Elliot Wave
Today was one of those days where you just stare at the chart and wonder what the heck went wrong. It’s the type of day where you think of all the time and effort that went into your counts only to have them rendered useless in one swift updraft of buying. One commenter called EWT useless after today’s move. How tempting it is to throw in the towel and agree that EWT is just too darn fallible.
Regardless of your opinion on this, admit it was interesting that exactly when the S&P violated the Minuette (iv) CANNOT CROSS line, the market exploded higher on strong volume. Looks like too many people were on one side of the trade and there was a mass exodus out of the short camp. I repositioned my trading account to a neutral state until I figured out what the heck was going on. When the market does something you don’t expect, you must get smaller and reevaluate the situation.
After some reflection, here are my thoughts. This is the type of post that gets readers annoyed and even angry. I cringe just hitting the Publish button because I know most people will say I’m ignoring the price action and simply using creativity to find a count that fits my stubborn outlook. If there was one day in the past 3 years that I have been tempted to turn bullish, it was today. And that is why I know it’s time to be more bearish than ever.
This count is borrowed from DanEric who is a stubborn Bear just like me. It shows Minute [i] finishing shy of its 1010 target, sporting an extended fifth wave. Sure, it’s not ideal, but it’s a valid wave count with no rule violations. According to Prechter, corrections after extended fifth waves usually complete near wave two of lesser degree. Well, that’s pretty much where we are now indicating Minute [ii] is just about done. This target lines up pretty well with the 50% retracement too.
My primary count of a Minuette (iv) triangle still looks fine. However, I am prepared for a move lower in case (iv) has already topped out. It’s important to keep an eye on the bigger picture and not get too caught up in the squiggle counts.
S&P 10-Minute
S&P Daily
According to EWT, Minuette [i] should advance prices beyond the Minor 1 low, just as Intermediate (1) should advance prices past the Primary [1] low under 666. Notice the large head and shoulders pattern on this chart. The negative sloping neckline is very bearish.
This count was proposed on Friday and looks good so far. Subminuette b has retraced just over 61.8% of Subminuette a. The b-wave may have a little more downside to go, or it may not.
Counting corrective moves is challenging, and counting triangles is especially difficult, so I don’t really care exactly where we are. It will become clear soon enough. I am having trouble finding a count that supports a Minuette (iv) flat or zig-zag, but that possibility does exist. The alternate count is that Minuette (iv) already topped out - see DanEric’s expanding triangle count.
As a trader, I want to be prepared for (v) down, which should be a decent size move. Given that (i) = (iii), both about 60 S&P points, it suggests that (v) will be an extended wave, moving greater than 60 S&P points.
I admit that today’s strong market internals put the Bearish Count into question. On the NYSE,
Advancers/Decliners = 6.59 / 1 and UpVolume/DownVolume = 12.75 / 1
Who said this market would be easy? It felt like there was lots of short covering today, which might have been needed to alleviate some of the bearish sentiment. Here is what Bears are looking for on this 10-minute chart of the SPX. There are few catalysts next week until the Friday employment report, so a choppy triangle next week does make sense. Today’s rally makes a nice 3-wave pattern, which suits the a-wave of a triangle.
EWT Lesson: Today’s rally looks like a bearish wedge but those can only be found in fifth or C waves. It is not the c-wave of a flat because subminuette ii is already a flat, and you cannot have two flats in the same 5-wave pattern. Subminuette ii must be a flat for this bear count to work. Otherwise, subminuette iv would violate the price territory of subminuette i.
Notes
This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT). There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.
SPX Preferred Count
My preferred count continues to play out. I wouldn’t expect any meaningful bounce until we pass the Minor 1 low around 1010, but the large Head & Shoulders Neckline is a more likely target around 995. There are alternates, of course, but today’s gap lower looks like the 3rd of a 3rd. If the gap fills, it would put the preferred count in question. 3rd of 3rd waves generally create a price window that is not retraced until the next wave of higher degree, which would be Minute [ii] in this case.
Author Notes
- This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory (EWT).
- There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.
SPX Hourly Count
The last trading week in August typically is a light volume week, which favors sideways to upward price action. For that reason, I’m less inclined to shout from the rooftops, “LOOK OUT BELOW!”
However, the counts are looking very bearish for the short term. Since the Minor 2 (blue) top, the market is impulsing down in 5-wave patterns and correcting up in 3-wave patterns. All signs point to a third of a third of a third wave lower coming shortly. Note that I have labeled Minor 2 as a double zig-zag rather than an ending diagonal.
Notes
This is a rough road map for the market movement I expect based on the rules of Elliot Wave Theory. There may be several valid counts at any given time, but I am only presenting what I consider the most likely count based on my own objective analysis.
Here are several charts: The truncated leading diagonal just doesn’t sit well with me, even if it’s only truncated on the S&P and Wilshire indexes. The entire move down from 1220 certainly looks impulsive, and this is supported by the internals. The question is how to count it. The (iii) of [iii] of 3 count still is valid, even though its not pretty. This recent rally is really pushing deep for a wave (ii) retrace, but has not yet violated any rules. The move off the recent low can be counted as a zig-zag. If the market opens strong, I’ll know I’m wrong and accept the alternate count. I should have more charts this weekend.
It seems a large number of traders and bloggers expect the S&P to move higher short-term into the 1115-1140 region before the next big plunge. That’s what the charts are calling for, and we trust the charts.
Keep in mind that Elliot Wave rules require only that Y moves above the price high of W for a valid double zig-zag. The minimum requirement is 1103.50 on the SPX.
As always, the perfect shorting opportunity will be elusive for most traders, not unlike a pitcher throwing a perfect game.
Lots of interesting things happening here. The market had the opportunity to form a triple zig-zag, and the Fibonacci Time Ratio was setting up perfectly as well. It’s failure is a sign of weakness. Minute [ii] has already lasted long enough in terms of time and has retraced 50% of [1] in classic ZZ fashion. The last half hour certainly felt and looked impulsive, but it does take some creativity to label a leading diagonal offthe high.
