Saturday, February 28, 2015
Saturday, 2/28/15 update
Very quiet ES this week with an 18 point trading range. An old adage is never short a quiet market, which adage should apply here as the EW count (if correct) suggests a 5th wave pop to new ATH's should occur in the near future. Bears will only need a little patience here, because the current long term count show that potential 5th wave top to be the culmination of the bull run that started in October, 2011.
Saturday, February 21, 2015
Saturday, 2/21/15 update
Could be a significant top nearby. Then again, this wave could extend and grind it out for a while yet. (Qualifier added due to habituation that has occurred to this analyst in the last 5 years)
Sunday, February 15, 2015
Sunday, 2/15/15 update
The move to new ATH's in the ES/SPX this week confirmed the triangle alternate that was outlined in recent updates.
EDIT: It's been pointed out that the SPX does not show a triangle. However, the count on the SPX does show Major W4 ending at the Feb 2 low. SPX chart has been inserted at the end of the post. Also, and not unimportantly, the NYA does show a triangle.
The good news for the bears with this development is that a triangle is always the final corrective structure in a move. Thus the conclusion of the wave following the triangle will also mark the conclusion of the entire structure that includes the triangle and that following wave. In this case the triangle is being counted as the 4th wave of the bull market that commenced in Oct 2011, so the completion of the 5th wave that is currently in progress will mark a significant long term top and should usher in a serious bear trend. Some targets for the current Major W5 can be drawn from the typical fibonnacci relationship that 5th waves bear to 1st waves. Major W5 will be .618 x Major W1 at 2110.50, Major W5 = .786 x Major W1 at 2147.75 and Major W5 = Major W1 at 2195.00.
Current short term count looks like this:
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I have to confess to making an error in judgement in recent weeks that I've made before. It became fairly obvious around the end of January that the ES was in the later stages of a triangle that it had been forming for a couple of months. However, a market analyst for whom I have enormous respect was quite bearish and didn't agree with the triangle theory. As a result I let that viewpoint influence my outlook as well as my trading. I didn't lose money as a result, but I also jumped out of longs established on Feb 2 a few days later and thus missed last week's run up. The error here is not relying on my own trading system which was telling me to continue holding long. I believe a trader needs to develop and test a trading system before engaging in a market, and if that system shows a profitable edge than it needs to be followed regardless of factors extraneous to that system. And outside opinions are extraneous to my system. This is not meant as a criticism of my friend, who is a gentleman and also a very astute and impressive analyst. But if a trading system is right more often than wrong, then allowing an outside factor to influence the resulting trades will introduce a variable that will likely push the approach into a losing situation.
What made me think that a triangle was in play and new ATH's were in the offing? I have a momentum indicator called "Al's Daily" that was developed years ago. There's nothing particularly unique to the indicator, it combines NYSE rate of change, advance/decline and volume statistics to generate a momentum oscillator. It's not 100% correct, but more often than not when it establishes a low below a reading of 1.00 and cycles up from that low prices will continue rising until the oscillator moves up past a reading of 2.20. A reading of 2.20 doesn't necessarily signal a top, it just signals that maximum momentum has been achieved and a top is possible. The important point here is that until that 2.20 level is reached the odds are that prices will continue to rise. As can be seen in the chart below of that oscillator, the indicator cycled away from a low reading of around .60 on Jan 6 and throughout the month of January meandered upwards but did not get to the 2.20 level. Thus the thought that higher prices were in the offing was buttressed.
P.S. I post this indicator here and update it daily.
EDIT: It's been pointed out that the SPX does not show a triangle. However, the count on the SPX does show Major W4 ending at the Feb 2 low. SPX chart has been inserted at the end of the post. Also, and not unimportantly, the NYA does show a triangle.
The good news for the bears with this development is that a triangle is always the final corrective structure in a move. Thus the conclusion of the wave following the triangle will also mark the conclusion of the entire structure that includes the triangle and that following wave. In this case the triangle is being counted as the 4th wave of the bull market that commenced in Oct 2011, so the completion of the 5th wave that is currently in progress will mark a significant long term top and should usher in a serious bear trend. Some targets for the current Major W5 can be drawn from the typical fibonnacci relationship that 5th waves bear to 1st waves. Major W5 will be .618 x Major W1 at 2110.50, Major W5 = .786 x Major W1 at 2147.75 and Major W5 = Major W1 at 2195.00.
Current short term count looks like this:
--------------------------------------------------------------------------------------------------------------------------
I have to confess to making an error in judgement in recent weeks that I've made before. It became fairly obvious around the end of January that the ES was in the later stages of a triangle that it had been forming for a couple of months. However, a market analyst for whom I have enormous respect was quite bearish and didn't agree with the triangle theory. As a result I let that viewpoint influence my outlook as well as my trading. I didn't lose money as a result, but I also jumped out of longs established on Feb 2 a few days later and thus missed last week's run up. The error here is not relying on my own trading system which was telling me to continue holding long. I believe a trader needs to develop and test a trading system before engaging in a market, and if that system shows a profitable edge than it needs to be followed regardless of factors extraneous to that system. And outside opinions are extraneous to my system. This is not meant as a criticism of my friend, who is a gentleman and also a very astute and impressive analyst. But if a trading system is right more often than wrong, then allowing an outside factor to influence the resulting trades will introduce a variable that will likely push the approach into a losing situation.
What made me think that a triangle was in play and new ATH's were in the offing? I have a momentum indicator called "Al's Daily" that was developed years ago. There's nothing particularly unique to the indicator, it combines NYSE rate of change, advance/decline and volume statistics to generate a momentum oscillator. It's not 100% correct, but more often than not when it establishes a low below a reading of 1.00 and cycles up from that low prices will continue rising until the oscillator moves up past a reading of 2.20. A reading of 2.20 doesn't necessarily signal a top, it just signals that maximum momentum has been achieved and a top is possible. The important point here is that until that 2.20 level is reached the odds are that prices will continue to rise. As can be seen in the chart below of that oscillator, the indicator cycled away from a low reading of around .60 on Jan 6 and throughout the month of January meandered upwards but did not get to the 2.20 level. Thus the thought that higher prices were in the offing was buttressed.
P.S. I post this indicator here and update it daily.
SPX
Saturday, February 7, 2015
Saturday, 2/7/15 update
The triangle possibility for the ES/SPX is still in play. Friday's ES high at 2068.00 is within spitting distance of December's ATH at 2088.75. If the ES motors up through that ATH then the triangle count (alternate #1) is validated and an intermediate term change in trend from bull to bear is still in the wings. However, if Friday afternoon's selling resumes next week and the ES drops decisively below last Monday's low print of 1973.75 (alternate #2) then it's pretty certain that an intermediate term bear trend off the December ATH is underway.
Alternate #1
Alternate #2
Saturday, January 31, 2015
Saturday, 1/31/15 update
Alternate #1
Alternate #2
The selling that occurred in the last few hours of Friday's session is ominous. The triangle possibility presented on Thursday and in Alternate #2 above (daily charts below) is still on the table but very close to being ruled out. Any serious follow through selling that pushes the ES below the triangle's "C" wave low @ 1970.25 does invalidate that possibility.
The triangle idea was born out of the difficulty in discerning the EW pattern in the muddy mess that the ES has laid out in the last few weeks. The cash (SPX) is somewhat cleaner but still difficult. Especially troublesome is the rally of the week before last. Alternate #1 assumes this rally to be the "c" wave of a flat, in which case it needs to be a 5 wave structure. As can be seen, I can make a 5 wave count out of the structure if I stand on my head while twiddling my thumbs and whistling Dixie. But the fact is that it counts much better as a 3 wave move as in Alternate #2. One thing for sure: it's very much a corrective type move, and the market did in fact embark on a week of bear action after it's conclusion.
However, the odds of the triangle being in play have to be considered low at this point, which leaves Alternate #1. If that's the case, then there could well be a sharp acceleration in the selling giving the set of nested waves 1 & 2 apparent in last week's price action. So buckle your seat belts.
One final note: There are a couple of bullish alternates that are possible here, but until the market shows that they are more probable they will stay in reserve.
Daily Charts
Alternate #1
Alternate #2
Thursday, January 29, 2015
Thursday, 1/29/15 update
The last month has been about as difficult as it gets using Elliott Wave on the ES/SPX. Discerning what exactly is unfolding has been a real challenge. Although the bias seems to be bearish it's not clear that the intermediate term direction is down - i.e. that a sustained bear market is underway. With that thought in mind a possible alternate is that the market has formed a triangle in the action going back to the early December highs, with the last move in that formation complete today or very soon. This possibility is laid out in the following charts:
If the rally that commenced today fails and the ES drops below the Intermediate Wave C low of 1970.25 then this possibility will be invalidated.
If the rally that commenced today fails and the ES drops below the Intermediate Wave C low of 1970.25 then this possibility will be invalidated.
Saturday, January 24, 2015
Saturday, 1/24/15 update
More than once in the last week I've stared at a chart of the ES and asked: what ARE you doing? The pattern since the Dec 16 low is chock full of overlaps and 3 wave moves in both directions, extremely difficult to discern from an Elliott Wave perspective. It's been like watching a swimmer who's escaped from a strong undertow and now has his head above water, but that undertow is not far below the surface and is tugging at his feet. So what happens if that swimmer gets tired? Bear market time.....
Anyway, the below short term count is very tentative. If correct, the move up from the Dec 16 lows hasn't got a lot farther to run, after which the bottom should fall out.
There are a number of bullish possibilities here, but they come into play if the ES keeps moving up to new ATH's. If that occurs then those possibilities can be examined.
Anyway, the below short term count is very tentative. If correct, the move up from the Dec 16 lows hasn't got a lot farther to run, after which the bottom should fall out.
There are a number of bullish possibilities here, but they come into play if the ES keeps moving up to new ATH's. If that occurs then those possibilities can be examined.
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