ES Update: How I'm playing it!

Technicals Point To Another High 

At the weekly chart level (not shown) my technical indicators point to another recovery high. As such, I'm looking for a way to marry the short term 60 minute chart pattern with the larger degree trend. 

The initial decline was easy to identify as a three wave corrective zig-zag pattern. 

Note: I have highlighted the current price action from the termination point of the zig-zag. We will be evaluating that region.

Building The Trade Plan 

According to the Elliott Wave Principle, corrective patterns that begin in three, have the following corrective patterns associated with them:

1. 3-3-5 Flat - Under this pattern the second part of the pattern will be another three wave structure. The possibilities are another zig-zag, a flat or a triangle. 

Right of the bat, I see the market is sideways and any sharp (zig-zag) can be eliminated. Secondly, a flat would retrace most of the initial decline... which it doesn't. 

That leaves us with a triangle in the w.b position!

The following chart illustrated the triangle interpretation. Under this scenario, I'm looking for the market reaction to the jobs report and ECB to be muted. As enthusiasm wanes, the market will drift lower in w.(d).

2. 3-3-3-3-3 Triangle - You will find that this pattern is very similar in nature with respect to the middle part of the pattern but the resolution is to the upside. 

Each scenario promises more sideways price action, therefore that's my clue that my interpretations are correct. 

Solving the Directional Issue

Since there is no way to be certain of the direction of the thrust that accompanies these (2) triangular patterns, I am taking a conservative approach and playing the breakout once the respective (d) waves are exceeded.  

Let's see what develops

Best of Trading

======================================================================

ElliottwaveLive is not an investment advisory service or broker dealer. None of its contributors are registered investment advisors, licensed stock brokers or CTA's. The author may hold short term and long term positions in the futures, stocks and ETF's discussed herein. The author may also trade around those positions which may be in direct conflict with your positions. Complete trade disclosures of the contributor’s holdings are posted at www.elliottwavelive.blogspot.com. See Trader Disclosure. 

Trade at your own risk. The blog site, Newsletter and all other information, material and content accessible from this Site (collectively, the "Content")  provided herein provides the context for market analysis with respect to a market's, a security or a commodity's general position utilizing the Elliott Wave Principle. The Content contained herein are the opinion and general comments of the author and is based upon information that Mr. Sinibaldi considers reliable but neither ElliottWaveLive nor he warrants it's completeness or accuracy and it should not be relied upon as such. Mr. Sinibaldi or ElliottWaveLive (collectively, referred to as “EWL”) are not under any obligation to update or correct any content provided on this website. Any statements and or opinions are subject to change without notice. The content and comments contained herein neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. 

A more and comprehensive Risk Disclaimer and Disclosure Statements is available within the left margin of this blog site.   

======================================================================
Fair Disclosure Notice: I do not have a position in any of the aforementioned futures markets or securities related to this article. 

Natural Gas Chart Update

The chart above is what I left readers in my video.....  Elliott Wave Live: Is It Really Time To Be Bullish Natural Gas?

From the weekly chart, price action has not made any significant advance that confirms a bullish w.1 and negates a w.(4) counter-trend interpretation.

Dropping to the daily chart level, what we do know, as of the time of this post, is the following:

• Price remains within a corrective price channel.
• The move from w.(3) low appears to be in a sharp, three wave zig-zig.
• Price traded to 3.06, very near the level where w.c = w.a @ 3.088

While each bullet point favors a corrective interpretation, only price can confirm a wave count. A price break of 2.659 (key support) may bolster my interpretation, but other bullish scenarios could be applied. Therefore, according to my personal trade plan, I can afford to remain market neutral as described within my original post. 

Best of Trading

======================================================================

ElliottwaveLive is not an investment advisory service or broker dealer. None of its contributors are registered investment advisors, licensed stock brokers or CTA's. The author may hold short term and long term positions in the futures, stocks and ETF's discussed herein. The author may also trade around those positions which may be in direct conflict with your positions. Complete trade disclosures of the contributor’s holdings are posted at www.elliottwavelive.blogspot.com. See Trader Disclosure. 

Trade at your own risk. The blog site, Newsletter and all other information, material and content accessible from this Site (collectively, the "Content")  provided herein provides the context for market analysis with respect to a market's, a security or a commodity's general position utilizing the Elliott Wave Principle. The Content contained herein are the opinion and general comments of the author and is based upon information that Mr. Sinibaldi considers reliable but neither ElliottWaveLive nor he warrants it's completeness or accuracy and it should not be relied upon as such. Mr. Sinibaldi or ElliottWaveLive (collectively, referred to as “EWL”) are not under any obligation to update or correct any content provided on this website. Any statements and or opinions are subject to change without notice. The content and comments contained herein neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. 

A more and comprehensive Risk Disclaimer and Disclosure Statements is available within the left margin of this blog site.   

The Market Pulse

ANNOUNCEMENTS

A bit of housekeeping is in order before moving forward with tonight's call.

• In Sunday's edition of Heard on the Street the following charts of the emini S&P where provided and I need to clarify a point. If you look closely at the charts, you'll notice that w.(1) is located a different price locations on the charts. This is not by accident but a failure on my behalf to properly identify that one is an alternate count of which I will address in tonight's call.

• In this chart of the Canadian Dollar, I interpreted the structure as a flat correction, primarily due to the fact that w.B circle has retraced near 90% of w.A circle. However, the structure can't be identified as such as w.A is clearly five waves and therefore the correct identification would be that of a zig-zag. (5-3-5). While the retracement level is not ideal,the pattern is valid since the only requirement for a zig-zag is that the B wave can't go beyond the origin of the A wave.

At the daily chart level, impulsive behavior to the downside confirms the count and another round of selling is required to complete w.(1). A print above .998 before making a new low would bring into question that another pattern is developing.


S&P




There are multiple ways to count the advance from 1068 in the ES_F or 1074.77 in the CASH. In the absence of any sizable retracement to hang my hat the daily chart level offers the clearest count.

Here I'm working a five wave advance and looking for a small retracement tomorrow or in the ON session followed by another rally to complete the advance. Notice structural resistance comes into play just above the market.

Yet another possible count is where w.(2) unfolds as a simple zig-zag. I have placed three expansion levels on the chart for your review. Notice how price disrespected the first level of resistance... a sign of strength. Price is approaching the second target and I'll be watching how price reacts to 1202.25, where w.c=w.a. Should a decent retracement not occur, odds are the market will push to the upper target, which by the way fits with the 2007-2011 analogy i.e. a retest of the neckline.

Let's see what happens tomorrow.

Best of Trading

The Market Pulse

A Bearish Continuation

Today was really exciting if you were following along with the call from Heard on the Street. Of the markets I featured, Crude (2.50), Copper (7.60), Euro (.02) Nasdaq futures (70), Emini S&P (40).


What we learned today

• The Euro and the emini S&P remain tightly correlated.
• NQ-057 confirmed that w.2 had ended on 9/20/11
• ES-057 eliminated two bullish alternate counts.

Nasdaq

Today the Nasdaq futures gapped down at the open confirming what I believe is 3rd wave price action. The break of w.x low confirmed that the high made on 9/20 is complete and that new lows should follow over the next few days.

Although there are several ways to count the decline from 2285.25 (w.(ii) crest ), I'm looking down in this market. My initial w.(iii) target remains at 1981. Technical studies do not suggest a w.(iv) bounce. However, should one develop, price should stay below 2144.5.


Emini S&P

This chart was featured in Heard on the Street  as alternate counts where w.4 or w.(2) would
unfold as a flat correction. Both these interpretations were eliminated today due to the fact that price made a new low.

So that leaves us with two counts. An expanded flat with w.B targeting 1146 -1165 as in the above weekly chart and...

where w.5 is unfolding. The minimum expectations have been met to conclude that a five wave decline now exists from 1357.25. I haven't defined clear targets as the count still needs to prove itself by continuing to act implusively and extending further to the downside. A rotation back above 1106.75 would concern. There are several fibs that may provide support but a fib cluster surrounding 1165-66 provides the highest probability zone to look for a reversal.

Now that five waves can be counted, the implications are very bearish as a three wave relief rally {w.(2)} should follow that once complete will be followed by an even larger five wave decline w.(3) that draws price significantly lower than current levels.


Let's see what develops overnight and watch the Euro for further tells about the ES_F short term direction.


Best of Trading

Updated Chart of ES_F

In last nights edition of the Market Pulse, I left readers with this chart. As I mentioned the wave structure and depth of the rally was bothersome, yet I decided to stick with the count as it appears on the chart.

While I felt that 1166 - 68 was a high probability level for the terminus of w.iv, given that most corrections don't exceed the 1.618 of w.a of the structure and that the count would be invalidated with a print above 1185... the w.i low (red dashed line).

During today's session price not only exceeded the cited fib levels, but almost hit the .786 retracement of 1191.75. This puts pressure on the count to perform to the downside tomorrow in a big way or it is appropriate to discuss some of the alternate counts so that we can be prepared for any further upside potential.

First, the wave pattern from the w.3 low is clearly sideways and NOT impulsive.  I have a great deal of confidence that what we are witnessing is just a correction  and .... when complete, will be fully retraced.  

Since there is a great deal of noise on at the 240 minute chart, I referred back to my daily chart and noticed that I could also make a case for the following two counts:

A flat w.4 or w.(2).

Each would allow for a w.c =w.a @1239.5.

Let's see what develops tomorrow. Expect further commentary on these alternatives as well as a recap of what transpired in tomorrow's edition of the Market Pulse.



Before The Bell

Here's an updated chart showing the subdivisions of the emini S&P futures at the 60 minute chart level. I'm still looking for an down up sequence that supports my blog post from last night. If you missed the call, read it here.

One additional thought in the way of an alternate count. It's possible to make a compelling case that the corrective structure is a flat. Notice the yellow highlighted area indicated that the decline from 1206.25 was an 80% retracement of the previous swing. An 80% retracement is a common retracement level for a flat. Knowing this, it's possible that yesterdays high met the minimum requirements to complete the flat correction. However, just because I could count from 1166.25 doesn't mean that w.iv circle is complete. We need to see confirming price action. Breaks of 1192 , in five waves could be the first clue that a flat correction had unfolded rather than the double zig-zag (W-X-Y).

Let's see what plays out.

Best of Trading

The Market Pulse

It seems like days since I began looking for w.iv circle to unfold. The price action on the 120 min chart level appears to finally, yet violently, be putting together a sideways move. Earlier today I tweeted that wave overlap had occurred and expected the entire move from w.iii circle or 1097 to be fully retraced when the pattern completed. I stand firm in that assessment.

Also note that w.iv circle looks like a flat correction (3-3-5). However, any corrective pattern that begins with a three wave structure could also develop into a triangle or combination. Therefore, we'll remain on guard to these alternate possibilities.

Should the flat correction play out, it's the perfect set up where w.c of w.iv circle = w.a at 1192.25 and is in agreement with the most common .382 , Fibonacci retracement,  for 4th waves at 1191.25.

One caveat is that on lower time frames, w.(b) may not be completed. If it isn't , then I may have to revise my upside targets.

A loss of 1097 before reaching beyond the w.(a) extreme of 1175.5 would negate this view and the pattern would need to be reassessed.


In conclusion , the trend remains down with the full expectation that a new low will occur and that the Bear Raid is incomplete.

Best of Trading.

Today's Trade Provides a Practial Application on How to Use an Alternate Count

If the objective of every trade plan is to identify levels for buying and selling the market, then according to Robert Prechter Jr., "without Elliott, there appear to be an infinite number of possibilities for market action. What the wave principle provides is a means of first limiting the possibilities and then ordering the relative probabilities of possible future market paths" (1) thus the preferred wave count. An alternate count is nothing more than my second best wave count that also describes either the past, present or future movement of the market but in another context.

When I'm providing a wave interpretation for this blog, I'm always utilizing the preferred count. I remain open to evaluating price structure that is contrary to my preferred count and adapting an alternate wave count that realigns price with a known wave pattern. Should my analysis be unable to identify a clear count, readers are made aware of the uncertainty of the analysis.

Conversely, as traders, we do not have that luxury. The preferred wave count is my template for how I believe the trade should unfold. While I can't be certain that the market will oblige my best wishes, I MUST trade what I see NOT what I want to happen. Should the market's price action prove my preferred count wrong, either I get stopped out or the adoption of an alternate count allows me to stay with a trade, albeit defensively, depending on my entry, existing profit/loss and stop placement.

On June 5, 2011 call, ElliottWaveLive called for continued weakness in the eminis for Monday's trade.

At the 240 minute chart level, the close of yesterdays trade as well as the market technicals and subdivisions of the most recent wave called for for a three wave countertrend rally to end w.iv circle for today's trade.

A Hypothetical Trade

In the ON session, the market began to rally and traced out w.(A) and w.(B) providing the initial evidence that price action may be following the preferred count. A trade initiating a long trade at 1286 STOP 1283.5 (1 tick below the origin of w.(A) would be targeting the predetermined levels of 1298 - 1299 and unfold as a zig zag.

Price reached w.A circle at 1293.75 and began to fall. According to the previous chart, I was looking for a zig-zag to unfold and complete near the 50% retracement of 1288.5. While w.B circle actually was a flat correction, the fact that the corrective phase ended at the target and just below w.A circle provided a trader with the confidence in real time to stay in the trade. Here's why... the low of w.B circle was 1288.25 and overlapped the high of w.(A) at 1288.75...  another clue that the entire move is corrective.

Price then rallied from the w.B circle low to new highs.  At this point, price hit 1294.75 , where w.C circle = .618 w. A circle. The protective stop is moved to one tick below w.B circle at 1288. The retracement from 1294.75 was deep and took out the 1291 swing low... a warning sign that something may be wrong.

It's here that trading what you see must take over. Subsequent price action is choppy and contains numerous overlapping waves. My trade plan called for a five wave advance for w.C circle without overlap.... it's not.....  a second warning that the entire corrective move from 1283.25 to 1294.75 may be complete or that a more complex correction is unfolding. At a minimum,  I'm moving stops to just below the last swing low  of 1289.25 and lock in profit while looking to identify an alternate count that realigns me with the price action. I may also consider trailing my stop in a defensive manner under each higher swing low and let the market take me out of the trade.

In conclusion, the trade plan accurately identified an area suitable for buying the market, yet price has failed to reach our price objective at this time or do so in the manner that was called for. By having a clear expectation of what should unfold we remain flexible, objective and know where we're wrong as traders.

As part two of this lesson, I'll provide updated charts in a separate post so the trade can be followed.

I hope you found this information helpful and best of trading.



(1) Elliott Wave Principle, Frost and Prechter, page 94.

Chart of the Day: Has Crude Oil Topped ?

Things are about to get ugly.... this

Elliott Wave Pattern is flashing "SELL " ...

At the weekly chart level, w.c circle has extended just beyond where w.c = w.a at 108.975 to complete cycle  w.b. The next move should be down hard. Certainly the first bar down is cause for alarm to a bullish stance. As price has somewhat recovered, on 5/23/2011, Goldman Sachs Reverses Course, Now Says to Buy Crude Oil! This is in my opinion an attempt to place a floor under this market however, the daily chart clearly shows why they may be wrong.

At the daily chart level, the market made a five wave decline to complete w.(1) and is now working a corrective move. Upon a closer inspection of the wave structure, the corrective pattern is that of a flat where w.B retraced more than .9 w.A. The subsequent w.C rally most commonly terminates where w.C =w.A at 105.025 with the 50% retracement in agreement at 104.7

There are other upside targets. Notice that I have added the 1.236 and 1.382 RF of w.B where w.C = 106.95-108.375. This level are also in agreement with the .618 of 107.075 and represent the upper boundary for any flat interpretation. Prints above 108.375 would invalidate the corrective count.

Given the wave pattern and two levels of agreement, there is a high probability that Crude Oil will fail and make new lows.  

I hope you found this information helpful and best of trading.