E-mini S&P Elliott Wave Discussion

[EWT]

In my daily commentary from Monday, I stated that if a larger degree w.3 was unfolding, then price MUST break through the bottom channel trendline in an impulsive manner. 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.iv correction and we can expect new highs with limited upside potential. That analysis should have benefited buyside traders. However, two days later and there has been no further follow through to the upside after Tuesday's advance.

Here's the Market's position at the close.


Momentum: Remains OB on weekly and daily time frames.


Pattern: W.iv of w.v of w. (v) of w. C of w.2 or 1-2, 1-2 count of w.3. The higher probability being a corrective structure.


Time: Looking at the weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week.


Trade Strategy: With weekly and daily momentum OB, there is limited upside potential as the wave structure is mature. There is greater risk trading long at this point. One trade that I'll be looking at is a break of 1151. My reasoning is that a break below this swing low opens the door for an w.iv A-B-C correction and possibly something larger if the wave pattern proves itself as minor w.3 down.


Look for my Twitter updates and follow this trade as well as others in real time.



Best of Trading

 

[EWT]

The e-mini S&P continues to march forward even as several indicators suggest that a top is immanent. While indicators can assist in building the bearish case, price ultimately will tell me when the market has truly made it's turn. Currently the market is within a few points from wave. 4 (red) of wave.1 blue. Elliott refers to the fact that corrective structures often reach the span of the previous fourth wave of one larger degree. That objective is 1172. I certainly didn't think that wave.2 would reach such a lofty objective due to the fact the other high probability target zones existed well below this area. The bottom line is they were all exceeded.

As I mentioned in my weekly review for September 24, 2010, the US Dollar will need to terminate wave.2 before a significant top in equities can be put in place. I believe this to still be the case as the very mention of FED's QE.2 has added pressure to the upside for equities and commodities while hammering the dollar. Current market sentiment for the Dollar is just at 3% Bullish. So the "dollar down trade" is highly crowded. With the overhang of more easing, some other event is going to trigger the Dollar's turn.

Here's the Market's position at the close of the week.

Momentum: Remains OB on weekly and daily time frames. No turn down.

Pattern: final wave.v of wave.c of wave.2

Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week"

Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.


Best of Trading

 

[EWT]

Holiday markets are always slow and it's hard to gain much insight from them. I continue to monitor the USD trade like a hawk. Sunday night, the dollar gapped down and price has since filled the gap in today's trade. There's support just below the market at 76.7 that should limit any further downside. Looking at the wave pattern, it is clearly an ending diagonal. Now may be a great opportunity to go long with a limited capital exposure against the crowded dollar down trade.

If the Dollar has made it's w.2 low, equities and commodities should come under increasing pressure to trade lower. Turning my attention to the ES_F market, the following market position as of the close is:


Momentum: Remains OB on weekly and daily time frames. No turn down.


Pattern: Ending diagonal of wave.c of W-X-Y pattern

Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week"


Trade Strategy: Remain flat but looking to establish a bearish position against the termination of the ending diagonal that coincides with the turn in the US Dollar. Looking at the daily chart of the ES_F , I've labeled a possible expectation for the next few days as well as the previous wave.4 red resistance level. There are certainly other ways to label the diagional that would allow for the termination of the pattern to end tomorrow. Either way what's important to understand is that confirmation that the pattern had ended is a swift move below the trendline. When it does, the minimal expectation is a move back to the origin of the pattern (1117.25) and often much further. This should be a great set-up for shorts against the high of the pattern.



Best of Trading

 

[EWT]

I continue to watch the USD Index in anticipation for a turn that will undermine the current rally in equities and commodities. So far the index has held above the low established on 10/11/2010 but most recently the Index can't seem to put together any sustainable follow through.

Today's ES_F move forces some minor labeling changes of the 60-minute chart. Nothing changes the outlook. I am anticipating a small move down, followed by one more push to new highs based upon today's trade. Here's the market's position as of the close:

Momentum: Remains OB on weekly and daily time frames. No turn down. 60 minute TF has turned down supporting a decline.

Pattern: final wave.v of wave.c of wave.2

Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week"

Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.


Best of Trading

 

[EWT]

The USD continues to be the focus whereas a bottom of W.2 may have been struck on Friday at 9:00 am est. Looking at the following charts we can see support buying coming into the market on volume at the previous w.ii circle. Furthermore, this aligns well with the commentary that I made in late September. If you would like to review it click here: http://elliottwavelive.blogspot.com/2010/09/s-futures-week-in-review-for-september_25.html

I am expecting some weakness in the Dollar for Monday as momentum indicators have turned down at the 60 minute chart level. Expect a three wave decline followed by a break of 77.355 that would confirm that w.2 had ended on 10/15/2010. Should this occur, equities would be impacted.

Turning my attention to the ES_F market, there is an absence of 5 waves down. Therefore I must consider that price will reach a new high consistent with my down, up analysis made on Oct. 11, 2010. I have included two charts that show what I am looking for and what would signal that wave.2 top is in place. First, I've drawn a red line showing how a divergence between w. (iii) and w. (v) might be forming. Tops and bottom formations often exhibit these diverging signatures. Secondly, a chart of the SPX shows what I'll be looking for in terms of the ROC. Note the black bar that I have drawn in. This slightly higher bar would coincide with one last push up... again a momentum divergence from price. Aggressive trades should be leaning against a completed wave count and these signatures with a tight stop. More conservative traders can wait for a break of the lower channel boundary. I'll try to identify both when they occur.

Here's the current market position for the E-mini's:

Momentum: Remains OB on weekly and daily time frames. Sideways. No turn down.

Pattern: final wave.v of wave.c of wave.2

Time: L-H time relationships of 4-5 weeks indicate that a significant top should occur by the week ending on 10/15/10 +/- 1week"

Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.



Best of Trading

 

[JahDave]

As usual, you are doing very nice work EWT. I have been saying for a long time that I thought the dollar index would reverse at the 77.60 level or if not at the 75.60 level. The Dow is making a decade long head and shoulders pattern right now and is almost finished with the right shoulder.

Good Trading,
Dave

 

[EWT]

As usual, you are doing very nice work EWT. I have been saying for a long time that I thought the dollar index would reverse at the 77.60 level or if not at the 75.60 level. The Dow is making a decade long head and shoulders pattern right now and is almost finished with the right shoulder.

Good Trading,
Dave

Dave- Thanks for the comment. I think somewhere in the thread we talked about the H & S pattern on the ES_F too. It will be interesting to see how the dollar /equity trade pans out. Although the Dollar chart seems to indicate a bottom, the question is for how long. Should a major rally occur according to EW or will this just be a bounce against the QE2 backdrop. Hard to get my hands around that concept as I do not trade currencies and therefore do not attempt to understand the fundamentals involved in trading currencies.

Since you do trade currencies, I'd be interested in any insight that you may have on this.

 

[EWT]

HAS THE DOLLAR TURNED?​

Today I was looking for some weakness off the open with respect to the USD. What transpired was a further subdivision upward to complete w.i, followed by what I expected... a w.ii decline. At the close, price appeared to bounce again suggesting that tomorrow we could see further strength manifesting itself as a w.iii.

Conversely, as expected, we did see higher prices in the ES_F but the momentum signature that I discussed in the weekly wrap reached a new high instead of producing a divergence. With respect to the SPX, the ROC moved higher confirming the potential for divergence as a new high was reached.

The market closed very weak. At the time of this post, futures are down 4.75 suggesting further weakness early on into Tuesday's session. While the new recovery high meets the requirements of a completed five waves, the structure is less than desirable. Trade below the lower trendline would give me more confidence that a top may be in place.


Here's the Market's position at the close of trade:


Momentum: Remains OB on weekly and daily time frames. No turn down. 60 min chart level has turned down. Expect selling pressure in the ON session or at the open of Tuesday's trade.

Pattern: final wave.v of wave.c of wave.2


Time: The previous time relationships were negated today as time has exceeded the projections for a top to be made.

Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.



Best of Trading

 

[JahDave]

Dave- Thanks for the comment. I think somewhere in the thread we talked about the H & S pattern on the ES_F too. It will be interesting to see how the dollar /equity trade pans out. Although the Dollar chart seems to indicate a bottom, the question is for how long. Should a major rally occur according to EW or will this just be a bounce against the QE2 backdrop. Hard to get my hands around that concept as I do not trade currencies and therefore do not attempt to understand the fundamentals involved in trading currencies.

Since you do trade currencies, I'd be interested in any insight that you may have on this.

All the major USD pairs are overbought on the daily, weekly, and monthly charts. Also the Aussie was allowed to float in 1983 and it just hit parity with the USD for the first time ever just a few days ago. My experience has been that every time a milestone like that happens then there may be a test of that milestone in the medium term, but it will get rejected...........Long term is a different story, but that will be several years away. The Aussie should pull back at least to the 38.2 percent. It should go to the 50 or 61.8%, but it doesn't have to...

 

[EWT]

All the major USD pairs are overbought on the daily, weekly, and monthly charts. Also the Aussie was allowed to float in 1983 and it just hit parity with the USD for the first time ever just a few days ago. My experience has been that every time a milestone like that happens then there may be a test of that milestone in the medium term, but it will get rejected...........Long term is a different story, but that will be several years away. The Aussie should pull back at least to the 38.2 percent. It should go to the 50 or 61.8%, but it doesn't have to...

Thanks

 

[EWT]

Last time we spoke, I mentioned that we could see a further rally in the USD. Indeed we did. However, looking at the 60- min. chart through today a bearish and bullish case can be made. I've attached a chart of the bullish interpretation. Should the bearish case prevail, a new low will occur. The same can be said for the ES_F. One can argue that the decline from 1182. 25 is a three wave structure and that today's wave pattern is tracing up in an impulsive manner or that the structure was corrective. Odds are that it is impulsive as the current decline from 1179.25 looks corrective, possibly a 4th wave at lower time frames. Expect a new high if the bullish scenario plays out.

What I want to make clear to the readership is that there is no clear wave pattern. When I run into this, I simply wait for the market to commit to me before I commit to it and place my money at risk.

Here's the market's position as of the close:

Momentum: Remains OB on weekly. Daily time frame has turned down from OB area. 60 min chart level has turned down.


Pattern: final wave.v of wave.c of wave.2


Time: The previous time relationships were negated.


Trade Strategy: Neutral. Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.



Best of Trading

 

[JahDave]

Last time we spoke, I mentioned that we could see a further rally in the USD. Indeed we did. However, looking at the 60- min. chart through today a bearish and bullish case can be made. I've attached a chart of the bullish interpretation. Should the bearish case prevail, a new low will occur. The same can be said for the ES_F. One can argue that the decline from 1182. 25 is a three wave structure and that today's wave pattern is tracing up in an impulsive manner or that the structure was corrective. Odds are that it is impulsive as the current decline from 1179.25 looks corrective, possibly a 4th wave at lower time frames. Expect a new high if the bullish scenario plays out.

What I want to make clear to the readership is that there is no clear wave pattern. When I run into this, I simply wait for the market to commit to me before I commit to it and place my money at risk.

Here's the market's position as of the close:

Momentum: Remains OB on weekly. Daily time frame has turned down from OB area. 60 min chart level has turned down.


Pattern: final wave.v of wave.c of wave.2


Time: The previous time relationships were negated.


Trade Strategy: Neutral. Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place.



Best of Trading

Hi EWT,

I'm in a flux over this myself. The dollar index doesn't really look impulsive, but your wave 4 on the mini chart is into wave 1 territory. I am seeing this same kind of chart pattern on many currency charts. I definitely agree with you that right now things are not clear and much caution is advised in trading.

Regards,
Dave

 

[EWT]

The ES_F made very little upward progress for the week. The major theme continues to be the relationship between the USD, cocommodities and indices. Therefore I will not be reiterating previous commentary. Rather, I will provide the weekly charts of the Dollar, Gold and the S&P. Readers can review the archive section for the month of October to obtain a greater understanding of the "all in one" relationships between the currency market, commodities and index futures.

Here's the market position for the ES_F as of 10/22/10.

Momentum: Remains OB on weekly. Daily time frame has made a bullish momentum reversal. 60 min chart level has also made a bullish reversal.

Pattern: final wave.v of wave.c of wave.(2)

Time: The previous time relationships were negated.

Trade Strategy: Slightly bullish due to the triangle breakout following the period of low volatility (see 20-min. chart). Absence of any 5 waves down from 1186.25, I must favor the upside. However, the higher percentage trade remains a flat position but looking to establish a bearish position as momentum indicators and price confirm a top is in place.

Other weekly charts (see attachments):

Note- the Dollar remains a questionable interpretation. I favor this wave interpretation as Gold seems to have made a complete 5 wave topping pattern and I can count 5 waves down from the top on lower a TF.

 

[EWT]

In my week in review I stated that my position was "slightly bullish due to the triangle breakout following the period of low volatility (see 20-min. chart). Absence of any 5 waves down from 1186.25, I must favor the upside". After an inspiring positive open the market fizzled into the close. I have repeatedly mentioned that the greater risk in the market at this point was taking the bullish side of the trade. Since 10/13/2010, the ES-F have netted +8.50 points against deteriorating internals. Whether you're trading for points or ticks, you can see how dangerous trading this market has become. The market continues to make higher highs in 3 wave patterns. One would conclude that this is a final diagonal pattern but the chart doesn't count well. It's possible that w.2 ended today, yet every rise has been followed by 3 wave declines. Until I have confirmation of 5 waves down from a peak.... I'll sit on my hands. As soon as I can identify that a top is in place, I'll show a detailed chart.

Here's the current market position for the E-mini's:

Momentum: Remains OB on weekly. Daily time frame has made a bullish momentum reversal. 60 min chart has made a bearish reversal.

Pattern: final wave.v of wave.c of wave.(2)

Time: The previous time relationships were negated.

Trade Strategy: Flat.



Best of Trading

 

[EWT]

An interesting day in that the "turn down" in precious metals, crude oil and indexes all coincided with a continuation of a possible turn up in the dollar that began on Monday. As you know I've been pounding the table on the "all-in-one" concept whereas as the dollar goes, your investment is inversely related. Those market participants that were hoping that today's price action was the start of w.3 down in the ES_F were disappointed as the wave structure of the decline once again unfolded in three waves, followed by a late afternoon advance. This suggests that another recovery high will be made. The only factor that would negate this potential is for an initial close below 1167.75 and then a move below 1155.5.

Here's the market's position at the close:

Momentum: Remains OB on weekly. Daily time frame has turned down from an OB condition and a divergence between price is present. The 60 min is bullish.


Pattern: final wave.v of wave.c of wave.2

Time: No change from previous comment.

Trade Strategy: Remain flat but looking to establish a bearish position as 60 min momentum indicator makes a bearish reversal while price and the wave count confirm a top is in place.




Best of Trading

 

[EWT]

Happy Halloween.

While everyone is trick or treating tonight, Wall Street might be celebrating the holiday twice this coming week. One for the elections and the other for the FED's policy meeting. Both announcements should bring some added volatility to the market. In anticipation of these events, the market has meandered in a sideways affair for the better part of two weeks. Currently I am anticipating another recovery high as the wave structure from 10/25/2010 has been in three waves. One could speculate that the new recovery high would be struck right after all the "news" is out. When this coinsides with the wave pattern, a powerful "sell the news" event might be in order as bullish optimism reins. This would be in line with what typically transpires at market peaks. Throw in lagging momentum, UPVDV and NYSE ADVDEC oscillators and its clear that the market lacks the strength to maintain a sustained rally at this point. Therefore any further strength should be short lived.

Here's the market's position as of 10/29/2010:

Momentum: OB on Weekly, Daily and 60 min charts.

Pattern: final wave.v of wave.c of wave.2

Time: No change from previous comment.

Trade Strategy: Remain flat past news events but looking to establish a bearish position as 60 min momentum indicator makes a bearish reversal while price and the wave count confirm a top is in place.

Best of Trading

 

[EWT]

Not much has changed from what I posted in my week in review. I still am expecting volatility and a new high. A break below 1167.75 would negate the immediate upside potential. Should a new high be struck after the FED's announcement, I am not expecting a sustained rally. If so, my analysis of the wave structure is incorrect. If I'm right, there's plenty of downside potential to cash in on. Bottom line, I'm not to eager to jump right in. I've been this way for what seems to be an eternity by now. My patience will pay off.

Here's the market's position as of the close of today:

Momentum Indicators: OB on Weekly and Daily. 60 min chart was slightly bearish but held what typically is support in bull markets.

Pattern: final wave.v of wave.c of wave.2

Time: No change from previous comment.

Trade Strategy: Remain flat past news events but looking to establish a bearish position as 60 min momentum indicator reaches OB, then makes a bearish reversal. Price and the wave count should confirm a top is in place.


Best of Trading

 

[EWT]

From Monday's post, the wave structure called for a new recovery high. The combination of several somewhat positive economic reports, the election results and the FED's QEII announcement provided comfort for traders to push the market higher.

Bottom Line: Price made a new recovery high and has filled the gap (green resistance line) but market indicators and internals continue to lag. Conditions are ripe for the reversal that I have been calling for. However, I would be remiss if I didn't mention that the drop dead limit to maintain this wave count is the April high of 121650. So essentially, it's do or die for the Bears.


Here's the Market's position as of the close:

Momentum Indicators: OB on Weekly and Daily. 60 min chart is bullish but not in OB territory.

Pattern: final wave.v of wave.c of wave.2. W.2 may have completed with the new recovery high.

Time: No change from previous comment.

Trade Strategy: Looking to establish a bearish position as 60 min momentum indicator reaches OB, then makes a bearish reversal.


Best of Trading

 

[EWT]

The wave structure is now exhibiting a new personality . One that no longer allows me to maintain a stance of looking immediately lower in a big way due to the fact that prices has now exceeded the upper corrective channel by a significant amount which usually signals the presence of 3rd wave price action. Secondly, a new recovery high was made that exceeded the April 4/26/10 high of 1216.5. Elliott Wave rules state that w.2 can't exceed the origin of w.1, therefore I can no longer label the decline from 1216.5 as the start of a w.3.

Attached is a weekly chart showing my current view of the wave structure. Note my expectation is for another push higher followed by a decline that should be a sideways. The decline can't breach 1127.5 under the current interpretation.

In Monday's daily wrap up I will be discussing the upward potential of this new interpretation as well as possible alternative count.



Best of Trading

 

[EWT]

The market made little progress in either direction today. This was expected as the wave pattern suggested that last Friday's close was a mature w.3. Today's price action either began a complex w.iv decline or it ended at the 1214.75 low. I have attached the 60 min chart to complement the weekly chart level that was presented in the Week In Review. Note that I have designated two sets of w.iv's. Since today's price action may not have completed w.iv, I can't project any w.v of w.3 of w.b termination targets. Regardless, once the correction is done, a new high should follow that will earmark the end of w.3, followed by a w.4 decline and another fresh high for w.5 of w.c of w.b (See Week In Review weekly chart archive).

One thing that clear is that the FED has manipulated the market again much like it did in late 2002 and 2003. The thought process is clear. Inflate and kick the can (the bigger problem at hand) further down the road. In the meantime, investors and traders alike love the backstop. They say, "Don't Fight the Fed". While this certainly has merit, the wave structure tells another tale. However, let me digress for a moment. It's true that most Elliotticians saw what was to be the largest collapse since the Great Depression go up in smoke. That's not poor technical analysis, it's market manipulation and now we have to deal with it. Bottom line: The decline that began as Primary w. 3 down has evolved. When market's evolve, as technicians we must transition from one pattern to another. We accomplish this by looking at alternatives and making our assumptions based upon what we are sure of. Here's what I am certain of based upon Elliott Wave Theory (see weekly chart) :

1. The decline from 1590.5 that terminated at 665.7 is a 5 wave structure.

2. Five wave impulse waves are always followed by three wave corrective structures that when complete are fully retraced.


Given this, the only question to be answered is how far the market will travel before the larger downtrend will resume. In the upcoming posts, I hope to provide some answers to this question.




Best of Trading