Little Change

Market Outlook: Topping, but possible triangle
Market Indexes: SP500, ES, RUT, NDX down, DJIA up

The S&P500 Index closed at 2477 yesterday. The market gapped down at the open, and traded six points lower to 2471. Then, the market traded largely sideways for the afternoon, making one lower low at 2470, then started to rally to 2475 until the announcement by the Wall Street Journal of a Grand Jury being empaneled in the Russia probe. At that point, the index sold off to a perfect 78.6% Fibonacci retrace at 2469. It could make a possible B wave within a triangle.

By the end of the day, the NQ futures which had previously lost their embedded slow stochastic were back at the 18-day SMA (the "line in the sand"), and the ES futures had lost their embedded status by the settle, but need to be watched to see if they gain it back (the next day only).

Daily NQ Futures - Back to 18-day SMA

With today being a low volume "inside day" in the S&P500 and the NQ (but not in the RUT, with a lower low day), both the impulse count downward, shown yesterday, and the triangle remain viable forms. The market is probably waiting on the Payroll Employment Report, tomorrow morning, to better define the direction.

Have a good start to your evening.
TraderJoe

Flexibility and The "Hard Right-Hand Side" - 3

Market Outlook: Topping but a possible triangle at several different time scales
Market Indexes: Dow, S&P500, NQ Higher. RUT Lower

The S&P500 closed yesterday at 2476, then gapped higher to 2481 on the overnight to-do about Apple's earnings results. Finally, that 78.6% Fibonacci level was broken to the upside, as shown. But, the 90% level, interestingly, was not hit - which tends to rule out a flat-style wave.

The gap-up was immediately "sold-on-the-news" and an apparent five-wave sequence in good form was counted out on the intraday chart. Based on these considerations, since there was no fourth and fifth wave apparent in the opening spike, it looked like the thrust out of another triangle. The y wave up finished on that spike, and appears to count like that in the chart below, in which it's .b wave was yet another triangle.

SP500 Cash - 15-Minute Continuation

The five waves down broke both the prior (e) wave, and  the (c) wave of the former x wave triangle, filling the gap from two days ago. But this wave had insufficient power to break the low of 27 Jul. Then prices began the upward march toward  the end of the day, ending at the underside of the larger (green) channel that was broken lower today, forming a smaller (turquoise) channel.

The sideways nature of the EMA-34 at this time, and whippy, but narrow point-range action suggests that either yet a LARGER triangle is under formation, or we topped at y. It is too early to say which yet.

For those having trouble envisioning a larger triangle, I will sketch it out below, along with the alternate. The idea behind such a triangle is that it might be a pre-payroll employment report triangle, since this number might affect whether the FED raises interest rates in September, or not. This triangle uses the hourly chart, and, again, is an idea only. Triangles have to form properly in every detail.

SP500 Cash - Hourly - Possible Larger Triangle

The black count is the triangle, the blue count would be a downwardly pointing impulse - which is the usual opposite of a triangle. For this hourly triangle, it would invalidate below 2459, as shown in red.  The purpose behind such a triangle might be to even out the counts on the Dow and the S&P500, to allow them to top more near each other.

And, yes, again for the curious ones, there is even a larger potential triangle on the chart, starting on 18 Jul if you want to try to sketch that one out. (Hint: it results in two less waves at the end).

Well, that's it for today. Stay alert and flexible as the market makes it decisions. Once again, as an Elliott analyst, I don't make the waves. I can't make them happen according to some preordained plan. I can only count the gyrations as best as possible, following the rules, with an eye to the couple of logical possibilities at the time.

Have a good start to your evening.
TraderJoe

Flexibility and The "Hard Right-Hand Side" - 2

Market Outlook: Money is apparently rotating to the 'perceived' safety of the Industrials
Market Indexes: DJIA new ATH, SP500, $NDX, $RUT, marginally higher

We said yesterday, that based on today being the first day of the new month, it was possible to see inflows from pension funds, company bonuses, dividend reinvestment plans, 401k's, etc., and that did occur in a small way. The S&P500 closed yesterday at 2470, gapped up at the open to 2479, and then traded lower to come within 1 point of closing the opening gap, then traded sideways to end the day at 2476, up +6.05 points.

In the process, because of the higher high, it looks like one of our triangles was finalized in form. We'll show you that chart from the real time chat room below. It is just a continuation of the one we showed from yesterday, with a slight modification.

SP500 15-Minutes - Higher High Resolved Interior Triangle

So, during the course of the day, it seemed more likely that this long triangle was just the x wave that followed the w wave, and the higher high was the .a wave of the y wave. We are likely waiting on the y wave upward to complete, possibly to hit the 78.6% Fibonacci retracement level - which was again missed today.

The down wave that did not quite fill the gap was the .b wave of y, and now there 'should' be a five wave upward sequence for the .c wave of y. And, yes, such a five wave sequence could turn out to be an ending diagonal if it wants to.

Well, that's it for now. Have a good start to your evening.
TraderJoe

Flexibility and The "Hard Right-Hand Side"

Market Outlook: Dow changed from Diagonal Count to Impulse Count
Market Indexes: SP500, RUT, ES and NQ lower, DJIA higher

Regardless of Elliott Wave counts in the past, traders often say, "It's the Right Hand Side of the Chart that's the Hardest". This is true, and we'd like to clearly demonstrate why some flexibility is needed in Elliott Wave Counting, especially near a top.

First, this chart is in reference to the down move to 2460, on 27 July, shown below in one count in the S&P500 Cash 15-Mminute chart, below. After, the downward move, we can STILL only count three-wave moves upward. Shown as blue.

SP500 Cash - 15 Minute - The Right Hand Side of the Chart

We said, it was entirely possible price was either making a triangle or a double-zigzag. And, with today's small gap up, then gap fill, we did invalidate a smaller B wave triangle, and clearly got the higher high needed for the y wave of a double zigzag upward. But still it did not hit the 78.6% Fibonacci retracement level.

The three-wave structure is clearly shown with the blue .a and .b providing the interior waves. But then, as the day progressed, and prices hugged the unchanged line it seemed like a triangle might be forming - especially given the larger reversal candle as the last bar of the trading day.

Now, we know tomorrow is the first day of a new month, and might have some inflows again from pension funds, company bonuses, dividend reinvestment plans, 401k's, etc., and so now one has to ask, "Is this another triangle for another x" wave, before a final z wave up on the new money, as shown above?

Or, is it a downward pointing triangle after a first wave, lower? Such a downward triangle would count like this:

SP500 Cash - 15 Minute - Downward Triangle Option

Neely tends to indicate that purpose of such a triangle is so that the wave 2 precisely hits it's target at the 61.8% retrace level - which I find to be an extremely interesting and cogent observation. Prechter also allows second waves where the Y wave of the 2nd wave is a triangle.

And the bright ones among you will even realize that since we don't know if downward movement is entirely over, couldn't the whole structure be an upwardly pointing triangle, as some sort of fourth wave?? And, the answer is, why, yes, it could!

It's at time like these that any Elliott analyst who says they are "certain" of the next price movement is probably smoking locally grown products from Colorado. Or, they have exceptionally good market metrics - much better than what we can find.

Yet, while it is often best to stand-aside from a definitive wave count and let it "shake out", that is precisely the actual benefit of Elliott Wave in real-time. You see - each of those potential triangles, whether pointing upward or downward,  has clear points where they must invalidate from an Elliott Wave perspective.

And that is exactly how the count becomes clearer, and leaves fewer and fewer options until there is only one. So, stay tuned, as we go into seasonally one of the more difficult months for the stock indexes.

And have a very good start to your evening.
TraderJoe

Weekly Gold

Is weekly GOLD triangulating? We have to say up front that, while we don't know for sure, something sure seems odd. First, here is a chart of weekly GOLD with the outlines of a potential triangle. The upper trend line is dotted black to show that this trend line is not yet proven.

Weekly GOLD - Potential Triangle

When you look over this chart, you'll notice that the current wave from December, 2016 so far is taking more time than the minor A wave up. And, the weekly MACD, while barely positive, is still as flat as a pancake. That just doesn't seem like the way a strong C wave up starts. So, we have to ask the question, "are we in a weaker C wave, like that of a triangle?".

The minor B wave down stopped just shy of the 78.6% Fibonacci retracement level, and that is a common turning point for triangle-type retracements. So, the potential dotted black trend line of a triangle is shown where a C wave of a symmetrical triangle would also retrace about 78.6%. Price is not there yet.

Next we correctly counted the (a) wave up of C from the weekly chart, above, on a 4-hr chart of GOLD as a Leading Contracting Diagonal - which meant higher waves were to come, and they did. And we correctly called for a longer (b) wave lower - some or all of which did form.

And now that prices have turned higher again. We thought we'd have a look at the latest 4-hr chart, using The Eight Fold Path Methodology, and Neely style counting. Here is that chart.

GOLD Futures - 4 HR - The Eight Fold Path

There are some things to notice on this chart. First, all of the current price movement is confined to a channel. Second, if we look for ways not to chop off any part of a third wave with a line connecting the start and the second wave, this is about the only way to do it. Third, we note that while there certainly does appear to be a third wave, (iii) at the high point of the Elliott Wave Oscillator (EWO), then the waves that immediately precede it are intensely choppy. So, we think that area is better described as the "fifth" wave of the third wave, v, and not the middle of the third wave. That nice big impulse bar, iii, looks to be the middle of the third wave. Fifth, wave (iv) has a good fourth wave look to it, and alternates well with the second wave (ii). Six, because wave (ii) is more than a 38.2% retrace, we are probably not dealing with the situation where the first wave is the extended wave in the sequence. Seventh, the B wave retrace is only 23.6% which is OK for the shallow retrace of a zigzag - since we are likely not dealing with the extended first wave scenario. This is shown by the fact that the third wave is over 261.8% times the first wave, no matter how you measure it.  And, Fibonacci eighth, notice that while price is diverging from the EWO already, there are only 87 candles on this chart - not the 120 - 160 recommended per The Eight Fold Path Method. And that means this wave is likely not forming a true impulse wave up.

All of this suggests that GOLD may only be in a zigzag higher, and while the upward count is not finished, it may either point to a smaller potential interior triangle on the weekly chart, shown in dotted blue, or the larger overall potential triangle shown in black.

As always, triangles are forms that must prove themselves in every detail. And, the best alternate for the potential triangle is the double combination (W-X-Y) where W = A, and X = B from the current weekly chart. Trading above 1,340 would tend to indicate that the double combination was the more likely scenario. In this case, from the four-hour chart A would be 1, and B would be 2, and with the 23.6% pull-back only, then 1 would likely be the extended wave in the sequence. But, that's why this is the alternate case - because there was an initial deep enough pull-back for wave (ii) to allow the extended third wave (iii).

In either case, the up wave does not appear to be quite finished. What would be more convincing of the double combination than of the triangle would be if there were a large gap up next week, that was not quickly retraced, because it is very tough to find one in the chop on the current chart. So keep your eyes on the look out.

Hope this helps, and have a great rest of the weekend!
TraderJoe

Slow Day

Market Outlook: Highs are likely in for S&P500, ES, NQ, and RUT, not so the DJIA
Market Indexes: RUT: lower low day; SP500, ES, NQ: sideways; DOW higher.

In another slow day of summer trading, the Russell 2000 continued leading to the down side with a lower low day today. The Dow continued to make higher highs as it apparently struggles to finish a contracting diagonal. A chart of that continued diagonal is below. Note that wave (iii) is still shorter than wave (i). Trend lines will be adjusted as needed.

DJIA Cash - 4 Hr Chart - Potential Diagonal

Sometimes, they like to keep these diagonals going on seemingly forever, as money tries to rotate into the perceived safety of large cap defensive names, after leaving some of the smaller and more speculative issues.

The S&P500 made only an inside candle today. Whether yesterday was a first wave down or just an "A" wave down is still up for grabs. We're watching to see whether the market forms one of two upward structures, those being either a double-zigzag, upward, or a triangle. (By the settlement a triangle had not invalidated yet). If a triangle forms, it would definitely more credence to the A wave case. If the double  zigzag forms then, it might lend more credence to a first wave scenario, but still the odds would be about even in that case. Again, favoring the A wave case is also the fact that the retrace has been deeper than 61.8%.

The NQ futures chart, by contrast, has the makings of a flat correction, as the 90% retrace level of the three upward waves was made this morning. Here is that chart.

NQ Hourly Futures - Likely A Flat Correction as 90% Was Reached

Anyway, we note now how remarkably bullish some people are - even given the seasonal nature of declines in the August / September time frame. And, just a reminder, August is only two trading days away, with a solar eclipse in the middle of it!

Well, until then, there is a fun weekend to have ahead. So, here's hoping you get a good start on it.

Perhaps there will be some more over the weekend.
TraderJoe

Why Focus on Risk ?

Market Outlook: S&P500, ES, NQ, and RUT likely have topped in Minor 3. DJIA might not have.
Market Indexes: S&P500, DOW, ES and NQ made marginal higher highs. Not RUT.

Today we got a completed count in the ES E-Mini S&P500 Futures Count that we showed from the election low in the weekend video. As required, minute wave ((v)) remained shorter than minute wave ((iii)), since minute wave ((iii)) was shorter than minute ((i)). The internal minuet waves also had the same relationship. Here is the chart as of the settle.

ES E-Mini S&P500 Index 4 Hr - Completion Count

In one four-hour bar, 39 - 40 preceding four-hour bars were exceeded lower. As of the settle, the bar had not been fully retraced. Because the prior wave (iv) was exceeded lower, and wave (i) was overlapped in the downward direction, it is possible to call a turn here, with the minor 3 wave at the top. The wedge got about as bad as a wedge could get.

Here is the weekly chart of the E-Mini S&P500 Index, showing the likely Minor wave 3 high.

Weekly E-Mini S&P500 Index

Notice there is a nice resistance line from the bottoms before the Feb 2016 bottom of Intermediate (4), and those were in August and September 2015. Also note how volume has fallen off, as well.

The upward wave in the E-Mini is a "trending impulse with an extended first wave", it did not form a diagonal. (We don't know the final form of the Dow, yet.) The reason we mention that is that it provides considerable flexibility in the style of downward count. It can be a zigzag or a triangle, and it could also start out with a diagonal.

We've had only a relatively small wave down, given the size of other ones. It could be an A wave or a 1 wave. Since the upward retrace is slightly more than 61.8%, it may lean more towards an A wave down than a second wave down. Time will tell.

Facebook and Amazon have all been "sold on the news" (not trading or investment advice) because of either outright earnings misses or maturation of the businesses.

Have a very good start to your evening.
TraderJoe