Making the Right Stuff?

The Dow's daily pattern is 'making' all the right stuff for a potential diagonal, especially if that is a 78% wave ((ii)). 

It is, of course, way too soon to call it such. In fact, we don't 'know' that wave ((iii)) is done to the upside. And, then, of course, a fourth wave, ((iv)), would need to be confirmed.

But this is a way to work slightly higher into the New Year, and to keep the whippy guessing-game going. So, I just thought I'd bring it to your attention. In this case, since wave ((iii)) has, indeed, made a higher high, it is not required - although it is typical - for wave ((v)) to make a higher high. In other words, the last wave in an ending contracting diagonal can fail.

Here is the progress made on the ES futures count: which is the same as I've counted in SPY cash.

ES Futures - 2 Hr - Probability of a Top

Yes, there is a high probability of a top. Still, a retrace that does not go over today's all-time-high is required. Also, this up wave may only be part of a diagonal in the S&P500.

Have a great rest of the day.

TraderJoe

B Wave ?

Perhaps a "B" wave resolves the differences between the ES and NQ futures, as per the previous post. 

ES Futures - 1 Wk - Divergence Continues

There is no immediate conclusion that further progress in the (Z) wave can't occur. The waves at the top do appear to be impulsive. And until we see a completion pattern, we must err on the side of further highs. Daily price is still above the 18-day SMA and so the bias is still up. Price is not yet near the upper daily Bollinger Band, but the daily slow stochastic is still over-bought and is not embedded.

However, sometimes the Z wave of a triple zigzag does fail as a sign of the weakness of the pattern. And making wave below the recent Minor B wave would be of significant concern.

Have a very nice Holiday to all readers and contributors.

TraderJoe

Some Confusion

The stock market is now showing confusing signs. In the daily chart of the NQ futures (left pane), prices are showing a lower daily low, and not a new daily high.

NQ vs ES Futures - 1 Day - Mixed Messages

And in the chart on the right, the daily ES futures are showing a higher daily high, and no lower daily low. Further, neither chart is showing typical triangle measurements. At approximate 50% retracement levels, neither is near the more typical 62 - 78% retrace levels of the prior up leg to suggest a triangle from that bottom.

It is difficult to reconcile these patterns at the moment. I don't want to guess at this time as further study is needed.

The market over the last three days up can be counted as most of all of an impulse wave as we showed in this chart of the cash SPY.

There is still more room for wave (v) if it wants it as it is not as long as wave (iii), but wave (iii) is shorter than extended wave (i) in the above count.

Have a good start to the evening.

TraderJoe

Chop City

The choppy price action since the March 2020 weekly low is still best explained by this wave labeling. An alternate is shown below the price bars, but the alternate has a problem - which makes it the alternate at this time.

The problem with the alternate is that if wave x(1) is the extended wave in price - because the retrace is so shallow, then - usually, most-often - wave (3) is shorter in time as well as price. We are showing it because wave (3) is shorter in price, but it is not shorter in time. That is a conflict which makes it the alternate.

Whereas IFF price comes back down to the parallel in December/January, it might be doing so in an expanded flat wave (overall) which would alternate well in both price & time with the prior Intermediate (X) wave zigzag correction. At present the chart shows (Y) = (W) and that is a 'typical' relationship for corrective waves. 

Another reason for counting this way: where is that unbelievably strong wave 3 of (3) gap up on the weekly chart? Like Sherlock Holmes in The Hounds of Baskerville, we have to at least ask the question: "why didn't the dogs bark?", or - in this case - "why don't we see a huge recognition gap?" Further, we must recognize that the ES futures made a higher high this week. Those who just plot the cash indexes might not be recognizing such at this time.

Lastly, readers of this blog should have the interest and curiosity to plot the FTSE 100, and the DOW/Gold to determine 1) are all stock indexes world-wide making economically driven new highs in indexes at the same time? 2) is DOW/Gold saying that stock indexes are at all-time-highs in terms of real money? or 3) is this wave being driven more by a) free money provided by the government precisely because the economy is not doing well, b) mindless speculation at all-time fever pitch levels, and c) excessively low interest rates allowing an explosion in margin debt balances, and record stock buy-backs by corporations?

You should decide how you see it. You can see the way I am leaning even though I am patient, calm and flexible in what I count day-to-day.

Have an excellent rest of the weekend.

TraderJoe

Expect Whippy Price Action

The VIX is currently at 18, not at 9. For this reason, one might expect more whippy price action than normal. The ES futures made a marginal new all-time-high today. The SPY and the SPX cash did not. The ES 4-hr futures chart is shown below, along with the potential for further volatile price movement.

It is entirely possible that a barrier triangle is being formed near the highs, but it is way too early to call it such. In one such count, the December low is the minute ((a)) wave of such a triangle and today's high would be the minute ((b)) wave of such a triangle.

In today's intraday price movement there appeared to be five waves down from the high. This might be an 'a' wave of the minute ((c)) leg down of the triangle. We don't know for sure, confirmatory price action will be needed. Certainly, there was MACD divergence again at the high.

Have an excellent start to your evening.

TraderJoe

Flexible, Patient and Open-Minded

Yesterday, well before the FED meeting blog contributor Greywaver and I were having a discussion about the potential of the expanding triangle fourth wave scenario. As Gw pointed out, Neely said he has not typically seen them in fourth wave positions. Further, we both understood that the wave (v) from an expanded triangle should try to approach the wave (iii) in height, even if it did fail. And, still, it should measure at least 0.618 the length of wave (d). As Gw pointed out, it didn't. Therefore, the high of that wave provided as a warning in a down count. Further, this alternate was quickly developed and clearly presented.

As noted at about 1:06 PM, wave (v) could have already occurred with wave (v) on the 8th. That would leave the remaining structure as an expanded flat wave with the low at the 'typical maximum' for an expanded flat of c = 2.618 x a.

That measurement held today. Then, before the FED meeting at 12:05 pm, we further showed an internal measurement, much lower than the failure of the expanding triangle at SPY 461.72 and said to watch that level closely because it would likely mean the down wave in progress would likely be ending. That level was beaten twice: once shortly before the FED report, and once after. 

The reaction to the FED's intended actions caused an initial up wave, and then a 1.618 wave following it - all totaling 100+ S&P points from 6,602 to 6,706 in two hours' time. With this, the daily bias shifted to upward, and the daily slow stochastic is still currently over-bought.

The market is especially volatile in both directions. It requires flexibility, patience and an open-minded attitude to count waves under these conditions. What makes me happy, is that we could engage in a real discussion of wave characteristics. We did not get an expanding triangle fourth wave. And this is a good review for all, that under the right conditions an expanded flat can mimic most of the characteristics of an expanding triangle as an alternate.

Can new highs be made in the ES futures? Yes, it is possible, and even probable. We will continue to count waves as best we can as we see recognizable structures. What do I mean by that? I mean specifically that major tops are typically accompanied by either a triangle before the last wave-set or the fifth wave forms a diagonal. We have our antennas up for both, but at this time (if new all-time-highs are indeed made) it is too early to see anything of this type on the daily chart.

Have a good rest of the evening.

TraderJoe

Bias Shifts to Down

Yesterday was an outside day down for the ES futures. Today was a follow-through day and the close is likely to be under the 18-day SMA.

ES Futures - Daily - Follow Through

The daily slow stochastic is in over-bought territory and tomorrow is the FED report day.

Have a good evening.

TraderJoe