Potential Up Channel

Market Outlook: Interim or Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed lower; NAS, DJUtil higher
SPX Candle: Higher High, Higher Low, Lower Close - Doji Candle 
FED Posture: Quantitative Tightening (QT)

Today started out with the futures having made a deep overnight low, and an overlap of a prior wave. The DOW cash did the same.

There is still barely a potential up channel for a possible b wave of minute (iv). The channel appears in the chart of the futures, below.

ES E-Mini S&P500 Futures - 30 Minute - Possible Up Channel

The a wave is the end of the diagonal we have been writing about. Now we might get a zigzag upward. That would be a very common structure. The whipsaw action in the middle might be the (b) wave of the b wave. The triangle may not be done yet. It may be trying to waste time to insure there are more bars time-wise in the up move to b than in the diagonal down move.

The triangle isn't the only possible structure for an internal (b) wave, or it's structure could morph by quite a bit, so a lot of caution is needed in wave-counting.

Have a very good start to your evening.
TraderJoe

Degrees Do It Again!

Today's post is occurring earlier than typical; it's just after noon on Monday. If you read the very cogent discussion begun by Marc Spungin in the comments section yesterday on degree labeling, you see that I said that based on only one concept - that of degree labeling - that I thought it was highly possible for the averages to make a new lower low today. Let's examine why.

Here is yesterday's chart of the cash S&P500 Index on a 15-minute time scale. It "looked" impulsive, and has a gap in the right place for an impulse wave. But that is not the whole story.

Incorrect Count - S&P500 Cash - 15 Minutes - Degrees are Wrong!

If you look at the above chart, here is what's wrong using the concept of "wave degree". The supposedly smaller degree wave (i), which is supposedly a sub-wave of wave 3, is larger in points traveled than the entire wave labeled 1! Wave 1 is shown, incorrectly, as a larger degree wave. So what might have looked good in the heat of battle, on calm reflection and review must somehow be incorrect.

So, now that we have the lower today, we have a much better wave count - which we predicted in advance - that can both be shown to you (in near real time), and a clear demonstration of why degree labeling helps make predictions about the course of prices. Here is the corrected chart.

Correct Count for Wave Degrees - S&P500 15-Minute - Leading Diagonal

First on the left hand side of the chart, the corrected degree labeling shows why Neely is such a proponent of a truncation for the ends of significant waves. The degree violation clearly allows one to assess that all of the mid-day hash on 03 Oct was just part of the truncating wave sub-minuet v of minute (iii)! Then, the five smaller degree waves (i) through (v) can clearly make up the larger degree wave 1 (still not sure if this is micro or sub-minuet, but that is not relevant to this example). Then, the large zigzag for wave 2 is much, much larger in points than wave (ii), so this must be a higher degree wave 2. We have already explained the five smaller degree waves now shown inside wave 3, and then over the weekend we measured what is now wave 4 to be smaller than wave 2.

So, we have wave 2 and wave 4 both as sharp zigzags (no alternation), and wave 4 is smaller than wave 2, and wave 4 overlaps wave 1 at the red line. These would be the requirements of a 5:3:5:3:5 Leading Diagonal "a" wave lower. 

What made the prediction possible that we would see a lower overall low today was the fact that in a Leading Diagonal the fifth wave may not fail. And it didn't! The lower low is shown.

Finally, we now have the requirement that wave 5 must remain shorter than wave 3, or else the wave is impulsing, not forming a diagonal (or the diagonal is extending to form a larger 3:3:3:3:3 leading diagonal). So far, the Elliott Wave Oscillator is diverging as it typically does during a diagonal.

Let's see how it goes. We are very, very grateful for having had the opportunity to show you the importance of getting wave degrees correct in near real-time. It led to a correct prediction, and the whole point of Elliott Wave analysis is that, within certain limits, it should be predictive.

You see, the impulse count would have predicted a retracement higher today. The more likely diagonal count predicted lower lows. That's a pretty big difference in views.

P.S. Update after the close. After the low of wave 5, of the leading diagonal, an up wave began and it HAS broken the declining diagonal trend line by quite a bit. Therefore, it appears the b wave up is underway. Again, it can be a zigzag or multiple zigzag, a flat, or a triangle. Most likely it would not be a triangle since we just had a diagonal.

Have a good Monday.
TraderJoe

Onset of Minute (iv) Confirmed

Market Outlook: Interim or Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed lower; DJUtil higher
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle 
FED Posture: Quantitative Tightening (QT)

Yesterday we indicated that a lower low today would result in a countable impulse wave lower, depending on the reaction to the employment report. A lower low day occurred after stocks popped and hesitated at the open. First, here is an intraday chart showing how this impulse was counted in real time.

S&P500 Cash Index - 15 Minute - Classic Impulse Lower

Of interest, the gap is clearly in wave (iii) of 3. Further, wave (v) of 3 was identified in real time as a potential ending diagonal wave. And, it turned out to be just that. How do we know? Because wave 4 more than fully retraced the diagonal, and did it in fewer bars than the diagonal took to build.

Wave 2 was a very sideways flat wave, and wave 4 was a sharp zigzag for excellent alternation. Within wave 5 the five clear sub-divisions can be seen but are not labeled. And, there is a five-minute diagonal for wave (v) of 5, if you look at it on that time scale. That diagonal has also been proven out.

The key signature that we look for is the Elliott Wave Oscillator diverging on wave 5, and that is quite clear even on this 15-minute chart. The wave is roughly parallel, with a little undershoot in wave 3 - just as we always expect to indicate where the greatest downward momentum is, and a little overshoot for wave 4. The overshoot for wave 4 indicates the "attack on the Elliott parallel trend channel" I have written about many times before. Wave 5 met a Fibonacci projection of 0.618 x net (1 through 3) once the bottom was broken. That is the second most common target for an Elliott fifth wave.

That's the good news.

The bad news is that this is likely a minuet "a" wave of minute (iv) as some key levels were not broken on some of the charts. (Or it is the sub-minuet "a" wave of a triangle's first leg). And that most likely means a b wave will follow it. And the b wave can literally be "any three" from a zigzag or double zigzag to a flat or even a triangle itself. Good luck in calling that one! A target for wave b? It could be anything from 23% - 78% retracement, so I simply won't guess.

Here is the daily chart again to show that the Elliott Wave Oscillator continued as red and declining today, but is still above the zero line.

S&P500 Cash Index - Daily - Impulse Lower

Keep in mind that even though the channel is currently drawn as it is, wave minute (iv) can easily travel back down to the level of minuet wave iv.

I hope these updates have been of some help.  If so, leave a comment, or more importantly help spread the word to others.

Have a good start to your evening and to your weekend.
TraderJoe

Minute (iv) - or worse - Likely Underway

Market Outlook: Topping Process Underway
Market Indexes: Major U.S. Equity Indexes closed lower; DJUtil higher
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle 
FED Posture: Quantitative Tightening (QT)

Yesterday we said to be on the watch out for a truncation because the margin was razor thin (only about -2 points) between a trend change and a sub-dividing wave c of minuet v of minute (iii). In the overnight futures markets, it quickly became apparent that margin of error was not going to hold. So, it is likely the minute (iii) wave topped last night, and as we showed before, the minute (iii) wave is a 161.8% extension on wave minute (i) to within points. Here is the daily chart again, with that key measurement.

S&P500 Cash Index - Daily - Gap Lower

It was only wave minuet v, of minute (iii) that had a slight truncation, and only by a point - completely acceptable given that the Dow did make a new all-time high, yesterday. Today's gap lower will likely continue the process of the Elliott Wave Oscillator moving lower toward the zero line for minute wave (iv).

Now, it would be common for minute wave (iv) to get down into the vicinity of minuet iv. Minute (iv) has already contacted and broken the EMA-34 indicating that as a minute (iv)th wave it would have good form and balance. But, it could have farther to travel lower. How it gets there is anyone's guess, and this is part of The Fourth Wave Conundrum, yes, which happens at every degree of trend. What we can say is that since the x wave of minute (ii) "went over the top", then the b wave or x wave of minute (iv) should not go over the top in order to show good alternation. So far, so good.

From the standpoint of an internal count from the high, so far there are only three waves down. By making a lower low tomorrow, the market could impulse. By making a higher high than today's bar, before a lower low, maybe a double zigzag lower becomes a possibility or a larger triangle. The Payroll Employment report is tomorrow, and the market's immediate and longer term reactions will be telling.

We have also cited before that the risk of making an incorrect count decision here is growing rapidly. So, last night's high has also been listed as the alternate wave minute (v), and the end of the entire bull market in a slight truncation.

One thing is for certain: the market left a gap today (see the last red circle). Inquiring minds have to ask why. Why not a key reversal at the all-time high, for example: is that coming up in our future? But that is just one of the reasons why the red count is currently the alternate count, and not the main count.

Have a very good start to your evening.
TraderJoe

DJIA new all-time high, not S&P500

Market Outlook: Topping Process Underway
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle 
FED Posture: Quantitative Tightening (QT)

No chart update today. Yesterday's chart still applies. Today, the market as measured by the S&P500 made a higher high than the (b) wave of the triangle. That implies we are now in minuet wave v of minute (iii). This is supported by the higher high on the Dow Jones Industrial Average. IF the S&P500 had made a new all-time high, it might strongly suggest the vth wave was over. But such was not the case.

Today, prices "popped, then dropped", but still closed positive. This suggests that sub-minuet wave c may be sub-dividing as micro .i to .v and, if so, the wave should not drop below the (e) wave of yesterday's triangle. The low of the triangle was 2,919 and today intraday low was 2,921; so there is a razor thin margin between the up move continuing and a trend change.

This further sub-division of wave v is an option and does not need to occur. The high could have occurred with a truncation today. A lot depends on the reaction to the employment report on Friday. Let's continue to take it step-by-step and have the patience and flexibility required of the topping process.

Have a very good start to your evening.
TraderJoe

Dow New All-Time-High & Russell New Monthly Low

Market Outlook: Topping Process Underway
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Lower High, Higher Low, Lower Close - Doji Candle
FED Posture: Quantitative Tightening (QT)

That's right. The DJIA made a new all-time-high-today. And the Russell 2000 futures made a new monthly low. And the S&P500 was caught square in the middle, closing nearly unchanged. In Monday's post, we said that it was possible a triangle was forming. It is still possible. In fact, the minimum requirement for a running triangle to already have formed was met today. The intraday chart of the S&P500 is below. 

S&P500 Cash Index - Half Hourly - Triangle Complete or In Progress

On the right hand side of the chart are the five overlapping waves of one proposed triangle, (a) through (e). At the end of the day, the last wave (e) in this version both downwardly overlapped the a wave - as required by a running triangle - but also stayed above it's own (c) wave. So, it's possible the triangle is the b wave of minuet v of minute (iii).

If there's a criticism of this proposed triangle, yes, it may not be symmetrical enough. And with a major report due at the end of the week, the triangle might "fall apart" lower by cracking through the current (c) wave in order to move sideways, and take more time. That's what triangles do. In that case, drop the lower trend line below the (c) wave. (Once again, triangle are patterns that must prove themselves, so an eventual break above the (b) wave would be required at some point).

Still, it depends how quickly the market wants to get the upward wave over with to end the contracting diagonal for wave minuet v of minute (iii). That's not up to me. I just try to count waves.

Again, upward momentum in these 500 large-cap stocks continues as awful, switching positions with the Dow which is the high-flyer at the moment. Small caps are declining, and riding their lower daily Bollinger Band as of now.

Let's continue to take it one step at a time, and see if the pattern becomes more symmetrical, even though there are no broken rules in the above pattern.

Have a good start to your evening.
TraderJoe

Topping Process Underway

Market Outlook: Topping Process Underway
Market Indexes: Major U.S. Equity Indexes closed mixed
SPX Candle: Higher High, Higher Low, Higher Close - Doji Candle
FED Posture: Quantitative Tightening (QT)

U.S. equity market upward momentum continues to be just awful as we wrote about on Friday. As far as I can tell, it is time to consider that the topping process is underway. Today was the first day of the new month. As I have written about several times before, this is often the day that sees inflows from pension funds, 401k's, company bonus plans, stock dividend reinvestment plans, etc. Today was no exception - at the outset - and then it faded. This is in stark contrast to the rollicking days of the bull-market when the the close would be near the high of the day.

Stocks as measured by the cash S&P500 Index had closed Friday at 2,914. With the cash inflows aided by trade agreement news, the futures were higher overnight. The green up fractal (shown as ^ on Friday's chart and below) was exceeded higher, and a new up wave confirmed to have begun.

The cash market opened up (+12) at 2,926, and traded higher to 2,937 (+23) until 10:30 am. At that point, the market began a choppy down trending wave to 2,918 (-19) ran into the gap up area and began overlapping prior waves. The gap was not fully closed in the S&P500; it was in the NASDAQ 100, and the S&P500 wound up closing higher by about +11 points overall. Some would consider that not too bad a day. What makes it so poor is the overlaps, and the other market averages.

While the Nasdaq 100 Futures made a marginal new all-time high (which we said we could easily find a count for), the Russell 2000 futures actually made an outside reversal day down! Neither the DOW nor the S&P made the new all-time high, today as the Nasdaq 100 did.

Here is Friday's chart again.

S&P500 Cash Index - 15 Minutes - Overlap

We had shown you the Coiling Price Squeeze. The breakout was to the upside. There is a clear three-wave sequence up from 28 Sep to today's open. Then the overlap. It's possible we are now getting a 'final triangle' before wave v of minute (iii). Remember, we are counting this final wave as a diagonal. So we need .a, .b and .c up to complete it. If the run up to 27 Sep at 2727 is .a, then it is possible we are getting a triangle as a .b wave. And that is just one possibility. The .c wave of v as a diagonal itself is another one that comes to mind.

The key point is that the market is not impulsing; instead it is overlapping, and that is as real a caution flag as I know. I don't think the market truncated today, as the downward price movement overall was quite meager. But, those are just thoughts, and the market has been known to out-think me.

It's possible in a week or two we might be looking back at some price bar and saying, "that was a top" from a wave-counting perspective. (Remember, nothing here is to taken as trading or investment advice).

Have a very good start to your evening and to your week.
TraderJoe