A Stab

Now likely back within the Minor A wave, this is a probabilistic stab at the local hourly wave count. The wave appears to be extended in time, which means it might be an extended fifth wave sequence. Even within it, retreats to the lower channel line are possible/probable, particularly with the FOMC magicians about to work their conjuring on Wednesday.

Good, stimulating discussion on the blog today. Look at the divergences on this puppy. No issues out there, right?

Have an excellent start to the evening,

TraderJoe

Rebound

Like a basketball off the backboard, stocks prices on Friday - as measured by the ES E-mini futures - hit both the upper daily Bollinger Band and the (red) 1.618 external retrace of the potential minute ⓐ-3 wave, and at least temporarily recoiled from that level. In the process, the bar formed was a doji. As far as I can tell, this would otherwise end a minuet degree (w)-(x)-(y) should upward movement end in this vicinity. Because of the exceptional length of Minor A, there is no time violation for minute ⓑ-3 as things stand. But the issue is the typical price lengths of ⓑ waves in expanded flat corrections. Price appears to be roughly there.

ES Futures - Daily - Near a Limit

There are two additional issues. The first is that the daily slow stochastic has just embedded - which often occurs before continued moves. And the second is the premium of the December ES contract is currently +50 or more points over the current level. The impact on local prices is not known yet. It could be a substantial driver, if not this coming week perhaps later in the year. Certainly, reversal is a potential around the quad witching that occurs this Friday.

So, we have two suggestions. First, if prices extend instead of reversing, then we simply suggest counting the Minor A wave as follows in this best alternate.

ES Futures - Daily Close - Best Alternate for Minor A

The sub-waves in the above chart can be 'forced' to work, so we'll just accept it if that is the case because the identification of a Minor B wave is certainly difficult in that circumstance. This count would simply recognize all of this wave as the volatility squeeze since the tariff low.

The second suggestion relates to the roll-over. The suggestion here is to just use the December front-month contract for local counting. Don't back-adjust it, don't make it a 'continuous' contract - just use it as is and see what it provides.

In terms of local actions, the current ES 2-hr pattern suggests a wedge with three-touch trend lines, as below.

What the chart suggests is that for any significant down trend to begin, there should be a break of the lower trend line, a back-test of it, and a failure below the overlap level. All we can do is watch to see if and/or when larger sellers show up to reverse the current situation.

Have an excellent rest of the weekend,

TraderJoe

ES/SPY (CFD) - Another Short-Term Channel to Watch

Today, we were able to count five-waves-up. The question is whether it is part of another channel or not, because there was only minor divergence on the RSI. Here is the chart of the ES/SPY (CFD) 30-minute.

If the channel does not hold up, then it might be possible to see today's high as part of another three-wave move.

One note of caution: the December roll-over contract is currently trading +50 points higher than the September is. Have an excellent rest of the evening,

TraderJoe

Running Triangle

We had a lot of discussion on the blog about what Neely calls a "running triangle" - which is improperly constructed - and is actually a contracting diagonal, versus a running triangle as defined by the rules of Elliott Wave. Interestingly, there is a live example of a potential running triangle in the US 10 YR Yield as in the 2-weekly chart below. The pattern below does follow the 'rules' for a valid running triangle.

US 10Yr Yield - 2 Weekly - Potential Triangle

Elliott Wave International has shown a similar chart, but my count is more nuanced than theirs. Beginning on the left, I have long held the 2020 low is a truncation as shown. This is one sign of the great strength in yields to follow. The second great sign of strength is the running second wave, (2), where the Minor C wave terminates above the low of the Minor A wave. This presages the great strength in the third wave (3) to follow.

In my understanding, it is only from there that the five Minor waves of the triangle A,B,C,D,E unfold and are still doing so.

Notice three things: first, this likely correct count gives an exact 1.618 Fibonacci relationship for the high of the Minor B wave of the triangle. Second, the E wave of the triangle already has come down under the prior impulse high, (3), to be corrective to it as required by the 'rules'. Third, this picture provides a clear, close and clean invalidation point for the triangle should the FED's actions disrupt the triangle. If a pattern does not provide such a clear invalidation, it is likely of little use to the trader.

If the triangle does play out with a higher high, then a full impulse can be completed. But, what IFF the triangle has become obvious and breaks down? Then, it suggests the impulse is already completed earlier as shown below.

US 10Yr Yield - 2 Weekly - Potential Trap

Both of these charts should currently be viewed as "equal and opposite" by The Principle of Equivalence. Everything depends on the lengths of the waves and the new positioning of the world's largest banks and hedge funds as the result of the FED's actions or inaction.

IF the potential triangle should break down, then I think it speaks to how many bars - time wise - should be considered 'proportional' for a triangle in an impulse wave.

Two other items to keep in mind. Neely often states that the A wave in a true contracting triangle is the most violent and often the shortest. Note the A wave in the first chart is a zigzag, true, but it sure took its own sweet time and didn't go anywhere. So, this gives more credence to the second chart, though not definitive.

Also, the old Wall $treet saw is "trading is treacherous in triangles". That's because apparent triangles have been observed to break down, as well as up. Should this one break down, you'll know the reason why. (hint: it wasn't a real triangle). And, if it should break upwards, that should become clear to you as well.

Have an excellent rest of the evening,

TraderJoe

Freebie

For today's post, here's a freebie on YouTube from Elliott Wave International. All I will say is that it is interesting that they now have adopted my equity count, and not the other way around. After all, it was they who initially taught me to count waves.

There are also some other interesting relationships and data points.

As always, you can make the video larger by clicking the [  ] (full screen) icon in the lower right of the video.

Have an excellent rest of the day and evening.

TraderJoe

"Just a Darn Tootin' Minute"

Between last night and this morning after the payroll report, stock prices as measured by the ES futures were headed higher. And as the daily chart of the ES, below, shows prices got up to - and over - the upper daily Bollinger Band.

It was there that the upper daily Bollinger said, "Hold on just a darn tootin' minute", and fulfilled its function of suggesting that the Smart Money would begin to exit at those prices. This is especially true with the daily slow stochastic above the 70 level and indicating 'over-bought' at the highest prices in history.

So, prices not only stalled there, but they also did a complete outside key reversal day down - making a lower low than Thursday and closing lower than that same day, and all from the highest high in the trend count.

This, again, while not completely 'fatal' to upward market progress, and a downward overlap of a wave i / a up shown this morning in the comments for the prior post, suggest that the market is struggling & failing to make impulsive activity up.

Price is still closing above the 18-day SMA, meaning the bias is still to the upside, and the swingline indicator still has a higher high after a lower low and so is still indeterminate by itself.

Still the outside-day-down cautions us that, "if the high of an outside-day down is exceeded higher within the next two trading sessions, then it can constitute a trap for the bears". So, we need to watch the next two days in particular, very carefully. From an Elliott Wave perspective, there are some remaining legitimate ways that higher highs can be made, but the odds are dropping.

Notice than the minute ⓑ-3 wave still does not violate degree definitions, so it can extend within reason if that is to be the case. Yet, triple zigzags are supposed to be pretty rare, so that is one reason why the odds are dropping a bit. Better odds would be provided by closes below the 18-day SMA, and a bonafide trend on the swing line under that level.

So, why am I thinking that this is still a ⓑ-3 wave, probably of an expanded flat, and not the end of the trend? Because, besides the EW count, if one looks at the NYSE Advance/Decline line, it is still basically at an all-time-high. Bear markets have typically not started in that position. And the weekly sentiment indicators - while getting steamy - just haven't fired off clear signals yet. Maybe someday soon. Meanwhile, the economy gives signs of weakening, and this often associated "B" wave type structures.

Have an excellent start to the evening and the weekend,

TraderJoe

Count Still Suggests the Minute ⓑ wave

The daily ES chart is below. Nothing has changed to invalidate the count presented days ago. The market is whippy as anticipated. "First-of-the-month" money from the usual passive sources is flowing robotically into the market near the all-time-highs, and in the month of September.

ES Futures - Daily - Plausible Count

One might watch to see if the upper daily Bollinger Band is hit. And, if so, does price proceed further to the upper line dashed blue parallel shown? Or is there to be a reversal on the payroll numbers tomorrow? So far, the other most-recent economic reports have been treated benignly.

The swing-line has a lower low and a prior higher high, so it is waffling; not trending. But prices are over the 18-day SMA so the daily bias switched to up.

Have an excellent start to the evening,

TraderJoe