be one of the longest and most protracted upward  minute ((b)) waves on record.

The immediate implication of a vth wave up (especially if it results from v = i), would be that a minute ((c)) wave down should occur as a five-wave sequence to end Minor 4.

Still, however, this triangle is only a potential triangle. To be a proper triangle, it must demonstrate that price can exceed the high of iii before traveling below wave ((C)), downward, the invalidation point.

Potential triangles, being what they are can sometimes expand once. This means that, in the process of traveling sideways and taking up time, it is possible for the ((D)) wave to pop once higher, and to get an ((E)) wave a little further along to the right-hand-side. This would / will be OK if the ((E)) wave comes back down to overlap wave iii, again. If prices travel north without the return overlap for the ((E)) wave, then one simply assumes the triangle is over as of today. Usually triangles like this can be more symmetric, however, which is why we must allow for a higher ((D)) wave - since the bottom of the potential triangle is relatively flat.

The Dow Jones, on the other hand, can be seen to be in a regular FLAT for it's wave iv, with a clear lower low that the ES futures so far have just refused to make (twice!). A chart of the Dow as of the close on Friday is below.

DJIA - 2 HR - Wave iv is a FLAT

It is interesting, that within wave iv, but not overall, the ((B)) has made the 90% level of the ((A)) wave. We also counted the five-wave down expanding diagonal in the live in the chat room.

The reason for showing this chart is that it is possible that the DOW and the ES will synch up while the ES is in the triangle process. That is certainly a possibility providing that the triangle completes in proper order.

In case you are one of the individuals that is skeptical of wave counting, and / or Elliott wave work, here is a chart of the Russell 2000 ($IUX, on my quote service). Look at the beautiful, ending contracting diagonal that was formed for a C wave, upward, just before the Russell spilled to a fresh lower low.

Ending Contracting Diagonal C wave in the 5-Minute Russell 2000

In this clear example, wave v is shorter than wave iii, wave iii is shorter than wave i, wave iv is shorter than wave ii, wave iv overlaps wave i, but does not travel lower than the end of wave ii, and each wave sequence within the diagonal is a clear three-wave zigzag. Perhaps more importantly, wave i has it's crest clearly above the former high, signalling it's true motive character. This is way most contracting ending diagonals form. This is the pattern that should be looked for above all else before considering a true contracting ending diagonal.

It is clear from the above chart that price then rapidly and quickly retraced the entire diagonal (beyond the point marked as 0), in less time than it took to build the diagonal. This is a critical measurement and this diagonal passes that test, and how!

I hope you will keep this example in mind, because you will see beginning Elliott analysts that haven't quite grasped the concept yet, trying to call all sorts of waves that don't have their start over the prior high as contracting diagonals (when often they are just "b" waves of one degree or another).

That said, it is not at all clear that this observation applies to expanding ending diagonals. Just look at the DOW chart, above, and the expanding ending diagonal ((C)) wave of iv. It seems to me that because of the very compressed nature of the expanding diagonal, it almost assures that while wave (i) in an expanding diagonal will be recognizable for one of several reasons - such as traveling outside of a parallel channel, or making a larger recent retrace than previous ones. But, whether it exceeds all of the prior lows (in this case) of the prior wave certainly seems nearly impossible. Yet, wave (v) in this sequence has, and now price is currently above a declining diagonal trend line.

It is good to have the Google Blogger editor and upload service back on line - at least temporarily. Let's see if it stays that way, and have a great weekend.

Thanks for your support through the technical glitches.
TraderJoe

P.S. In order to see if file space limitations were involved in the technical problems, a number of blog posts with interim status were removed (and unfortunately can't come back). When deleting a lot of old posts and files did not resolve the issue, it told me almost completely that the issue was with the host. I tried not to delete the most important posts - such as The Eight Fold Path, and the Paraphrase of Ira Epstein's Guidelines for Trading.

SE - NC

No, not Southeastern North Carolina, SE = Some Evidence, NC = Not Conclusive. There is some evidence now of a possible very ugly triangle in the ES E-Mini S&P500 futures, as pictured below. Please click on the link (which is only to a picture on my main web-site).

Potential Triangle Count

If a triangle does form properly (and one may have already), then it would likely precede the "last wave up" in the ES and S&P500 - perhaps allowing the DJIA to make the elusive 90% level for the minute ((b)) wave of the flat. It is possible to count the up wave as .d and this morning's down wave as the .e wave, but the triangle is not yet conclusive as of this time.

It would be 'nicer' from the perspective of form & balance if a larger .d wave was made, followed by another .e wave down. But, this does not have to occur.

From the standpoint of invalidation, such a triangle would invalidate below the low of the .c wave.

Sorry I could not post the picture directly. There is some issue with Google Blogger that I am trying to resolve. It has resulted in less than timely posts.

If the problem continues, I will be forced to move all activities to my main web-site.

Thanks and hang in there,
TraderJoe

Sentiment Soars!

The percentage of bullish sentiment across multiple surveys of individuals, fund managers and letter writers normally moves at a snail's pace - sometimes changing only 0.5% or 1% at a time. This week, apparently on just the news of round one of the French elections, bullish sentiment has soared by more than five points.

The updated chart is below.

Weekly Bullish Sentiment Soars More Than 5 Points!

A change like this is almost unprecedented in one week. (Note that the 5 point drop off in sentiment from 60.5 to 54.4 occurred over almost six weeks!).

Someone is drinking the Cool-Aid again - within points of an all time high for the S&P 500. We hope it's not you. We also note some real anomalies like extremely low trading volume in a number of instruments - and just want to alert you to it. The chart below, of the ES E-Mini S&P 500 Futures shows this volume decline during April.

ES E-Mini S&P500 Futures Volume Decline in April

And CNBC Reported Friday that SPY volume might come in at the lowest of the year!

So, while there may be a few more up days in this current move, the lack of support by volume combined with the high bullish sentiment, above, may be indicating undue complacency. And, it is again interesting, that after it's new high, the Russell 2000 is again leading the way lower with a difficult day on Friday.

Further telling is a decline in readership and comments across a number of market-related web sites. It seems people usually get interested after the big movements have started, and not before.

Well, that's enough for this weekend. Enjoy the rest of it!
TraderJoe

Possible to Complete an Impulse for the Minute ((b)) Wave

With 127 candles on the chart, S&P500 30-min prices started attacking the lower channel line as indicated in The Eight Fold Path Method. This chart is shown below.

SP500 Cash Half-Hour Chart

This count does provide alternation for wave (ii) and wave (iv) in that wave (ii) is a running flat - where the x wave goes over the high by quite a bit. Within wave (iv), neither the ((B)) wave nor the x wave goes over the high. It is the lower ((B)) and x waves that provide that alternation.

With Monday possibly seeing the "beginning of the month" inflows from mutual funds, 401k's, dividend reinvestment plans, company month-end bonuses, etc, it is possible that a (v) = (i) wave will carry over the top to end the minute ((b)) wave upward. See the two black measuring boxes which are the same height.

The Elliott Wave Oscillator is in good position to indicate a fourth wave because it is within +10% to -40% of the high for wave (iii). And, it is clear we have indicated wave ((3)) of (iii) on the peak of the EWO, with ((5)) of (iii) on a divergence.

Further, if you measure the wave in this manner, you will find wave (iii) equals almost precisely 2.618 times wave (i). Today, we were expecting a 38% retrace of wave (iii), but, while close, that did not happen. It suggests there may be some strength on Monday. The primary word of caution would be that wave (iv) has not yet taken up as much time as wave (ii). Perhaps that is symptomatic of a minute ((b)) wave up, or it may indicate there is one more down leg to be provided by the overnight on Sunday. If the correction gets deeper, however, a (v) = (i) leg will likely not cross the high, and we might have to look to (v) = 0.618 x net distance traveled by waves (0 through (iii)), the common second target.

It turns out the DOW can be counted in this same manner, but, interestingly, the DOW has not made the 90% upward mark that the other indexes have. A new high over wave (iii) would allow that. Again, the reason we can count this wave up as an impulse is the Dow made it's previous sub-waves (a) and (b) ALSO as a flat, so this is minuet (c), as an impulse, to end minute ((b)), as best I can tell. The S&P500 is in exactly the same count.

Per our charts of Crude Oil in the last two days, Crude Oil did make five waves up from the low, with good alternation, and then began undergoing some corrective waves.

Have a great start to the weekend.
TraderJoe

Likely Bad News for the Dollar

Yesterday provided a lower low in the Dollar Index which has given it most of the required formation for a contracting diagonal lower. Here is the daily chart of the Dollar Index, showing that potential contracting diagonal.

Dollar Index New Low makes a Contracting Diagonal Possible

The lower low below minute ((iii)) now means that as a leading diagonal, the minute wave ((v)) lower has not failed. Remember, the fifth waves of Leading Diagonals may not fail, only the fifth waves of ending diagonals may fail.

Note, too, the slow stochastic is in over-sold territory, price is against the lower daily Bollinger Band, and there are two clear unfilled gaps shown in red.

Further movement down for the dollar is certainly possible, but to maintain a diagonal shape, then wave minute ((v)) must remain shorter than wave minute ((iii)).

During the day I provided this updated count of the Russell 2000 which accounts for the new all time high. It considers that we may still be in the 4th wave (count in blue) because the lower channel has not been contacted yet.

Russell 2000 Cash Index - Count that Includes new ATH

Many of you will recall I counted the Russell's move down in April as a contracting diagonal. That was a 'good call', as it was, in fact, a diagonal - an ending one. However, since the low of wave minute ((a)) was not exceeded lower that means the contracting shape at the top - which could have been counted as a diagonal - was not, in fact, an ending diagonal, but only a minute ((b)) wave. This is very often the case. And, yes, a flat or complex wave 4, would have good alternation with the sharp wave 2. But, because wave 3 would then be shorter than wave 1, then wave 5 would need to be shorter than the length of wave 3.

In the daily S&P500 cash index, I can provide only this 'partial' count from the low of Minor wave 2. I have taken great pain to follow the guideline that when a second wave retraces less than 38.2%, then it likely means the first wave is the extended wave in the sequence. The resulting count is below.

S&P500 Daily Cash - Interior Wave Only

So, within Minor wave 3, the count is simplified and streamlined now, and follows more rules and guidelines although a good Elliott parallel is not formed for wave 3. None-the-less, the count breaks no rules, and a 38.2% wave could be allowed for the minor wave 4. As of today, the S&P500 did hit and surpass the 90% mark in the upward direction that was needed to claim the three wave ((b)) wave upward. Remember, the signature of the upward ((b)) wave can be very messy. It could be the simple (a), (b), (c) shown, but if a true impulse is not made for the (c) wave, then the minute ((b)) wave 'could' be counted as a (w)-(x)-(y), as well. So far, though the upward wave is still in an impulse channel upward, so the (a)-(b)-(c) for minute ((b)) is more appropriate. If and only if the upward wave does not finish properly will we give it the latter designation. And, recall that, yes, the ((b)) wave can go over the top, with no issue.

Then, too - just like the Russell - a flat for Minor 4 will also alternate very well with the sharp wave we counted for Minor 2.

In Crude Oil, using the 2-hr chart, and The Eight Fold Path Method, it looks like we are coming to near end of a five-wave sequence downward, as the Elliott Wave Oscillator recently hit the zero line in the upward direction, as in the chart below (see the circle on the EWO indicator graph.)

Crude Oil - 2 HR - Nearing a Five-Wave Sequences

You'll note that there are now about 112 candles on the chart, and wave ((3)) of iii is on the low of the Elliott Wave Oscillator, and the EWO returned to the zero line for wave iv. While only more more new low - beyond ((X)) - is needed to prove out this count, there would be nothing wrong, and it would be good form, if wave v became as long in price as wave i, was.

Let's see how this works out. It sure has been odd to have Crude Oil and the Dollar declining at the same time. But, that is a perfect example of why I "consider every market in it's own count" and do not look to the correlations that periodically happen. Sometimes, those supposed relationships just vanish, too!

Have a good night.
TraderJoe