Silver ready for next leg down

I have updated my primary count for silver.  The count I posted prior will now become my alternate (less likely) count.  I now think we have just completed an A-B-C up for (B), preparing for the (C) wave down.  The nice thing about this from a risk-reward perspective is the count is invalidated on a move above 40.39, which is real tight at this point.

The move down should be significant, so I will be planning an entry via short SLV very soon, possibly even this morning.

time for a small bounce in the e-mini's

Wave iii appears to have completed at 4pm after the market closed.  We should rally overnight and throughout the session tomorrow as we trace out wave iv.

Revisiting the USD

If you'll recall in my prior post USD path uncertain I suggested that we would very soon have a good idea of the future direction.

On 7/26 the dollar index futures /DX took out the lows going back to 6/3.  While this technically does not completely invalidate the bullish dollar case, I now count those odds as small.

I've now made my prior alternate count my primary count, and am thus calling the entire move off the early May lows a fourth wave rally, which is sideways in appearance.   A move below 72.86, or the May lows will put that to bed for good.

The more recent push lower, starting around 7/12 is continuing to look like an impulse wave, but has not yet counted out five waves.  We appear to be somewhere in a minor wave 4.  I've drawn a rectangle on the minuette chart showing the area which looks more like an a-b-c down, meaning that we still need 5.   There is certainly a lack of both amplitude and momentum in this push down.   If and when we get a fifth, followed by a three wave rally, that may be a better time to hunt for an opportunity.  If that fifth wave takes out the May lows, that will be an even better signal to look for a short entry.

Those are the things I can look at objectively.  Now, what is less clear, is how much downside in the dollar remains after the May lows are taken out.  Ultimately, I'm am bullish the USD, but that may have to wait till next year to play out.

still need more downside

Wave counts seem to be pretty clear on the 4H chart.
We need a fifth wave just to complete ((C)) of iii.  Then we'll need at minimum, two a-b-c's, one for iv and one for v, completing the larger ((c)) wave on the higher time frame (minute - daily).

update: also keep in mind that if this is an ending diagonal formation on the minuette time frame, unlike an impulse, it will likely be deeply retraced in wave iv, before going down for the final v.   That means this is not the time for a bearish downside play unless you are ultra short term. 

Scratch my prior post, final minute wave down

We made too much downside progress today for a triangle on the minuette time frame (see earlier posts of hourly charts).  The ((b)) wave up on the minuette time frame (hourly - lower) ended being just a simple a-b-c up, with a complex b.
This is unfortunately the mother of all confusing moves coinciding.

We have what looks like an ending diagonal for ((c)) down on the minuette chart, which is a series of a-b-c's.  On top of that we are completing E on the daily chart, which is itself part of an a-b-c leg of a triangle.

All I can say about all this is that fourth waves are very difficult to time, for this very reason.  It is sometimes just better to remain on the sidelines when you are unable to execute proper trading discipline.

Looking down at the chart, we hit the area where ((c)) == ((a)), on the minute chart (daily -upper), but on the minuette time frame, we do not yet have five waves.  Additionally, on the minuette chart, the momentum converges with the chart, which gives increased likelihood of this being a third wave rather than a  fifth of ((c)) down.  The next likely target is 161.8% at 128.02 on the SPY, or around 1267.54 on the /ES.

lowered upside projection

This looks like a three wave a-b-c down, rather than a five wave impulse.  That gives weight to the case that this has been part of the d wave down.  This lowers the target for e to around 1352.

Wave d could still be in progress

At this point I see two possibilities.  Either we had a truncated e wave, or the prior d wave was not yet over. 
We're making minor new lows today on light volume, which makes me think this could still be d.   

Silver taking the alternate path higher

In the course of not doing too much price-wise, silver has revealed a lot about its future course today.
Take a look at the below subminuette chart.  I tend to look at close-only line charts, since that's what is comfortable for me, but I keep a five period price channel overlay just so I know where the price extremes are.  In this case, you can see that we have new price highs in silver today which has several implications to my preferred counts.  First, the label 1 down is now invalidated.

Secondly, on the minute (below, upper) time frame, I'm now going with my prior alternate count as my new preferred count.  See my prior post on silver for the invalidated count.  That means we are meandering sideways in a wave 4.  It also means we are likely only in an (A) wave up, if this is still an ((X)).  That means we still need wave 5 of (A) up, (B) down, and five waves up for (C).  That's all assuming ((X)) is the count.  When I say if, I mean that technically the correction in silver could be over.  In that situation, we have a new bull market in silver underway.  That seems unlikely to me, but it's possible.

Summary:  We have higher prices ahead for this precious metal, but unlikely to make new multi-year highs.

Patiently waiting

The subminuette chart (lower) is a mess, but on the minuette chart (hourly-upper), we have a pretty clear five wave pattern.  The close-only line chart looks like an impulse, but in reality there was lots of overlap, so it's likely a diagonal formation.  The implication is the same, however.  We likely have five waves up, and a meaningful relative correction that cannot be counted as five waves.  I'm labeling this ((A)) and part of ((B)).  We still need five waves up for ((C)), in my estimation.  Plus we are still nowhere near either the upper boundary of the higher degree triangle, or my prior target of 1358 on the /ES.
My degree of confidence on this hourly count is not huge, which is why I'm waiting on the sidelines.  We'll either see five waves down to signal the start of the higher degree downtrend, or we'll see five waves up to signal the end of this higher degree e wave up.

Still on track

We potentially have ((a)) completed.  I have a target of 1358 on the /ES, which is where e is 61.8% of c.

One more tiny rally in stocks

The triangle formation on the minuette (hourly) charts (lower) that I've been discussing continues to develop.  I've shown the russell2k and s&p e-mini futures below.
It looks like we have completed d, or are very close. 
We still need the final leg, so a Monday rally is likely.  It will all depend on how much progress is made in the after hours session.  I expect e to be a simple a-b-c zigzag.  I intend to wait and play the (c) wave down, but will wait for confirmation that e of the triangle is complete.

I've also shown the minute charts (daily - upper),  where I believe a larger triangle is in progress.   Here we should be getting ready to complete the final wave down of (4) before heading to potentially new 2011 highs.  My degree of confidence in the minute count is not extremely high, so I'll want to see five waves up on the minuette chart, ie a 1-2.

USD path uncertain

The dollar index futures are still off the May lows, but are very close to testing those levels.
This is another situation where we have wildly different outcomes possible within Elliott Wave rules.

My primary count has been based on the assumption that we made a very significant low in May, and since then have a 1-2, 1-2 scenario setting up for a very large third of a third wave rally.  This count had also fit in nicely with a market top in May.  Since then, however, several things have happened to change that outlook.  First, the market averages are looking less like a major top, and more like fourth wave.  The dollar is basically sitting right on top of the supposed wave 1 low, which began on June 3rd, around 73.75 on the /DX.

That analysis is all based on wave form.  One other interesting thing is the momentum indicator on the daily chart, which has been flat throughout the entire downturn from the July highs around 77.17.  This is one of the reasons I've decided to keep the 1-2, 1-2 count as my preferred count for now.  I am waiting to see how it plays out, however, and we should know very soon either way.


Now lets look at the alternate count, which assumes that the rise off the May lows was just a hiccup in the downtrend, and we have at least new 2011 lows coming, if not all time lows.   The alternate count has an (a)-(b)-(c)-((X))-((Y)) setup.  If we take out the June lows of 73.75, this is the preferred count.  If we take out the May lows of 72.86, it is confirmed.

Thursday Recap

After an rocky start this morning with IWM going against me, I quickly modified my position and ended up long.
The minuette chart, which I did not give enough weight to yesterday, showed no evidence of a ((B)) or ((C)) wave, until today.  My prior assumption, based on the subminuette chart, was that the rally was simply too sharp for the subdivisions to show on the higher time frame.  This was definitely a case of me seeing what I wanted to see.  After the overnight activity, and the morning rally, it was clear that the prior rally was just an ((A)) wave, and we were starting ((C)) with this morning's rally.  I jumped on board with the new count.

Now if we go back to the subminuette chart of the IWM (lower), we can see how the ((C)) wave will break down.  I currently only count three completed waves, with iii of c being an extension.  We are in a wave iv, and still need the fifth wave, and I'm willing to hold my long IWM position overnight and attempt to close out in the morning.  Furthermore, if we can get five waves down, and three waves up on the subminuette chart after ((C)) appears to be completed tomorrow, I'll re-establish the short position I put on yesterday.

Silver is in a range, on the close only chart, it's basically an inside day, which works out fine for the position I took this morning.  As long as we do not make new weekly highs, I'll stay with this position.

It looks like I'll have some material for my new "Bad Calls" page, which I just created.  I'll add that content this weekend.

Covered IWM short

Covered 84/85 VERTICAL Call: AUG11 IWM

I need to review my count and see where this goes.

Edit: my limit order to cover the vertical didn't fill, so I cancelled that and just closed out the short leg with a market order. If I'm careful, I may get out of this flat or even up.

Short 39/40 VERTICAL Call: AUG11 SLV

I'll cover on a move above 39.70

Silver at an interesting juncture

I don't have silver on my bigger picture page yet, but it's now at a very interesting point, so I wanted to discuss it.

On the minute chart (daily - upper), we see the initial (A) wave down which was essentially a mini-crash off the highs, a (B) and a (C) which took the form of a diagonal.  Here's where it gets interesting.  The correction can technically be over, but for that to be confirmed, what do we need to see?   Five waves up.  So far we only have 3 waves, one of them extended.  So it's either A-B-C or (1)-(2)-(3) and we get a new high.

Now look at the lower chart of the lower time frame.   We have five waves down, which can be a 1 or an (a).  I've shown where the prior 4th wave was, which should ideally contain a wave (4).  Note also, that a five wave move is invalidated if it trades below the top of (1).

To summarize, we could be setting up for another (A)-(B)-(C) down in silver, a move which began at midnight on 7/19.  Conversely, we could be setting up for new highs.  We'll know which very soon.

I feel like prudent thing to do is to wait for a trade below 34.04 in the SLV.  A low risk short position can be taken after the next (A) and (B) are completed.  A more aggressive strategy would be to short on the open in the morning, and cover on a move above the 7/19 high around 39.69, or leg in and get partial satisfaction from both strategies.  Again, not a recommendation, just how I'm thinking through a potential trade.

BTW, on the weekly TF, the prior 4th appears to be around 26.54, so my bias is with ((X)), not with new highs from here.  I plan to show the weekly count in the Education section soon when I go over wave counting.  I'll also post it in the Big Picture section at that time.

I'm short the IWM

Short 84/85 VERTICAL Call: AUG11 IWM

We now have 5 waves down on the subminuette chart.  This plus the other patterns over the last couple of days gives me confidence in the contracting triangle (b) wave pattern on the minuette chart that I've discussed in prior posts.  I've decided to play this by going short a vertical call spread on the IWM russell 2000 ETF.  I love trading this instrument, as it normally has a much higher beta than the SPY.
I'll get a credit selling the call spread and the time decay as the market goes sideways to down over the next couple weeks will work in my favor.

completed c wave

Here's a blown up image of the now completed c pattern on the subminuette chart.  This is one case where going to a higher time frame obscures the pattern.  I redrew the lines, as I decided the expanding diagonal really didn't fit.  What actually occurred was a wave iii extension with ((3)) of iii blowing outside the contracting diagonal triangle.  But look how perfectly the wave v met the line connecting i and iii.
 Sometimes the patterns only become obvious in hind-sight. 

upward sloping contracting triangle

The slope of the triangle has changed with this mornings thrust higher in the c wave.  It has also moved the downside target for d to 1309.

Expecting a simple zigzag

Typically only one wave in a triangle is complex. We already had one with b on the minuette chart (see prior post, top). That means d and e are likely to be simple zigzags.

More chop ahead

Today's rally put the market right in my target area.   The subminuette chart shows an expanding diagonal (C) wave of  c.  Notice on the subminuette chart where the momentum of the 5th wave of (C) diverged with price.  Assuming it reverses here, and that we have a contracting triangle as shown on the minuette chart, next we should have another (A)-(B)-(C) down.  If d is 61.8% of b, it should terminate around 1305. 

range-bound

Good morning everybody.  My post yesterday morning appears to have been right on track.  We appear to be range bound, probably carving out a triangle for (b).  I have dashed lines tentatively out there.  You can see we already appear to have an a-b-c up on the subminuette chart (lower), but the c wave in a triangle is normally complex, so think it's a bit early to call this up move complete.

Push down, but no volume

Momentum appears to be diverging from this down move.  Momentum on the minuette chart has yet to turn down, and on the subminutte chart, is starting to diverge with the lower low.
I'll be waiting to see what develops, but I do not expect continued selling at this point.

Weekend Review

The market stayed in a range expiration week.  Choppy sideways is always corrective.  It is unclear at this point whether we are in a sideways wave ii on the minuette time frame, or whether (b) is still in progress and making a more complex pattern.  Wave ii will be ruled out with a move above 1328 in the /ES in the coming days.  Alternatively, wave ii will be validated if we get the wave iii impulse down, ie. 5 waves, probably the longest, greatest momentum.  Momentum, of course, is doing nothing in all this chop.
I've also show an alternate count for (b) that takes the form of a contracting triangle.  If this alternate count happens, then we will have several more days of this choppy sideways behavior.
Either way, we still need the (c) wave so more selling will be coming before we can get new highs.  A good target area for (c) is between 128 and 130 on the SPY.

Evening update

I expected a strong down move in today's session, but instead we made only a very small move.  This currently looks like a 1-2, 1-2 scenario, setting up for a strong 3rd.  Another possibility is that the 1-2, 1-2 is actually just an a-b-c, meaning ii is a larger combination and still in progress.  If my prior ii is exceeded after hours, that will be my new preferred count.  Tomorrow is options expiration, so I suppose it should be no surprise that the market waited for Friday.

Regarding the triangle B wave I have illustrated in the chart below (assuming that's what is unfolding), notice how much cleaner it looks on the russell. 

More selling today

We're getting ready for iii  of (c) down.  We should see more volume on the selling today, so I expect the WaveMomentum indicator to turn down sharply, as it does during wave 3's.

Below is the Russell 2000 futures /TF and E-mini S&P 500 side-by-side.  It's a good idea to keep multiple indices.

completing the last leg of the triangle

First of all, bear with me as I try to standardize my label notation.  See the bottom of the page for the notations  I will attempt to use on charts going forward.

In my prior post, I was under the assumption that (a) was incomplete and needed one more low.  After closer inspection, I now think that (a) was completed, and the overnight move was actually the (b) move.  This means the final (c) to complete the last leg of the triangle should be underway.  We should be revisiting and likely exceeding the 6/24 lows.

Looking for a small correction to complete (a)

Taking an intraday look at the E-Mini S&P 500 futures, on the subminuette chart (lower) we have completed an a-b-c retracement up this morning.  
This completes wave iv up of (a) down on the minuette chart (upper).

Shorter term, I'm expecting a move below the wave iii low at 1294.

If we trade above 1332, where I have a horizontal line, then this labeling is wrong. 

See my big picture page for perspective.  We are most likely in the last leg of a triangle wave 4  on the daily charts.