Vol Squeeze & Control

If you've been following the ES 4-hr futures, then you might have noticed prices being 'squeezed' into a narrowing wedge since Monday's low, as follows.

This is a typical "volatility squeeze" or Vol Squeeze for short. It coincides with the VIX or Volatility Index dropping from 66 to 19 in the same period of time. This also resulted in price retracing to the 100-day SMA. And?

And I think the thing to recognize here is just who is in control. You may have heard or read in some Elliott Wave literature somewhere a cute saying like, "Corrections are fascinating because sometimes they can seem to stall until the news catches up with it."

Well, let me be clear. You and I know our accounts are too small to move the markets. So, just who is the one doing the stalling here? We know it's not us. No, it is the big money players with massive algorithms at their control who spent the day whipping price around today - because they know what they're going to do with price, and we don't. 

Early in the afternoon I said, "Nothing impulsive here". And prices continued to stall and whip. Why? This is important: the big money players have some significant advantages over you. They know that if they tell the algos to make an exact double-bottom, then that is what they will do. After all, computers just do what they're told. They'll do it to within a tick or two - and they will frustrate the breakout players. If, like early in the day, they tell the algo to "make a triangle" then that is what they will do. And the 78+% retrace will frustrate the retracement players. Both of these will likely cause retail losses of some degree, and the big money can pocket that change, too. They want it all.

But the real advantage comes early in the next two mornings when the PPI and CPI reports come out on Tuesday and Wednesday. Then, the Smart Money knows they have news reading algorithms that can read the news and react to it faster than it can even be delivered to your internet workstation. Then, they can move fast without a lot of volume to contend with, and retail is at another huge disadvantage. So, it is clearly again to their advantage to stall or triangle before major news reports.

What does this have to do with Elliott Wave?  Well, a lot. I have written quite a bit about The Principle of Equivalence: how two counts can be virtually the same (like a,b,c = i,ii,iii) until they are proven different. Part of the reason behind this Principle is that Smart Money can do a lot of things with a news report. They can impulse, they can whip, they can wait for further clarification, etc.

In the current situation, where the up wave might be a non-overlapping fourth wave, if I know this & you know this, you can bet your bottom dollar that every good hedge-fund chartist, every bank Elliott Wave analyst, and every FOMC desk chartist knows it too.

You and I both know that someone got crisped when the yen carry-trade blew up. Millions and billions were lost. A lot of vested interests want as much of that money back as possible. So, they wait for PPI and CPI: these affect interest rates. And interest rates affect their profitability and margins on the carry trade. 

So, the questions are, "will the wedge break up, or will the wedge break down?", and "will there be follow through in the direction of the break after a back-test or not?" The people who have the book know what they're going to do in each case. It is gamed out for them in strategy meetings. It is you and I who don't know for sure.

Have an excellent rest of the evening,

TraderJoe

Some Fundies

Some brief time off from Elliott Wave today to have a look at the fundamentals involved in not only the Yen carry trade, but the state of the U.S. economy and the relationship of debt to GDP. So, I am just reposting this video - the first half of which is really excellent. 

I've been involved with markets and Elliott Wave for a very long time but there are things in this video I did not clearly understand (involving 8% plus each year). There is also some technical market talk in the first half of the video. Hint: when you get to the Steve Jobs portion, in the second half of the video, the economics & yen carry trade discussion is done.

Also note, while well done, I do not post this in any way to endorse either of the two firms involved even though I personally find their work credible. If you find it so, so you might like to do them a favor and like and/or subscribe.

Have an excellent rest of the weekend,

TraderJoe

ODU - And Cash

Turn-about is fair play. After yesterday's outside-day-down, the ES futures made an outside day up after the cash close today. The hourly cash close-only chart is interesting, as it has the requisite 120 candles on it, and the Elliott Wave Oscillator is now above the zero line.

Are we making a minute fourth wave near the prior lower degree fourth wave? It may not be complete yet, but this is either where things work out or they don't in terms of an impulse according to The Eight-Fold-Path Method.

Have an excellent start to the evening,

TraderJoe

Another ODD

Today in the ES futures started out with a marginal higher high. By the end of the day, it wound up making a lower low than the prior day, and a lower close. This is the definition of an outside-day-down (ODD). Here is the daily chart in the requested format.

The daily closing bias remains lower, the outside day candle is a continuation until/unless the high of the outside day is exceeded within the next two trading sessions. The swing line is lower. There is, already, a lower low candle for Thursday's session, and the daily slow stochastic remains in over-sold territory.

In terms of support and resistance, the 100-day SMA should contain prices on the upside. As far as support, there are two comments to make. First, the Bollinger Band/Moving Average support should come in around the combination of the lower Bollinger Band and the 200-day SMA. However, Elliott Wave support may not come in until the wave (ii), low or the ⓑ wave low at ~5,020, even if these are exceeded somewhat.

In one way or another wave minute-iv, circle-iv, can take more time if it wants to. But it is not required to. It 'could' be done, with lower probability. It could form a triangle, but it does not have to.

Have an excellent rest of the evening,

TraderJoe

Reminder: Full Retrace

The ES daily chart is below. This post is just a reminder that we clearly stated in the comments that if wave (v), below, was the extended wave in the sequence, denoted x(v), that these waves are almost always retraced 62% or more, and often they can be fully retraced or more. As you can see from the wave (iv) location, today the extended fifth wave was indeed fully retraced - and more.

In fact, price closed below the lower daily Bollinger Band after traveling down to strike the 200-day SMA. The next step in the process should be to monitor the down wave and see if it is retraced more than 50%. If it is (and it hasn't yet been in futures but is touching in cash SPY) then it might be a warning. Right now, things are acceptable, but they can change; that's what wave-counting-stops are for.

Have an excellent start to the evening,

TraderJoe

Lower Low in Early Trade

There is a gap down and a lower low in the ES futures in the early Sunday evening trade. This lower low fits the requirements of wave sub-minuette v, down, of wave minuet (i) down, of wave minute ((iii)), circle three, down, in the following chart.

ES Futures - Daily - Below Channel

This sub-wave is currently shorter than minute ⓘ, circle-((i)), down in both price and time.  So, we suspect that up movement from here is part of minuet (ii), up. Each of these will likely become part of a larger five-wave-down move at the minute degree to make up the Minor degree A wave down, as shown above.

Here are the recent five sub-waves on the hourly chart.

ES Futures - Hourly - Wave (i)

Have an excellent rest of the evening and start of a new week.

TraderJoe

Turned Away at The Line in the Sand

The ES futures daily chart in the requested format is below. Last night on some earnings, price briefly poked its head above the 18-day SMA. But, when the economic reports came out this morning, the resistance was too much, and price headed lower before taking out the up (green) fractal shown.

ES Futures - Daily - Bias Still Down

The bar formed was an outside day lower. After the cash close, the earnings of AMZN, APPL and INTC did not move price much higher (although it could still go higher tomorrow). We were able to get a clean "five-count" down this morning, started to get a retrace, and may get more of one tomorrow. Recall the Payroll Employment Report comes out in the morning so be on the watch for that one. 

The daily slow stochastic never made it out of over-sold territory. We still don't know if it will try to embed or not. Of note, today's down bar is the largest single down bar since the ⓑ wave low.

Two down (red) fractals have been formed at the low, and there are a couple of ways to see a potential head-and-shoulders topping pattern from here, but first price must break those fractals in a decisive manner at some point either tomorrow or early next week to continue a down trend. The swing line is still mixed as it has a higher high and a lower low.

As usual with an outside day down, price should not take out the high of the outside day within the next two trading sessions or it could constitute a trap for the bears, as Ira teaches.

Have an excellent start to the evening,

TraderJoe