Patience, Patience - 2

In the prior post I referred to further analysis this weekend. That work is below and what is shown are the three-touch trends lines on the NDX with all the available historical data. The crux of this count is that we know the SPX made its low in March 2009, but the NDX never made the lower low.  So, perhaps that wave is a truncated zigzag in the NDX. That's just a zigzag where the C wave (Ⓒ in this case) never quite makes the lower low. But the truncation would be a harbinger of the strength of the significant up wave to follow. The six-monthly close-only log chart of the NDX shows this as follows.

So, the alternation in this case might be two-fold. First, there would be a truncated zigzag versus an expanded flat. Second, there might be the alternation of "long-Ⓐ, short Ⓒ to short-Ⓐ, long Ⓒ". Note that the current Ⓐ down looks a lot like the prior Ⓒ down on a log scale. That is not proof positive, but it certainly is curious.

A second attribute of this count is that it might explain three current anomalies in the recent up wave. First is the fact that 1) the current up wave is extraordinarily difficult to count, 2) the Dow has not made a longer wave up yet. It could, it just hasn't yet, and 3) the Dow does seem to be vibrating around the 1.618 exterior retrace on the down wave. (See chart as this LINK).

None of these criteria are necessarily fatal for the Dow. Enough market experience has shown the Dow can wander on its own for a while if it wants. But, taken together, and in view of the possible form of the NDX it must cause one to raise an eyebrow. Recognition of this for months prior is why I am sincere when I say, "there is no amount of downside that will surprise me". This is true even as we patiently count to see what the local direction is.

This is the second post this weekend, and if you have not seen the first one yet, you might like to read it now. 

Have an excellent rest of the weekend,

TraderJoe

Patience, Patience

Before further analysis this weekend, I wanted to post this chart of my own construction showing current three-touch trend lines on the three-monthly log-scale chart of the S&P500 cash index.

SPX Cash Index - Three Month Bars - Log Scale Trend Lines

And while I encourage you to review the monthly RSI below the chart, and its current divergences from price, it would be helpful to post a couple of cautionary notes. Let me lead out by saying that the wedge itself outlines a certain level of risk that one might want to pay attention to. The upper wedge line would have to have prices break up through it and cause the upper wedge line to go parallel to reduce the risk. This is plausible but certainly hasn't happened yet. And the lower wedge line could be in play.

But if the ES futures have made '5-down' and overlapped certain waves, cash has not overlapped the most important down wave yet - the Aug/Sep 2024 high. The roll-over ES futures contract has not yet, either. But the NASDAQ (NQ) futures have overlapped that same peak, and that must be paid attention to.

Further, the Dow Jones Industrial has not yet made a lower local low over their January 2025 low. And that is curious. It may be that there is rotation out of tech and into stocks perceived to be more stable. So, we said earlier that stocks might go over the high again with a reduced probability. That is still the case and may depend more on the index being tracked.

Clearly, the three-month wedge might indicate a fourth and fifth wave inside the wedge to complete the upward count. But it doesn't have to. We'll try to indicate why later in the weekend.

But for now, the task at hand is to understand if the downward diagonal is ending or leading as the SPX 2-hr chart below shows. We have provided some minute degree wave labels for the wave as ⓐ, ⓘ or ⓒ at the wave (v) low. These follow from The Principle of Equivalence as related to market probabilities.

SPX Cash Index - 2 Hr - Diagonal

The Principle of Equivalence tells us to mind our p's & q's unless & until a retrace occurs that does not go over the high. And the patience comes from the fact that it took fully three-weeks to make the down wave. It does not have to, but it could take three weeks or more to make a corrective wave upward. Any upward impulse might take less time.

This is the part of the wave principle some people do not like. But if one wants to see a first wave down, then one simply must accept the necessity of allowing the market to make a decent second wave up. I hope to have more insights in further posts before Monday.

Have an excellent rest of the weekend,

TraderJoe

Five Down

As of today, it is possible to count five-down as a contracting diagonal on the ES 4-hr chart, as below.

This is currently a 3-3-3-3-3 diagonal. It would have been nicer to see a 5-3-5-3-5 diagonal as it might have eliminated one possibility.

As it is The Principle of Equivalence tells us we must be patient and wait to see if there is a retrace wave that does not go over the high before being more committing to a down label. The wave is either ⓐ, ⓘ, or ⓒ. Because of overlaps on some charts, we have listed the ⓒ wave potential last with the lowest odds. I'd rate the odds roughly about 40:40:20 based on the overlaps. That does not mean going over the high again is impossible. It just means it has lower odds.

Yesterday, we said the 18 cross 100 SMA on the daily chart could lead to a lower low today. It did.

Today broke the November low on the ES roll-over contract, and price closed below the 200-MA on the daily front-month contract. Price is at the lower daily Bollinger Band and so Ira's "elbow" warning applies.

Have an excellent rest of the evening,

TraderJoe

Now 18 Cross 100

Today in the ES futures was an inside range day. A lower low was not made, but a 90% wave down was. So, this has the effect of turning the local swing-line up temporarily, but as long as price is under the 18-day SMA, a new upward trend is not in effect, even given we recognize some price gains we made today. The daily chart is below.

Other items on the chart include a close of price above the 200-day SMA, the brown rising curve, and the fact that the 18-day SMA now has a cross under the 100-day SMA. Often, not always, that cross leads to an additional lower low. We shall see. We have not had such a cross in more than a year. The cross has only occurred on the lead month futures contract, and not the roll-over contract, yet.

So, price is still in a down trend until it isn't, and the daily slow stochastic (regular calculation) flirts with embedding and losing that status. So, the wave structure is a mixed bag at the moment on the daily, and we are counting locally in the comments and have provided some ideas on the nearby wave count.

Much more than that can't be expected. Is it possible to return over the high? Yes, it is possible, but the odds are dropping rapidly every day we stay under the 18-day SMA. By the discipline, we shouldn't begin an upward count until / unless price closes back over the "line in the sand".

Have an excellent rest of the evening,

TraderJoe

Too Far ?

According to The Eight-Fold-Path Method for Counting an Impulse, with 120 - 160 candles on the chart the guideline for a fourth wave in the Elliott Wave Oscillator (EWO or AO) is +10% to -40%. The daily ES chart, below, has 145 candles on it - well within the desired range. The Method is the Featured post on this blog, and the link for it is located under the Purpose and Ground Rules on the upper right-hand corner of the main blog page.

ES Futures - Daily - EWO -69%

The EWO on this chart is currently at -69%. So, even though there is no downward overlap in the continuous futures contract - like there is in the lead month only - as best we can tell the upward count is over. We drew this chart earlier in the day, noted that it had the right look for an impulse and wanted to check the EWO at the end of the day after the expected rebound. The EWO remains out of range. The fifth wave truncation count was shown earlier in several posts and comments.

Any further lower lows would more strongly suggest that Intermediate (3), up, is over, and Intermediate (4), down, has begun.

Have an excellent rest of the evening.

TraderJoe

Two Options

Nothing in the ES daily chart has yet invalidated or been proved. Today price headed down to touch the 200-day SMA on the front-month futures contract. This is shown by the brown rising curve below price. In earlier posts, we said it could. It did. We don't know anyone else that outlined that possibility. As shown by the dashed lines, there are no lower lows, yet, leaving the two options shown.

The triangle doesn't look particularly good, but it counts acceptably. So, we must still be patient and see whether the truncation count applies or not.  These are very close calls, and one would have to have an excellent set of market metrics (usually not available to retail) to tell the difference as of the close today. Essentially, the question amounts to whether or not price will take a strong bounce of the 200-day SMA. It's a reasonable expectation that it would, but it is not required.

Have an excellent start to the evening,

TraderJoe

Window Dress, then Front Run

The ends and the beginnings of the months are getting somewhat predictable. We suggested there would be end of the month "book-squaring, or window-dressing", and then preparation for the "first-of-the-month" money. That's what happened. We also warned readers to beware below the lower daily Bollinger Band. Yes, price might try to touch the 200-day MA, but it did not have to. That warning, too, was prescient as prices whipped around to close back inside the band. So, for today, the chart below is still just an alternate, but because of the length-of-time of the pattern it is the preferred alternate. The chart is a 2-day chart of the ES (rollover-contract) futures.

Nothing has invalidated a barrier triangle's measurements, and this one looks better when this starting point is shown, along with the 0 - 2 trend line.

We note that today there was overlap with not only Minor wave 3, on the downside, but then also upward overlap on the internal down wave of the ⓓ wave. Lots and lots of overlap & sideways price movement ... if it looks like a duck and quacks like a duck ...

Have an excellent start to the evening,

TraderJoe