Higher High Day & Invalidated Triangle

Market Outlook: Probable Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle 
FED Posture: Quantitative Tightening (QT)

One of the clear reasons that we caution that triangles and diagonals are patterns that must prove themselves is in relationship to a day like today. Overnight, the ES 2-hr triangle had the potential to complete and complete properly. In the last wave, the potential (e) wave, the pattern was invalidated, and a short squeeze was on.

That leaves us with only three-waves down on the daily chart. Sad, but true. Let's eliminate from consideration everything on the daily chart, except this down wave, and what comes after wave 5.

S&P500 Cash Index - Daily - Only Three Waves Down

The Elliott Wave Oscillator (EWO) remains much lower.

It should be clear that so far, there are only three waves down. Could a fourth and fifth wave form? Yes.  But given the length of today's rise, a straight-forward downward impulse is now tougher to do.

Could price find resistance at the back test of the channel? Yes. 

Could the first three waves down be the start of a downward diagonal? Yes. 

Could they only be a second wave of a larger move upward? Given only a 62% retrace to the low, yes, but harder at this time to see how. Therefore, it is lower probability. (See note below!)

This is just one of those situations where one has to wait for more information, and to see what happens, if and when price back tests the channel and interacts with the EMA-13 and EMA-34.

Have a good start to your evening.
TraderJoe 

(P.S. Revision after the close. I measured this down wave, it is much, much larger in the cash market than Minor 2, at the election low. Therefore, by degree labeling, it would likely be incorrect to put a 2, or (ii) at the October low.)

No Higher High Day, Yet

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

From the Friday and weekend posts, you will have read we are expecting a consolidation at lower levels. So far, we are getting that, and it tilts the odds in the downward direction - at least temporarily. Below is a continued chart on the ES E-Mini S&P500 Futures, so you can see that, as of now, nothing has changed.

ES E-Mini S&P500 Futures - 2 Hr - Potential Running Triangle

As of this writing, a potential running triangle remains in tact. Today it found upward resistance on the upper edge of the declining Elliott parallel trend channel, and was attacking it as we delineate in The Eight Fold Path Methodology.

The triangle remains a potential. It must prove itself in every detail. There is already one way to count such a triangle as complete. Just slide the (c) wave over to the 12 Oct high, and slide the (d) wave over to the 12 Oct low. That would leave today's high as the (e) wave - which breaks no rules or guidelines. The reason it is labeled as above is that this looks better in the cash market. So, the (d) wave could still break down a bit, and then an (e) wave upward take over.

Kindly remember three details of potential running triangles. First, the upward (e) wave must overlap wave iii wave. If the (e) wave ended today, it does this already. If it ends, tomorrow, such an overlap would be expected. Second, running triangles, with their lower (b) waves are bearish structures - at least temporarily. Running triangles with their higher b waves are bullish in bull markets. Running triangles with lower b waves are bearish in bear markets. IF this triangle completes successfully it will be giving us a very big clue. (This is not trading or investment advice - just a description of how running triangles operate in various markets, as best I understand it). Third, and finally, the usual technical analysis target for a triangle is the widest width of the triangle added to the breakout point, or breakdown point in this case. If this occurs, it would target at least a new low from the current triangle width.

So, stay tuned. Let's be patient, flexible and calm, and lets see if a triangle forms properly, and if it does, then does a clean lower low form for a fifth wave down?

Have a good evening, and a good start to the week.
TraderJoe

Elliott Wave Video

As I haven't done one of these in a while, I thought I'd post a video now to review some milestones on quite a long journey. The journey isn't over. I still have more to learn and to discover. But, I thought you might enjoy this now. After you click on the video you can enlarge it to full screen by clicking on the [  ] full-screen button.

Further, I hope this video will encourage a 'new generation' of Elliott analysts to dig into the specifics of wave counting, and help make it more scientific, and less vague.

Have a very good weekend, and leave a comment or a question if you liked the video. Most importantly, tell your friends to help spread the word, and support the blog.

Have a good weekend.
TraderJoe

Inside Day

Market Outlook: Probable Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed higher
SPX Candle: Lower High, Higher Low, Higher Close - Inside Candle 
FED Posture: Quantitative Tightening (QT)

Yesterday, we suggested readers and wave counters might look for an inside day - a day of consolidation. That is what we got. Here it is, using the daily ES E-mini S&P Futures just to insure all prices are included.

ES E-mini S&P500 Futures - Daily - Inside Consolidation Day

Here is a continued count on the down wave, using the two-hourly futures, the chart starts on the left with the Leading Contracting Diagonal we identified in near-real time for you on the S&P500 Cash 15-minute chart. Then, it continues with a complex wave 2 correction as w-x--y, where only the y wave is a triangle (allowed). Next, there is the long and strong third wave, 3, in five sub-waves, and now a consolidation, likely for wave 4.

ES E-min S&P500 Futures - 2 HR Chart - Downward Count

So far, prices are still channeling well. The next expectation of an impulse lower is for prices to attack the upper channel boundary, and possibly push it out a bit. Right now, the internal structure of wave 4 favors a triangle, as this might help equalize the size of the wave with the size of wave 2, which is quite small. It is hard to be more definitive about which wave of the potential triangle we are in because it's hard to determine yet, if one leg is more than a simple zigzag. IF we are making a running triangle - then just as running triangles were bullish on the way up - they are bearish on the way down. Again, a triangle is a structure that must prove itself, so it needs to form properly in every detail.

Again, under no circumstances can wave 4 up, overlap wave 1, down, and have the wave remain an impulse.

Let's see how it goes. Have a very good start to your evening and to your weekend!
TraderJoe

Lower Low Day & Overlap

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

If you have not seen this morning's update on Crude Oil, you can view it below this post. In the equity markets, today was a lower low day, some consolidation, and a further lower low. From the standpoint of an impulse wave, the overlap means that the impulse ended with the earlier description we discussed yesterday. We'll show that count on the daily chart, below.

S&P500 Cash Index - Daily - Terminal Count

Nothing breaks the rules in this count, but from Minor 4, there are only 105 candles, not the required 120 - 140 needed to follow The Eight Fold Path Method. So, we conclude this wave just doesn't follow it.

Although there are other ways to count the index to a new all-time high, they would both be diagonal counts. One would be a contracting diagonal, with this as wave ((ii)), lower. And one would be an expanding diagonal, with this as wave ((iv)) lower. And, they both would rely on prices first breaking 2,900 on the upside.

Because of that and the fact that there is already a clear diagonal on the daily chart, above, the odds favor further downside (this is not trading or investment advice). Also, there can be no suggestion of a turn higher until there are candles on the chart that have higher high days. Right now, the candles have lower lows.

So far, the downward wave looks best counted as three waves down. Let's see if there is a consolidation for a fourth wave, and a fifth wave lower. If so, that would likely rule out one upward diagonal scenarios. In the case of the expanding diagonal, in no case could the current minute ((ii)) wave be exceeded lower. In the case of the contracting diagonal, of course, in no case could the Minor 4 be exceeded lower.

I will not be writing about diagonals again until or unless prices close above 2,900. They are possible, but they fight the odds at this point.

Have a good rest of the day and a great start to your evening.
TraderJoe

Possible Top in Daily Crude Oil

This is a morning post before the stock market opens for the day.

If you examine the daily chart of Crude Oil using the EMA-34, and some trend lines as a guide, it is possible that we have a top in Crude. Here is a chart.

WTI Crude Oil Futures - Daily - Possible Top

The Elliott Wave Oscillator has a very characteristic converging triangle signature. It would be a "running triangle" in this case. The daily EMA-34 weaves through each of the triangle's waves for good form and balance, and the minute ((e)) wave overlaps Minor wave 3, as is required from a running triangle. Further, triangles 'usually', 'most-often' precede the last wave in the series, up, in this case, and that may be what happened here.

Validation of a likely top would occur if CL makes a 1.618 or more extension from the first wave down off the high, and if the minute ((e)) wave is exceeded lower.

Have a good day.
TraderJoe

Back to prior fourth Wave

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

Over a week ago, we made the case for a daily ending contracting diagonal in the cash S&P500 Index. Today, that case was proven out in that the start of the diagonal was taken out lower in much less time than it took to build the diagonal. The daily chart of the cash S&P500 below shows that count and that level.

S&P500 Cash Index - Daily - Larger Daily Ending Diagonal Proven

At the end of last week, we made the case for a 5:3:5:3:5 Leading Contracting Diagonal in the S&P500 Cash 15-minute chart. We made the case, that because of the structure, it could not be an ending diagonal. Today, as you probably know, the case for that diagonal was also made clear, as lower lows have followed it (and how!). The Dow closed lower by some 831 points.

Last night we made the case that a larger b wave could occur if prices popped up out of what looked like a triangle on the futures. But, we also cautioned very strongly 1) that the risk of an incorrect wave count in the short term was growing, 2) that the proposed triangle could morph into a different structure, and 3) that we couldn't predict the exact extent of the b wave . As it was the retracement was only 38.2%. You had to be watching the pre-market around 8 AM to see it happen, but an upward triangle invalidated to the down side, leaving only a downward triangle in it's entirety, or a 1-2-(i)-(ii). We will show you what we mean.

ES E-Mini S&P500 Futures - 30 Minute - Possible Triangle b wave

One problem in identifying this wave, is that not all of the triangle happened in the real market hours. Therefore, it is very possible to count the high micro ((A)), as just a second wave. But, within the triangle ((B)) remained above a, and ((D)) remained above ((B)) and ((E)) remained below ((C)). One had to be flexible enough to completely reverse their view - which is one of the things stops and invalidation allow.

Having said all that, days and days ago we put the alternate wave (v) marker on the chart, because there is one slippery way still to count the indexes to a top. Just back up minute (iv) to mid-August, and minuet iv to Aug 3. 

Further, we have placed a clear warning on daily chart. The current down wave is long enough that it has now overlapped the x wave of minute (ii). That violates an Elliott Wave guideline but not a rule.

Let me be clear, the only way the bull market can rescue itself from here as an impulse is to immediately form a triangle for minute (iv). These violent down waves could be consistent with that outcome. Yet, the momentum is still pointing downward. There is no sign of a turn as of the close. And once again, the risk of incorrect wave counts is high. Very high.

For a continued impulse wave upward, in no case can there be overlap on wave (i), and consider that an impulse is still in tact. We will have to see if an impulse is ruled out in the next couple of days. If it is, we'll address it.

We were expecting the Elliott Wave Oscillator on the daily chart - which was red and declining - to hit the zero line or go below it. It did. Now, how low will it go?

Have a good evening.
TraderJoe