Swing Line Turns Lower Again

ES futures prices failed again at the 18-day SMA, and made a lower low day, turning the daily swing line lower again.

ES Futures - Daily - Lower Low Day

The count remains the same. The initial target is the lower daily Bollinger Band, and likely lower than wave Minor 3 in this count. We think we have made the minute ((a)) wave down of Minor 5, down, and likely have finished the minute ((b)) up wave yesterday, unless this minor ((b)) wave turns out to be a flat. But at this time there is no sign of that, we just mention it as the next best short-term alternative possibility.

The daily bias is still down, and the daily slow stochastic is not in over-sold territory making more downward progress that much more likely.

Have an excellent start to the evening.

TraderJoe

Russia Relief Rally

Yesterday's post suggested we look for upside sooner rather than later. There was a possibility of a more developed fifth wave down. That did not occur. What did seem to occur was a very negligible truncation which we also noted in the write-up. Thus, the count on the ES 4-Hr chart remains the same.

ES Futures - 4 Hr - Diagonal Count

The count from wave Minor 4 is that of minute ((a)), down, with the very slight truncation, and now minute ((b)) up. We must wait for the ((b)) wave, up, to burn itself out, and any lower low below minute ((a)) should start the minute ((c)) wave down of Minor 5.

This count gives us clear and crisp invalidation points at the prior Minor 4th wave high. And only good Elliott Wave analysis does that.

Again, Minor 5 only needs to be longer than Minor 3 in price, although it is ideal if it is also longer in time, too. And, here again, Elliott wave analysis provides the projected initial target.

Have a good start to the day.

TraderJoe

At some point expect a significant second wave, up.

ES futures made a new lower low day on the daily chart. That keeps the daily swing-line headed lower. Price remains below the 18-day SMA, and so the bias remains down. Today, on a shorter-term time frame we got very close to confirming five-waves-down, as shown in the ES 30-min chart, below, which now has about 100 candles on it, close to the 120 - 160 recommended.

The current wave is traveling within a parallel channel to a large degree. Today, it looked like a ivth wave running triangle (shown) had formed that met all the usual Elliott Wave rules for a triangle, and also had the right ending point on the Elliott Wave Oscillator (circled). IFF that is the case, then a lower low can be expected but also so can a pretty significant turn-around on this time frame, after lower lows. There are a couple of conditions: 1) we are assuming the wave structure did not truncate at this afternoon's higher low, and 2) technically, as long as price does not overlap wave i, down, then we can still be in fourth wave, iv. Such a wave could be a more complex structure. This is The Fourth Wave Conundrum and it occurs at every degree of trend. 

So, it might be worth watching the overnight to see if the 4,357 low is taken out or not or whether overlap develops. It looks like that wave ((1)), down and ((2)), up of five have formed. If so, a gap down in the over-night for ((3)) down, might later fill during the day on a turn-around Tuesday. There are no guarantees, of course. (None of this is intended as trading or investment advice - just a description of possible wave progress).

There is no way to reduce risk to nothing by wave counting, but the above chart, with 100 candles does suggest that if a fifth wave, v, lower forms it should do so on a divergence with the Elliott Wave Oscillator.

Happy Valentine's,

TraderJoe

The Big Boys are Playing

China is playing at hosting a winter Olympics without natural snow. Russia is threatening to invade the Ukraine without the support of the rest of the world, and the US Federal Reserve is threatening to raise interest rates and scheduled an Expedited Meeting for Valentine's Day (see entry at this LINK if you haven't seen it already.) For its part, the US equity market - as measured by the ES futures - said, "whoa", and headed lower. The daily chart is below.

ES Futures - Daily - Under the Line in the Sand

On the prior day's post, we showed what we think the structure of the down wave might be in two different levels of detail. And, in the prior post is almost a 'play-by-play' of an impulse wave down after three waves up into this morning. For now, we'll say that prices turned the daily swing-line lower, with lower highs and lower lows, and finished with the bias down under the 18-day SMA, "the line in the sand". The upper daily Bollinger Band has been steadily been creeping lower as each day progresses - looking for the point where it can wrap itself around prices. And the daily slow stochastic crossed lower from over-bought conditions.

All well & good. But, note too that there is also downward overlap now on the 24 Jan and 26 Jan up waves, and this seems to categorically rule out an impulsing wave upwards. Rather, it seems like the lower daily Bollinger Band might be a target for a market that has failed at the 100-day SMA and at the 18-day SMA.

We shall see, of course. At risk commodities (especially Crude Oil, and to some extent Gold) are currently moving higher. Yet, things could happen. There could always be an 11th hour deal with Russia. Or the FED might decide to relent on Monday. But, so far, these things have not happened. We're not sure they will. They seems to be signs of everyone in a global community playing their own games in their own silos. And so, the madness might continue while the common folk like us hope for better.

Have a good start to your evening.

TraderJoe

Potential Revision to Diagonal Count

There appear to be enough waves in the count, and still sufficient upward overlap to make this revision to the ES / SPX potential diagonal lower, here shown in the two-hour S&P500 cash index.

 

There is still a long way to go to prove out a count like this - in which the waves must form properly, so we'll take it one step at a time, remaining flexible and open-minded.

This material was added after the new session began. Diagonals can be tricky. I get that. That is why I have decided to 'play this one forward' on the site with the clear caveat that a diagonal must prove itself. IF the diagonal plays out, then the wave 5 'must be' longer than the wave 3. See chart below which is of the ES 4-Hr futures.

ES Futures - 4 Hr - Wave 5 Must Be Longer than 3 in Price

Again, IFF a diagonal is to play out, then wave 5 'must be' longer than wave 3. Thus, this forms a clear Target # 1 in the diagram, above. 'Usually' (most-often) the minute ((a)) wave will take a stab at the prior low to show its character as a Motive Wave. Remember, by the principles of degree labeling, wave minute ((a)), if it is to be a sub-wave, should not be longer than all of Minor 3. 

Then, there would be a minute ((b)) retrace which would be 'entirely up for grabs'. I have seen them be very long and touch the upper down-trend line. I have seen them we very short, or be a triangle, and then just break loose into the minute ((c)) wave - fooling a lot of us in the process. Here, the only restriction is that minute ((b)), again by degree labeling, should be shorter in price and time than all of Minor 4.

As long as all of Minor 5 is longer than Minor 3, the wave is in good shape. It may come out near 4,000. It could go lower. Sometimes Target # 2 is near the Wave 3 x 1.618 level. So, don't be surprised if it is. Again, this is all supposing five waves down to minute ((a)) form as they should.

Have a good rest of the day.

TraderJoe

US Dollar Index Gets the Impulse

In our post of 8 January 2022 (which you can revisit at this LINK) we suggested that there was a way that the U.S. Dollar Index could fully develop an impulse upward. That impulse did occur, as per the updated weekly chart below.

US Dollar Index Futures (DX) - 1 Week - Intermediate Impulse

At the time of the January analysis, we used the Elliott Wave Oscillator on the two-day chart and The Eight-Fold Path Method to indicate that as long as tentative wave Minor 4 did not overlap, then one more five-wave push higher could result in an impulse. It did. Although wave 4 did head a bit lower, it did not overlap.

At the present time, the five-waves up are being labeled as an Intermediate wave (A), up. It is likely the Intermediate (B) wave, down, has now begun. As always, the nature of a (B) wave in Elliott Wave can be "any three", including zigzag, multiple zigzags, flat, combination, or triangle. And if wave (B) should become a flat, there could be additional higher highs. Still, one might try drawing a line from ((i)) to 3 and putting a parallel on wave ((ii)), to see if the lower limits of such a parallel are tested.

Please note that this 'impulse' up is currently in contradistinction to the dollar alarmists who suggested that the dollar was about to collapse. Also note that this rise in the US Dollar occurred simultaneous with a rise in Crude Oil prices, again in contradistinction to those who base their views on the correlation of markets - who always suggest that a rising dollar means falling crude oil prices because oil is priced in dollars. That simply didn't happen this time. Why? We could suggest numerous mechanisms, but they are not the point.

The point is that we always count markets independently of each other. 

Sometimes counting markets is frustrating, boring, time-consuming, mind-twisting and a little like doing a crossword puzzle or completing a Sudoku. But unlike these last two exercises, which are also fun, there is little dollar profit to be enjoyed. Wave counting can be different.

Have an excellent rest of the weekend.

TraderJoe

Resistance at the 100-Day

Back on January 26th, I publish a chart showing a potential expanding diagonal in the ES / SPY. I did that because of strained wave counts on the way down. Today, both cash and futures got upward overlap on wave Minor 1. Here is an updated daily chart.

ES Futures - 1 Day - Potential Diagonal

Today I posted what I thought of those counts as the bottom waves were made. I had said that there were some irregularities in the impulse count. You can find that chart at this LINK. Read yesterday's comment at 09:46 am to see what the anomalies were.

After the cash close FB missed earnings and it started a downward wave of some degree.  Now the question is whether price heads below the 18-day SMA again or not, after finding some resistance at the 100-day SMA.

This is one of the reasons why diagonals are low probability patterns that must prove themselves. Price is over the 18-day SMA for wave 4, and that means this wave is fighting the daily bias. Thus, the potential pattern fights the odds.

Still, the daily slow stochastic is no longer in over-sold territory, so some of the Smart Money that got caught unawares in the decline may wish to minimize their losses, and see if there is more to the down side. As this is written, the upper daily Bollinger Band is beginning to curl down under the prior high.

For a diagonal to complete properly, wave 5 should be longer than wave 3 in both price and time, and it should be made up of a zigzag at this point. The invalidation point of the potential diagonal is above wave 2. A cause for concern would be any price higher than today, as we could count a completed ((c)) wave up today, with these last five waves. See the chart at this LINK2. (In this last chart the degree symbols are only illustrative).

Have a good start to your evening.

TraderJoe