Down Channel May Breech

Here's an early post today as we get ready for the FED meeting, decision, and post-decision conference - not to mention the holidays.

SPX 15-Minute - Down Channel Can Count as a "Five"

This 15-minute down channel can be counted as a "five wave" sequence due to lack of overlaps, gaps in the third wave, and a fifth wave that equals the first. Today has the potential to breech the channel to the upside.

After close: the down channel did breech to the up side a little bit. But then prices made a new low. So I am posting this longer term chart after the close to keep the wave degrees correct. There have been no degree violations in this count that I can tell.

ES E-Mini S&P500 Futures - 2 Hr Chart - From the Minute ((ii)) Top

From what I can see there is nothing bullish on the chart. If there is a five-wave up wave, it may only be to sub-minuette wave ii - if that didn't end already today. With the slightly lower low, it is possible that it is just the b:3 wave of a flat, but it doesn't have to be.

Have a good start to the day.
TraderJoe

Potential GOLD Pattern

Note: There was a post on Saturday, too. So, if you haven't see that yet you may wish to view it.

I haven't published much on GOLD recently, but I realize a number of readers follow it quite closely. It's with good reason I haven't published. The internals have been a bit overlapping and confusing. So, I thought I'd wait for some clarity as GOLD bumps up against it's 38.2% retracement of the April to August decline.

The chart below is a four-hour 'close only' chart, and there is a reason for presenting it this way. Again, I would like readers to concentrate on the form, measurements and time signature.

GOLD Futures - 4 Hr - Potential Diagonal

It would help to concentrate first on where the numbered 'five-wave sequences' are. Over on the left, there appears to be a clear five-wave a wave which 'goes nowhere'. That is, this a wave does not break the prior high. Then, there is another clear five-wave c wave up to likely the first wave of a contracting diagonal (i). Parenthetically, one might also note the fifth wave of c of (i) might itself be a small contracting diagonal, as a smaller fractal of the larger pattern.

Next, there is a clear 62% retracement downward - almost to the pip - in a startlingly clear three wave zigzag. Given the exact measurement, this is likely wave (ii).

This is followed by another a, b, c wave sequence up to a shorter wave (iii). And it is then followed by a wave that has already overlapped wave (i), up, in the downward direction. So, it it plausible it could be part of wave (iv) in a diagonal wave.

If wave (iv) forms as a nice zigzag, and there is a subsequent higher high, or near higher high then the potential exists for the proper completion of a diagonal.

Diagonals can be leading or ending. If a fifth wave zigzag forms, and it truncates - does not make a higher high - then almost certainly the pattern would be a contracting ending diagonal. If the fifth wave makes a higher high, then a guessing game begins between ending diagonal - which usually has the higher odds - or a leading diagonal, which is somewhat more rare.

And to focus on the time signature, note that wave (iii) is shorter in time than wave (i). So far, the pattern is fitting nicely in all aspects.

Part of the reason I have posted this chart is so that skeptics and cynics alike can see that using Elliott wave properly to analyze markets is not always like wandering around in the woods with a blind-fold on. Again, the usual caveat that diagonals and triangles are patterns that must prove themselves in every detail. Let's see how the pattern plays out. So, as always, patience, flexibility and calm will best help to analyze this market, too.

Have a good rest of the weekend.
TraderJoe

Spooky Action at a Distance?

This blog is about the stock market and wave counting, so please bear with this brief introduction.

Albert Einstein famously once railed against the new quantum physics model of the atom when it predicted that electrons could become 'entangled' and exhibit properties that seemed to require faster than light communication across vast distances, or that electrons could 'jump' between atomic orbitals in 'no time' - traversing a space or an energy level without actually passing through the distance or passing through the distance in 'zero time'. Further, the suggestion that electrons could pass across a physical barrier and just appear on the other side of it (in an effect known as tunneling) would have been profoundly troubling to him - if experienced in his time - as well.

Some of these apparently irrational, but yet observed, effects are now known to be due to the shared wave & particle (or 'dual nature') of the electron. Want to cause an electron to 'jump' energy levels in an instant? Just change it's wave 'shape' to one requiring more energy, and don't think of it as a particle at the time. Want to get an electron on the other side of a physical barrier? Just make the barrier thin enough so part of an electron's wave is on the other side of the barrier, and presto, there is now a probability of the electron mysteriously on the other side of the barrier - just don't think of it as a particle at the time.

While such effects might seem odd or arcane, much of modern life is literally built on knowing what is going on here. The transistor, the transistor radio, cell phones, televisions, modern electronic computer circuits, and even GPS depend on these effects. Further, present-day experiments are showing some degree of entanglement can occur on larger scales than originally thought. (See the brief article at this LINK.)

Clearly, these are mind-bending phenomenon for us as humans to consider. We are making progress, but it is slow. Einstein had some of the answers - but not all of them. And progress has been made. And certainly, we are becoming very good at using these effects - whether we understand them fully or not.

So, too, in the stock market. We will pose two questions for you. The first question is quite simple.

Elliott Impulse Wave Where Wave 3 is Shorter Than Wave 1

Given the diagram above, in an Elliott Impulse wave - where wave 3 is shorter than wave 1 - just how does that wave 5 know to be shorter than wave 3?

I mean what is this, predestination or something? Or are the waves 'in communication' with one or another? Or is there a mysterious man named Oz sitting behind a smoky curtain at the stock exchange pulling just the right levers that cause this to happen? Yet, there are example after example where the above is true enough and can be seen.  So how does it happen? Inquiring minds want to know.

If that first example isn't puzzling enough, here is a bit more complicated one but one that you can see today. Below is a picture of the stock market, year-to-date.

SPY S&P500 Stock Index ETF - Year To Date

Whether or not this pattern gets 'activated' by trading below the neck line of the pattern, please tell me how the stock market knew to trace out this partial or complete diagram of a near-perfect head & shoulders pattern - just as it is described in Edwards & Magee.

Note that the two shoulders shown here are almost exactly the same height.  How did that happen? And notice that the volume dipped in the left shoulder, rose on the decline to the neck, and then volume all but dried up in the head formation. Further, volume increased again on the decline from the head to the neck - just as described - before volume fell off again on the right shoulder.

Again, whether this pattern activates to the downside, or whether is another larger right shoulder to make to match up with the even larger left shoulder remains an open item. The question is, "who or what is drawing such patterns?" Is it you? It's not me. How does such a pattern know to form?

It is a very good thing that - so far - we don't have to know every detail of the mechanism in order to put it's possible implications to use. But - just like serious physicists - serious market students may have something to learn by asking such questions.

Have a great weekend.
TraderJoe

Count - 2

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

Yesterday's chart was predictive of today's down move. That is the very purpose behind the exercise of Elliott Wave counting. Sometimes it is predictive - other times like when in the midst of corrections it is less so. With that in mind, let's again display the ES 2-hour chart.

ES E-Mini S&P500 - 2 Hours - Channel

So far, the channel is working well to constrain prices. But, even though there was a substantial decrease in prices, you can see for yourself the down bars do not have the individual impulsivity of the initial bars lower.

So, a lot will be dependent on the gap direction on Monday, and any subsequent follow-through. If the gap is lower with lower follow-through, then it becomes possible we are in sub-minuet i of minuet (iii), lower.

But, if there is a small gap down and reversal, and prices climb up over the declining trend line, we must allow that today's down movement is only a three-wave b wave. With a c:5 wave up yet to follow. The purpose of such a wave would be to make minuet (ii) longer in time than minuet (i). That is common, and it would be OK with me if that occurs.

The market, as measured by the S&P500 cash index came within 0.10 of that 90% level downward. That should be close enough for all intents-and-purposes, but it could also make the 90% level on Monday.

In this kind of environment, it helps not to be too dogmatic or to have too many expectations. In that light, we need to let the market speak here in the short run. So patience, flexibility and calm remain the by-words of the time.

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

Count

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

Thanks to Erik B. from the group we were discussing wave counts with here on line. He pointed out a degree violation at wave w below, which meant that we have revised slightly only the position of where the minuet (i) is on the chart. We were trying to count the flat. It did not work this morning, as the downward wave got too long in time and in price. The degree violation is that w is larger than ii, and could not be a sub-wave of a c wave, up. Good job, Erik!

The chart we are showing below is the ES 2-hour futures because your eyes can accept it better. 

ES 2-Hour Futures - Leading Diagonal Minuet (i) Down

In cash, there is also this possibility, but also the possibility of an 'expanding diagonal' down to the same location. Talk about ambiguous! In any event, the wave is still in a channel.  Today, 'ground and ground' lower.

Time to be on one's toes and be calm, flexible and patient. So far, things are adding up well as we adjust slightly.

Have a good evening.
TraderJoe

Count and Best Alternate - 2

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

If you have been following our blog, you know that we have counted wave minuet (i), down, and are trying to count minuet (ii), up. Based on the position of the Elliott Wave Oscillator on the fifteen minute chart, this is the best count at this time. However, risks of an incorrect count are exceptionally high in this wave. Anything could happen - including a government shut down. Therefore, we are posting the current count, and showing the best alternate in red.

S&P500 Cash Index - 15 Minute Chart - Potential Ending Diagonal

Today, we noted that the potential wave ((3)) has a lower high on the Elliott Wave Oscillator (EWO) and has made only a marginal new high. But still, it was a high enough high to suggest an uptrend. Prices broke down to the nearest 15-minute candle at wave ((3)), with it being approximately as long as wave ((1)). 

And if wave ((4)) is in place, or nearly so, then it is shorter in price and time than wave ((2)). A Fibonacci ruler shows that if ((5)) is just less than ((3)), it can crest over wave a, and avoid a truncation. Avoiding a truncation does not have to happen. The upward wave can fail, and must be allowed to fail.

Only because of the near equality in time between waves ((3)), and ((1)), and the fact that we are not yet out to the apex of a wedge, we are showing the alternate that wave ((1)) may have crested at today's high, with the other prior waves as just a zigzag of the new first wave. They are a little ambiguous. If wave ((1)) only occurred today, then a lower low would likely drive the EWO lower. So far, it has held well - near zero - for the diagonal signature in the main count. Also, there did appear to be a running triangle as wave B in today's wave ((4)), and that make have put the brakes on that wave.

And that remains why patience, calm and flexibility remain the by-words.

Have a good start to your evening.
TraderJoe

Count and Best Alternate

Market Outlook: Likely Long Term Top Identified
Market Indexes: Major U.S. Equity Indexes closed lower; DJTrans, NDX/NQ Higher
SPX Candle: Higher High, Higher Low, Lower Close - Yin-Yang Candle
FED Posture: Quantitative Tightening (QT)

If you have been following our blog, you know that we have counted wave minuet (i), down, and are trying to count minuet (ii), up. Based on the position of the Elliott Wave Oscillator on the fifteen minute chart, this is the best count at this time. However, risks of an incorrect count are exceptionally high in this wave. Anything could happen - including a government shut down. Therefore, we are posting the current count, and the best alternate at this time.

SP500 15-Minute - Ending Diagonal c wave of (ii)

For the count in the chart above, the B wave should try to hold along the up trend line, and there should be a higher high tomorrow. Overall, the above count is to an ending diagonal c wave to finish a flat for wave (ii). 

Now, the best alternate.

SP500 15-Minute - Y wave Failure

The chart above is the alternate because too many legs of the triangle would be as yet undetermined. Failure to make a higher high than (a) tomorrow would be telling, as would a (b) wave below today's low.

These are valid alternates, provided the (e) wave of the triangle closes above wave (i); the wave it is trying to correct. Remember, wave (ii) is never a triangle in it's entirety, and that is just what this chart shows. The triangle would only be the y wave of a complex correction.

The alternate would suggest the market is extremely weak, and might present another failure because of the potential power of a large third wave down yet to come.

Stay patient, flexible and calm. This is the hard part of the work!
Have a good start to your evening,
TraderJoe