After teasing us with new highs the week before last the ES has lapsed back into a sideways chop. There are now a myriad of alternate possible EW counts, but I favor an ending diagonal of some sort because a sideways chop fits that type of pattern. Following are updates on the two alternates that have been followed in recent weeks, both of which can now be viewed as recently forming an ending diagonal on one time frame or another. The significant practical difference between the two is that Alternate #1 has a very significant Primary W III top very close by whereas Alternate #2 has that top off in the distance.
New highs this week and maybe, just maybe, we've broken out of this interminable trading range. Both alternate EW counts would dictate more rally action, but the ending diagonal alternate is more limited in that respect. The ending diagonal fits the character of this market better, for that reason it has better odds of being the correct count.
I have to confess that the strength of Friday's rally took me completely by surprise. My intraday indicators were signalling a short term bottom on Thursday morning:
However, I was convinced that the bull had been slaughtered and that we were about to see sausage being made, so I didn't take a long position on the indicated turn but rather planned on shorting this puppy with both fists whenever it looked like the rally was losing steam. At this point that plan is, as they say, "inoperative". The only consolation is that I didn't go short on Thursday (not that I wasn't tempted).
So the ES/SPX is still range bound and approaching the upper end of that range. Given the strength shown on Friday it's a fair bet that new ATH's will be seen this coming week. Whether we will see sustained trade north of the upper boundary of the recent range is an open question, and the answer to that question turns on which of the two alternate EW counts presented in the last month are correct. Although Friday's rally forced a minor revision of those counts they remain essentially the same:
Alternate 1: Major W5 of Primary W III in progress, Intermediate Waves 1 & 2 of Major W5 done, currently Inter W3 in progress:
Alternate 2: Major W3 of Primary W III still unwinding with Intermediate W5 of Major W3 forming an ending diagonal, Minor Waves 1 through 4 of Intermediate W5 done and Minor W5 in progress:
Last week started out with a nice impulsive looking sell-off which held the promise of a decent bear trend. However, by Wednesday it became obvious that not a whole lot had changed with respect to market activity in recent months - i.e. lots of overlapping, choppy moves without evidence of strong conviction from either bulls or bears. Translation: still in a trading range.
The best count apparent in the ES for the weeks action is that of a double zig-zag into a low on Thursday PM which marked a short term change in trend:
So where do things stand as far as the two alternates on deck from last weeks update? On the near term bullish alternate, the count would be a couple of waves 1 & 2 nests with a wave 3 commencing at Thursday's low:
The more bearish alternate has a significant top in place at Monday morning's high with the corrective pattern for the week labeled as an "A" wave of a developing flat, triangle or some sort of complex corrective sequence. The chart below projects a flat.
The correction in this alternate would be Major W4 of the bull market off the October, 2011 low:
As can be seen, Major W2 (blue) was a zig-zag, so the EW rule of alternation suggests other types of corrective sequences as mentioned earlier. Also, Major W2 lasted about a month which would suggest a similar duration for Major W4.
CYCLE - Green - I, II, III, IV, V - A, B, C, X PRIMARY - Red - I, II, III, IV, V - A, B, C, X MAJOR - Blue - 1, 2, 3, 4, 5 - a, b, c, x INTERMEDIATE - Purple - 1, 2, 3, 4, 5 - a, b, c, x MINOR - Red - 1, 2, 3, 4, 5 - a, b, c, x MINUTE - Green - 1, 2, 3, 4, 5 - a, b, c, x MICRO - Black - 1, 2, 3, 4, 5 - a, b, c, x NANO - Black - (1), (2), (3), (4), (5) - (a), (b), (c), (x)
Manage apple orchard & processing business full time - trade part time
Traded cattle futures professionally for family meat packing company in 1980's
Also traded stock indexes for own account
Won the US Trading Championship - Options Division in 1986 (500%+ return in 4 months)