E-mini S&P Elliott Wave Discussion

[JahDave]

The market certainly didn't cooperate in holding below 1054.25. The previous interpretation was incorrect. Structurally, the price action is still to be viewed corrective but it appears that my comments on August 31, 2010, i.e. " keeping the possibility of a larger upside correction on the table" are unfolding. Today the market traded impulsively. The attached chart includes the new internal structure. While we have satisfied the minimal requirement to count 5 waves up by the fact that wave iii (blue) was exceeded, the market may further subdivide into a larger fifth wave. Should we fail to see any significant follow through, odds favor a wave (ii) purple completion.

Best of Trading

As usual you are doing a very good job of charting and adhering to Elliott Wave principles. I am only putting my DOW chart out there so that you may see a different perspective. This is my preferred count but of course it is not certain because you know that corrective waves are much harder to nail down until they are almost complete. My preference is a large flat or possibly still the expanding triangle.

 

[EWT]

Dave,

Agree on counting corrective wave difficulty. Is your preferred count on the cash market? If so, you might want to look at the same time frame in the futures as it shows that the low was on 8/25/2010. It looks like your chart shows differently, allowing the count that you presented. I believe that the futures market leads the cash, so I tend to make my analysis on that basis. It's still good to look at both. With that in mind, the key point is that both interpretations of wave counts ( DOW and S& P) are calling for a tradeable top in the near term. We both expect a decline ( your B wave). That's were the rubber meets the road. Should price not take out the lows established 8/25/2010
(futures), then I and most other Elliotticians be forced to abandon the wave count from 8/9/2010.

I am very leary of this market right now but I have to stcik to the count until it no longer makes sense. Should we start to go sideways from here, I think that the combination interpretation plays out before resumption of the trend down.

Best of Trading.

As usual you are doing a very good job of charting and adhering to Elliott Wave principles. I am only putting my DOW chart out there so that you may see a different perspective. This is my preferred count but of course it is not certain because you know that corrective waves are much harder to nail down until they are almost complete. My preference is a large flat or possibly still the expanding triangle.

 

[EWT]

Jobs report just came out and the futures are flying higher. Does anyone think that the market manipulators get the reports before us? Of course they do.

At the time of this post, the market seems to be challenging the gap established on 8/11/2010. I don't know if the market has the muscle to close it but the thrust off of 1039.25 appears to be too strong for the current count.

Open interest and volume over the rally continues to fall ... so technicals still indicate that shorts are liquidating positions. This is only a corrective wave structure. Once this rally exhausts itself, trend should resume down.

Best of Trading

 

[EWT]

Looking for confirmation that a tradeable top is in place. Trade closing Friday's gap (1090.5) in an impulsive manner would be what I need to see to act.

Best of Trading

 

[EWT]

The market concluded today's session with an attempt to close the gap from Friday. On a closing basis, the gap is still open. As I mentioned earlier today, I need to see trade below 1090.5 to conclude that several other wave interpretations can be taken off the table and to place any bearish positions. Trade below 1081. 5 would bolster the bearish case.

The chart presented tonight is a "best" interpretation of the wave structure that calls for selling pressure. It is also quite possible that other alternative counts are best suited and another high may be in order. We'll have to see over the next few days what the market has in store. In the mean time, caution is advised and position sizes should remain small.

Food for thought - Turning to the larger picture, the elusive, wave iii of 3 down, has not materialized leaving me cautious as if I smell a fox in the chicken coop! At the daily chart level, the market has meandered sideways for 3 + months. This is not the kind of price action one expects if we are truly in a third of a third. However, the larger count ( not shown) is still the highest in probability and should be maintained until such time as price renders us wrong. In the meantime, there is nothing wrong with looking ahead and playing "what if". Several possible explanations are available, although premature. Could we be building a triangle B wave that counts the decline from 4/26/2010 as an A-B-C structure or are we building a combination wave 2 pattern?

Bottom line is that the market will get as many participants on the wrong side before it tips it's hand. Let's see what unfolds.


Best of Trading

Looking for confirmation that a tradeable top is in place. Trade closing Friday's gap (1090.5) in an impulsive manner would be what I need to see to act.

Best of Trading

 

[EWT]

The Market ended the week with a negligible gain. NYSE volume was putrid;765.6 million shares traded... the lowest of the year. I found two interesting chart patterns that I would like to share with you. They are "fractal" in nature. Fractals are the structures Elliott described as self-similar patterns appearing at every degree of trend.

Looking at the first chart, we can compare the current wave structure to that of the decline from the 2007 top. In the far left hand box, notice how prices were able to push up in one final surge before resuming the downtrend. Looking at the box on the right, the same fractal is present suggesting that once this countrend rally has completed, the market will trade significantly lower consistent with the longer term trend analysis and wave interpretation.

The second fractal is the ending diagonal pattern. From the 120 minute chart, notice the larger diagonal that terminated at wave 2. Now compare it to it's brethren depicted in the right hand box. Should the market push up as expected to complete wave v of the diagonal, the stage would be set to resume the larger downtrend which is consistent with the weekly chart shown. What is unclear is whether the market has enough umph to close the gap at 1119.75. I have to think that larger market participants are not going to let the market decline before this gap is closed. So near term, that's my target even though a new high is the only requirement to fulfill the completion of the pattern!

Finally, there is one other interpretation of the wave structure that I need to bring to your attention. It is possible that a iv wave triangle ( not shown) is forming that would have greater near term upward potential... one that might hunt stops above 1126.75. Should this play out, this would not negate the weekly fractal pattern but it would alter the overall daily wave count from wave 1 (1038.50). In this case, a combination wave 2 (blue) would most likely be in order, follwed by the wave 3 decline.

The early part of next week should tell us the information that we need to position ourselves for the next market turn.

Best of Trading

 

[JahDave]

The Market ended the week with a negligible gain. NYSE volume was putrid;765.6 million shares traded... the lowest of the year. I found two interesting chart patterns that I would like to share with you. They are "fractal" in nature. Fractals are the structures Elliott described as self-similar patterns appearing at every degree of trend.

Looking at the first chart, we can compare the current wave structure to that of the decline from the 2007 top. In the far left hand box, notice how prices were able to push up in one final surge before resuming the downtrend. Looking at the box on the right, the same fractal is present suggesting that once this countrend rally has completed, the market will trade significantly lower consistent with the longer term trend analysis and wave interpretation.

The second fractal is the ending diagonal pattern. From the 120 minute chart, notice the larger diagonal that terminated at wave 2. Now compare it to it's brethren depicted in the right hand box. Should the market push up as expected to complete wave v of the diagonal, the stage would be set to resume the larger downtrend which is consistent with the weekly chart shown. What is unclear is whether the market has enough umph to close the gap at 1119.75. I have to think that larger market participants are not going to let the market decline before this gap is closed. So near term, that's my target even though a new high is the only requirement to fulfill the completion of the pattern!

Finally, there is one other interpretation of the wave structure that I need to bring to your attention. It is possible that a iv wave triangle ( not shown) is forming that would have greater near term upward potential... one that might hunt stops above 1126.75. Should this play out, this would not negate the weekly fractal pattern but it would alter the overall daily wave count from wave 1 (1038.50). In this case, a combination wave 2 (blue) would most likely be in order, follwed by the wave 3 decline.

The early part of next week should tell us the information that we need to position ourselves for the next market turn.

Best of Trading

Hi EWT,

Very good work on your part as usual. When I looked at this post I had already come to the same conclusion Friday afternoon on the Dow. I have it in an ending diagonal as my preferred count, so I think we will see a nice tradeable top the first part of next week. Keep up the good work and good trading.


Dave

 

[EWT]

Hi EWT,

Very good work on your part as usual. When I looked at this post I had already come to the same conclusion Friday afternoon on the Dow. I have it in an ending diagonal as my preferred count, so I think we will see a nice tradeable top the first part of next week. Keep up the good work and good trading.


Dave

Question for you. Are you doing any cycle work? I noticed the Percent bands. How are you using them?

 

[JahDave]

These are not Hurst Bands but I have have studied cycles some. The blue lines are a percentage channel indicator that my charting software has available. I have the settings on the 34 period moving average because that seems to work best for this indicator. I have read some of JM Hurst's writings and I have his main book as a pdf. I will be glad to send it to you if you don't already have it and would like it.

 

[EWT]

These are not Hurst Bands but I have have studied cycles some. The blue lines are a percentage channel indicator that my charting software has available. I have the settings on the 34 period moving average because that seems to work best for this indicator. I have read some of JM Hurst's writings and I have his main book as a pdf. I will be glad to send it to you if you don't already have it and would like it.

Thanks Dave. I am studying Hurst's book now. My initial though is to combine cycle analysis with EWT to create a market timing system. So far, it seems difficult to grap at the intraday level when trying to overlay the higher time frame cycles. I have a method where I can identify every intraday turn with a high percentage of accurancy. Possibly this works best with scalp trading. As for longer term cycle work, I can see where an application can be applied but have yet to work out a trade plan.

We'll see what develops over the next 6 months.

Best of Trading

 

[EWT]

Good Evening. As a reminder I am only posting to the blog on a M-W-F basis but you can get my intraday thought by following me on twitter. The link is below in my signature line.

From my week in review that I previously posted, I was anticipating an ending diagonal to form today. With today's gap open and persistent strength, the diagonal interpretation has given way to the other interpretation of the wave structure that I brought to your attention... a iv wave triangle. Given this alternative I indicated that greater upward potential could hunt stops above 1126.75.

Earlier today I posted preliminary projections for wave v to my Twitter account. I can now revise those with somewhat greater clarity. My projections using the diagonal interpretation were 1119.25- 1121.76. Looking at the current wave structure as depicted in the chart wave v should terminate according to the following Fibonacci extensions:

wave v = .618 waves (i) - (iii) at 1141
wave v = 1.618 wave (i) at 1123.52

Looking at daily cycle analysis, upper projections point towards 1134.75 +/- 1.0% which is agreeing with my Fib projections. As always, these targets are not magnets but areas that one should focus upon if the market approaches them. It's what price does after encountering the key areas that matters... meaning we should see an impulsive 5 wave structure if this countertrend rally has completed.

Best of Trading

 

[EWT]

Not much has transpired in the way of price appreciation since Monday. Both Monday and Tuesday were either doji or spinning tops depending on your interpretation. Regardless, they show indecision and declining momentum. What we don't know is whether they are just part of a continuation signature or if they signal that a top is forthcoming. Today showed a slightly more bullish candle that closed near its high. I'll be looking for initial upside momentum to pick up tomorrow or in the ON session.

As I have mentioned, I have to believe that we are going to take out the 6/21/2010 high of 1127.50. My upside target remain at 1134 +/- 1%. There has got to be a tremendous amount of buy stops just above the 6/21/2010 high. One would think that this adds fuel to the fire, pushing prices higher. What's odd is why larger players have not forced the issue in the first 3 days of this week so they can liquidate their longs. The answer might be that there is also allot of overhead supply between 1127.5 and 1150 waiting to break even on longs that were held throughout the decline. It will be interesting to see how much buying will be absorbed from new bearish positions, long liquidations from profit takers and frustrated bulls who finally get a chance to break even. I have to call this a draw between the Bulls and Bears but when the dust clears, the Market should roll over as the Bulls have exhausted their energy.

Finally, for my analysis to turn immediately more bearish, I still need to see a decisive close below 1110 in an impulsive manner with five completed waves.

Next update is on Friday, 9/17/2010.



Best of Trading

 

[EWT]

So much for a quiet day before the FOMC announcement. Let's get right into it. The following chart shows where we are in terms of the current wave count. If you have been following along you know that I was calling for a breakout and a price target of 1134 +/- 1%. We have also reached the point where wave (v) = .618 wave (i) - (iii) at 1135.75. The high of the day was 1140.25 so there is certainly more room to the upside should the internal structure of wave (v) subdivide.

You will also note that the previous high on June 21 labeled wave 2 (blue) , (1127.5), has given way to an alternative wave count whereas we never began wave 3. Often countertrend moves are difficult to nail down until such a point where both technicals and wave structure finally come together. To be frank, I certainly had difficulty with the labeling but I alluded of this potential outcome as early as August 31 and then again on the following day. To quote. "Food for thought - Turning to the larger picture, the elusive, wave iii of 3 down, has not materialized leaving me cautious as if I smell a fox in the chicken coop! At the daily chart level, the market has meandered sideways for 3 + months. This is not the kind of price action one expects if we are truly in a third of a third. However, the larger count ( not shown) is still the highest in probability and should be maintained until such time as price renders us wrong. In the meantime, there is nothing wrong with looking ahead and playing "what if". Several possible explanations are available, although premature. Could we be building a triangle B wave that counts the decline from 4/26/2010 as an A-B-C structure or are we building a combination wave 2 pattern? " Well today we have our answer. It's a combination! W-X-Y.

A few other key notes. Earlier in the commentary I mentioned that wave (v) could subdivide further. If so, the wave (c) = wave (a) at 1158. It's a possibility. What is of interest here is that an unclosed gap is at 1157 which by coincidence is in the vicinity of the previous 4th wave. This should make you pay attention to the message of the market because countertrend moves can end at or near the previous 4th wave. I'm not stating that the market can get there, I'm only drawing your attention to the fact and the principles of EW.

Looking forward, I am still be looking for a top as this rally is extremely long in the tooth. Until next time...

Best of Trading.

 

[EWT]

You will also note that the previous high on June 21 labeled wave 2 (blue) , (1127.5), has given way to an alternative wave count whereas we never began wave 3.

Correction wave 2 (blue) was 1126.75

 

[EWT]

The upper targets have been achieved from my previous forecast of 1134+/- 1%. In doing so, several points of interest are: internals are weak; the NYSE ADV/DEC is diverging as price rallies; ROC and other short momentum indicators are beginning to rolled over. Sentiment indicators and the Put/Call Ratio appear to be signaling a reversal is near. Yet as of the close, we have no confirmation that a top has taken place.

The wave structure is mature but I can't rule out the possibility that price will not try to close the gap surrounding the previous 4th wave at 1158. Also, price has yet to reach the upper boundary of the channel. Tomorrow this line goes through 1151.25. It's important to note that extremes of channel lines mark cycle tops and bottoms. How you might ask? Because when a longer duration cycle than the one contained in the channel lines rolls over, curvilinear channels (not shown) also turn and prices quickly break through the chartists trend lines. The grey lower trendline is of significance. It was tested today and held leading me to believe that the upside is still viable. Should the market break the trendline in a convincing manner my assumption is that a major price reversal is founded on the fact that:

1. A long duration cycle has caused the effect and it will be quite some time before the previous trend is resumed.

2. A long duration cycle has a large magnitude associated with it and therefore the amount of price range associated with it should be significant.

For tomorrow, my trade plan is to scalp while waiting for confirmation that a tradeable top is in place.

Best of Trading

 

[EWT]

The current rise in equities and commodities exhibit the concept of "all in one" whereas it seems that everything is pegged to the US Dollar trade. With the FED's announcement this week, it is clear that Keynesian economics is still very much alive. Hopes for a full recovery and the re-inflation of assets are dependent on quantitative easing (QE) that further devalues the Dollar. The Market seems to favor this continued approach. We will not debate this issue but in my humble and subjective opinion, only a bottom in the US Dollar can derail this rally. I want to be clear that I am not changing my long term bearish bias. I'm merely stating my perspective regarding the current rally.

The following weekly chart shows a target box for termination points for wave 2 (blue). Price has also reached the previous 4th wave, a typical termination point for corrective price structures and the .618 retracement. Should prices fall below this area then my expectation is for a termination to be at the lower end of the target box.

The two SMA's, 30 and 10 represent cyclic activity. While no attempt has been made to determine the dominant cycle, both moving averages seem to match price bottoms and tops quite well. Notice that both cycles topped at wave 1(blue) and are now hard down. Regression analysis indicates that a low may be struck at 77.37 which is well within the target box. So we have two methods pointing to near term lower prices, then bottoming.

So how does this analysis fit into our e-mini trading? Simply put, I expect higher prices. Looking at the daily chart level, several target areas are evident such as:

1. 1150.75

2. The open gap at 1156.75

3. The previous 4th wave and reverse fib extension at 1172.5

4. Wave (c) =wave (a) at 1158.

As I mentioned earlier this week. The stage has been set for a turn. The information that has been provided herein provides key areas that you may want to consider for trades. As always, consider your risk and speak to a licensed broker or investment advisor before taking any investment action.



Best of Trading

 

[EWT]

A very boring day from my view point whereas the market spent much of the day within the resistance zone near the top end of my projected targets of 1134 + 1%. As I mentioned in an earlier post, the only upside target that may still be in the works is where wave c = wave a at 1158 and closes the gap. In the meantime, prices have been testing the .618 retracement of the entire move down from 1216.50. Caution is still necessary as this area is not getting any stronger. There have been 3 tests of the area from a week ago.

What interests me to day is that I can count 5 waves down on a 20 minute chart. While this by itself confirms nothing, it could be the beginning of the resumption of the larger degree trend. Therefore, I will be watching intently for confirmation of the trend change. As soon as I am able to confirm it I will discuss it.

Until then,


Best of Trading

 

[EWT]

Back to back days of lackluster trade on low volume. Today was an inside day. These price bars are often the precursor for range expansions. With GDP, Jobless claims, Chicago PMI and Helicopter Ben speaking early in the morning, we should expect a volatile trading session. There is no material change to my forecast that was published in the week in review. I believe it is on the previous page. You might want to review it and compare today's prices in ES_F and Dollar (DX)

Best of Trading

 

[EWT]

With so little net process last week, I thought that I would share with everyone what my opinion of the current market position for the week ending 10/1/2010.

Momentum: Overbought. A weekly momentum high is likely within the next bar or two followed by a decline lasting several weeks. Daily momentum is also overbought. The immediate upside at this point is limited.

Pattern: Corrective. The trading has been contained within parallel channel lines and is typical for a corrective pattern. Expect a minimum a 3 wave decline or the resumption of the larger trend down resulting in new lows.

Price: The .618 retracement from the low of wave 1 ( 1038.5) has been tested multiple times. Price is currently just below this important level. A 1.272 reverse extension (1151) of the decline from 1126.75 - 1037.25 has also been tested. In previous posts, I mentioned other clusters of fibonacci targets for the termination of this correction ( 1158, 1150.75). While there is another key area above the market (1171.5- 1182), the fact that several fib targets are clustered in close proximity to each other and near the .618 retracement leads me to believe that the rally has ended or is near confirming such.

Time: From the low of 1006, 10/5/2010 +/- 1 trading day is the 100% time retracement whereas wave c = wave a of 27 bars. Also, 10/1/2010 +/- 1 trading day whereas wave b = .382 and wave c = .618. Therefore there is an expectation that the rally ended on 9/30/2010 or will do so between 10/4 - 10/6.

Trade Strategy: Go Short. With weekly momentum, pattern, price and time all in position for a high, the trade strategy is to consider going short on the shorter time frame daily chart. How you accomplish that depends on your own trade plan.


Best of Trading.

 

[EWT]

In my weekly wrap up I presented a case for a bearish turn... the completion of W. 2. Moving forward I will be using a similar format so that everyone can see how I combine 4 factors to locate a possible trading opportunity and make a trading decision. I hope everyone finds this helpful and I'd like to get some constructive feedback.

Here's the bottom line as of the close of trade.

Momentum: Overbought. Weekly momentum is starting to roll over. Daily momentum continues to decline but remains in overbought territory. 60 minute momentum is oversold and has turned up indicating sideways to up prices early on tomorrow.

Pattern: Possible beginning of W.3 or building a larger W.4 decline that can't be ruled out at this juncture. That's why I stated in my weekly wrap that at a minimum a 3 wave decline would transpire. Keep in mind that my suggestion to go short was based upon the fact that two viable wave count interpretations indicated that the market position had a high probability of a decline for today's trade.

Price: The decline from 1153.5 has remained in channel lines. If indeed a larger degree W.3 is unfolding, then price MUST break through the bottom channel trendline in an impulsive manner (See red bar). Tomorrow that line crosses 1119. A break of 1119.25 would also bolster the bearish case. Conversely, a break of the upper channel line and a close above 1144 would indicate that the decline from 1153.5 was just part of a larger W.4 correction and we can expect new highs with limited upside potential.

Time: High to high cyclical patterns indicate that a momentum high should be reached within the first hour of tomorrow's trade.

Trade Strategy: As long as weekly and daily momentum remains in overbought territory, short positions should be established on lower time frames. Look for 60 minute momentum to reach an oversold condition. Enter a short position on a lower TF as the lower TF momentum makes a bearish reversal.




Best of Trading