An Exhaustive Guide to the Most Significant Elliott Wave Count Alternatives Available to Us

My members have largely given me permission to post this publicly, so now you owe each of them a beer.

I keep these alternative wave counts in my mind at all times, and I’ve worked on them over many months, but I thought it would be helpful to lay them all out for you, as well. As the market moves along, I try to judge and estimate the probabilities of these various options, and I will take the time to present these alternatives to you in a single post so that you can see them more easily in one place, yourself. These are the various most reasonable count alternatives we have available to us (there are probably a few more, but I think these are the best candidates). As you examine the many Elliott Wave counts out there in the wild, you will almost certainly see those counts among these (or close variants).

I will work through each one in turn, raising some of their pros and cons, and what sorts of evidence we might need to see in order to begin shifting to any one in particular. I will also discuss which ones are more or less probable, in my opinion. I will sort them roughly from their bullishness to their bearishness.

This post is super long and geeked out, so be warned, this won’t be for everyone.


1. The Lesser 1-2 Pump Count

This is the most immediately bullish count. There are many ways to count the waves around the 1-2 we’ve just completed (I’ve just picked one sort of arbitrarily, but just about any will do here), but the fact remains that the low we reached on 9/20 came right to the 61.8% retracement of the advance from the minute (blue) 4, as I have it labeled here. In a market where, for over a year, most lows are “one and done,” this would give us that if we move up straight away from here without really looking back for some time.

I would definitely assign this count as “possible,” but it is not my favored count now, for reasons you will read shortly (regarding the structure of the move off the recent low). But: if we move up and—crucially—take out the all-time high, this is probably what we’re looking at. We would likely be in a third wave advance (on this labelling, of minuette [orange] degree) and it should have some legs for a bit before consolidating (sideways-ish) before then going on to make another high after that (up there toward the green 3).

MINI-1-2-PUMP

Zoomed in, it might look something like this, locally. If we keep drifting up and soak up all of that supply (circled), then take profits, there’s a good chance we’re going to pump hard after that. This is certainly still on the table, but I have some reservations about it, which will be discussed in the next count.

MINI-1-2-PUMP-CLOSE


2. The 3 of a Lesser Degree Top Count

This is my generally favored count (though I remain open to all of them). I will spend the most time on it. The other day, closer to the lows, I said that I needed to monitor the structure of the move up from the lows: if it was in 3 waves, I would be more inclined to think we’re going to see another drop; if in 5 full waves, I would be more inclined to think the lows are in. Because of the structure of the move up from the lows—and crucially—the price action on Friday, I am more inclined to this count, rather than to the one above.

3-LESSER-DEGREE

Coming off of the lows, I see what I believe is a triangle down there, which means we likely can’t count that as part of a 5-wave move up from the trough, which is needed for the most immediately bullish count above. I made that point on Friday morning here. Now, it could have been a 1-2-1-2-1-2 (instead of a triangle), but I would have then expected a huge move to the upside but we’ve only moved up haltingly instead. Now, there are enough waves in place to count that as minute (blue) b complete, but it’s feasible to make another high as well. Late Friday I dissected $ES with some care here, and I found it very plausible that the high is in, and that we’ve already begun the next move down, albeit in a stealthy way, looking as much sideways as anything else. But, the afternoon rally looks corrective, and the drop in the morning looks impulsive, so, 5 down, 3 up, next move should be down with more force than on Friday, if I’m right.

If this works, we should get a 5-wave move down (I’ve labeled it as minute [blue] c composed of five waves in orange) in the chart below. I’m not convinced that it will destroy the prior low, but it’s welcome to go as low as it wants to. It may also be very swift, and it may not take as long as I’ve estimated it here arbitrarily. But, what we’ll need to do along the way is look for a 5-wave pattern that looks “roughly commensurate” with blue a. It’s hard to explain what that means, and that’s one reason why Elliott Wave Theory, in my opinion, is more of an art, rather than a science. Obviously I’ll be updating this throughout the week unless I get COVID or an eighteen-year-old woman seduces me in the meantime.

3-LESSER-DEGREE-CLOSE

Here are a few reasons I’m not sure we will destroy the lows. I am expecting a little dip on $AMZN this week (below), but I’m not expecting it to get destroyed. Now, I am expecting $TSLA to begin to take it on the chin at any moment (discussed here).

AMZN

$AAPL may take out its lows, but it doesn’t need to. I have a weird reason for this. Since September of last year, most often, when Apple drops in three (or even five waves) it often does not reward us with a second drop. It’s just been the nature of the instrument this last year. I think a lot of people may try to short it for a second drop and get punished for that (I’ve tried a few of those myself). That said, perhaps everyone has now been trained for that, and so this time it does drop, for all we know. Markets love nothing more than to toy with our psychologies in this way. The game is 4-D chess by its very nature.

AAPL

So, taking these together, $AMZN got hammered pretty hard in the first leg down on the $SPX, but it may not get hammered nearly as much this time. On the other hand, lots of rate-sensitive reflation stocks did very well, ($AAL and $F for instance). Now those probably need to retrace. So: the second part of this correction may involve a rotation, propping tech more than the last leg down, while taking profits on reflation stocks which fared well in last leg. The effect that has on the index as a whole leads me to believe we may not destroy the 9/20 low, because tech has so much weight in the index. All of this of course goes out the window if the bear counts come to fruition.


3. The Greater 1-2 Pump Count

This one interests me because if we fall sharply from here and take out the 9/20 low, it may be difficult to distinguish it from the count discussed above. It’s an exceptionally bullish long-term count, “the party’s just getting started” sort of count. On this count, we can fall even maybe as low as 4000 in something more complex than what we’ve seen so far, but if it doesn’t go too low, it will be hard to distinguish it from a 4 here. Now why would we ever want to consider a count this bullish? It’s ultimately the count I’ve pointed out a few times as an alt: suggested to me by oil. I’ll discuss the details about that with the next chart.

GREATER-1-2-PUMP

I’ve posted this $OIL chart before. And you see how I have this labeled as a 1-2-1-2 (first pink, then orange)? Why would I do that instead of counting it as a 1-2-3-4? The reason is the “rule of alternation.” Considered more as a “guideline” rather than as a rule, it’s just something we very often see in market structures, and so have come to expect. The two corrective waves in a 5-wave impulse often alternate in their forms: if 2 is flat-ish, 4 is often sharp-ish; if 2 is sharp, 4 is often flat. And what we see here are two almost identical (though differing in magnitude) bull flags (the green structures in all that mess I have on there at the moment). The corrections look so similar that I am inclined to think that they are not of the same degree because they do not seem to alternate in structure. And notice that the primary (pink) 2 coincided with the large corrective period we had in the S&P 500 last fall; so, if we get some larger correction on the S&P here, it could closely match the correction we’ve just had in oil as well. They would be joined at the hip, so to speak.

OIL

Now what could this look like? If this count is upon us, ideally, we would retrace 50-61.8% of the move from the October low of last year. But: since 2009, no 2 of this degree has retraced by that much, often falling significantly short of their targets, denying everyone ideal entries. We’ve been chasing higher prices like madmen for over ten years now, and until the Fed stops being so accommodative, there may be few reasons for that to suddenly change. And also, as I’ve drawn it here, it wouldn’t necessarily take as much time as depicted, it’s just that I can’t easily draw it on this timeframe in such a way that also allows you to see the expected internal wave structure. But, we would expect a largish 5-3-5 zig-zag, going as deep as the orange box, but also possibly only half that deep. It would involve us entering a third wave about now, but I’ll have more refined details about that in the most bearish counts below.

The main disadvantage of this count is that stocks are very expensive right now as measured by a variety of metrics. And it’s hard to conceive of us going up so strongly for at least the several more years that this count seems to suggest. And just because oil looks set to pump hard, it also doesn’t necessarily mean that equities will go straight up either. They could also go sideways for ages, for all we know.

GREATER-1-2-PUMP-CLOSE


4. The 3 of a Greater Degree Top Count

This is the count that a significant number of Elliotticians are expecting us to be in here, but—it’s rude of me—that is one reason against it. I haven’t yet seen a large number of us all get it right at the same time. Another reason to doubt this count is that the correction we’re enduring now ought to be—on this count—of the same degree as the September of 2020 correction. And so it should feel somewhat similar. And the initial drop we had off of our highs was nothing like the magnitude of the initial drop we had last year at this time in either price or speed. Now, if things fall apart and we start looking like last fall “in size,” then we can start to shift probabilities toward this count; but until then, I will remain somewhat skeptical. If this is the count we’re in, it needs to be something that we can easily see on the weekly and monthly charts, zoomed out a bit.

3-GREATER-DEGREE

As mentioned above, if this is a 3-4 of the same degree as last September, we need to see something “bigger,” something of the scope of last fall. And the depiction below would get us that. The orange box is the expected range of the wave 4 of this degree. It could be like the “h” pattern I have imagined here, but, since the “2” on this count also had an “h” pattern, this could produce something else: a triangle, a sharp zig-zag, there are many options. But, the target area is what we would ultimately expect in price (and price may even visit the lower end of the range more than once). A warning on that target range: the upper end of that box coincides with the 250-day EMA, and cutting that deep beneath it to arrive at the lower end of that range could spell serious trouble.

At any rate, the takeaway on this one is that if we’re in a 4 of this degree, we need to see a structure that is “big,” like the structure that formed at this time last year.

3-GREATER-DEGREE-CLOSE


Now let’s look at two very bearish counts (lol, I must tread very carefully here because, like a man recovering from an addiction, I don’t know which of these charts is going to be the one that causes me to relapse).

Don’t immediately dismiss these. For me, personally, adopting a bullish bias starting around January has served me very well. However, during this last pullback, having that bias put me on the back of my heels a few times, as I was less open to looking down than I was to looking up. Perhaps that was my warning. If we enter a structure that is too bearish, while our biases remain too bullish, we may get harmed if we aren’t able to pivot fast enough. So, take these seriously, because this market is, by historical standards, exceptionally expensive, and we won’t know exactly when large institutional funds will have had enough until it’s perhaps too obvious to us all.

Shiller PE Ratio

Once they’ve got us all bulled up, they’ve got us right where they want us to be if that’s when they’re going to take it down.

Also, permabears are mocked at high levels here and are not taken too seriously at the moment. That is never a good sign. That is their window of opportunity to take their revenge. (lol, and frankly, I sort of miss being a big ol’ bear.)


5. The 5 Top Count

This is the ultimate top of all tops count. And it’s even worse if we can squeeze in another five on top of those others, but I won’t speculate on that just yet. There are several places we can place the internal waves of the move up from the crash lows, but that’s ultimately immaterial, so I simply present one plausible one. The challenging part of this count is that it may violate the suggestion I just made in the last section about liking to see structures for the corrections that are commensurate in size when they are of the same degree. That said, markets don’t often do exactly what we are expecting.

SPX

I can’t really speculate much on price for this count, but what we would be looking at is a multi-year bear market that would be correcting at least everything from the GFC lows, if not even more (depending on what number is sitting above the big pink 5). We would expect it to unfold in 3 giant waves, each composed of 5 very large waves in themselves. It would be hell, and would be remembered as a complete catastrophe. No one wants to be caught up being too bullish through the first half of that (and everyone will be bearish in the second half).

Perhaps related to this, here is a peculiar channel strike in arithmetic scale—noted by Peter Eliades recently—that may be relevant, and is of some concern:

SPX

To go from one end of that channel to the other in a year and a half. Amazing when you look at it outside of log. But, it’s perfect strikes and a rejection so far. Maybe it means something, maybe it doesn’t. But maybe it does…


6. The D Top Count

This is of my own invention. You won’t see this anywhere else (I don’t think). You will sometimes see reference to a “B-Top” out there, but I’m not too satisfied with how they derive that. In most analyses, in order to get this top to be a B, the COVID crash lows need to be an A, which means the February high needs to be a 5. And I cannot get the move from the 2019 low to that high to count as an impulse wave, no matter what I do. With that apparent triangle in the middle, I can only reliably get three waves.

Now, the interesting thing is that we were in what many (including me) thought was a broadening “top,” only we’ve just gone higher and higher and higher, rendering that interpretation incredible at this point. Now wouldn’t it be weird if we were in a triangle now and didn’t know it yet? The merit of this count (and the “B-Top” variants) is the peculiarity of the move from the crash lows. It really is astonishingly difficult to count it impulsively. It can be done, and I’ve done it lot, but in many places along the way, we have to sort of fudge some things sometimes and almost stretch the rules to make it work. And the whole “look” of many of the moves appears to take the form of 3-wave moves instead of 5, all the way up. And it’s weird. And this (and the “B-Tops”) solves all of that. Also, the moves this year are the most impulsive ones we’ve seen since the crash lows, and that is what we would expect in the final leg of a 3-wave move.

On this count, we would expect a 3-wave move from here (a crash, really) to E, which can go all the way to the green trend line, but may also fall short (as E-waves often do). Perhaps a channel strike down there would stop it. On this count, we would then rally, ffs, right back to all-time highs, either in one go, a single, big 5-wave move, or that move could be one of five, etc. No telling from here of course.

And then wherever that 5 is, you could refer to the last count I just discussed.

D-TOP

An interesting point about this count is that we would, preferably, like to see a relationship between C and A (the main green waves from the crash lows). And we’re close. We came within about a percent of equal legs.

D-TOP-C-A

And on the broader NYSE Composite we have a perfect strike:

NYA

Now, as with some of the greater correction counts above, so too with these counts. We would obviously need to see a much larger drop for any of the bearish counts to become plausible. The move we’ve had off the highs so far is so tiny right now that I can’t even count it as a minor 4 pullback, let alone Armageddon. What we would need is a big drop, and we actually have the ingredients for such a drop at hand. To illustrate, I will reiterate my preferred count on $SPY from above (so you don’t have to go hunting for it).

As it stands, it could be as shown here, a 3-wave decline for blue a, followed by a bounce for blue b. And we would expect the b-wave to retrace right to where it has (that 61.8% retracement).

Also, notice the larger green triangle in the middle (the orange smaller b). Triangles can only occur in B-waves or 4th waves. And as it turns out, we can repurpose the above count very easily to accommodate that.

3-LESSER-DEGREE-CLOSE

So it turns out to work equally well as a 4th wave as it can for a B-wave. How unhelpful. And we would expect minute (blue) 2 to retrace exactly to the same spot, which it has. Creepy. Coupled with the minutia count noted before, the ingredients are at least there.

D-WAVE-CLOSE-SPY

Finally, we do have a nice ending diagonal look, complete with a little overthrow, breakdown, backtest & failure. The good news is: we will know right away because we should really get going, and protracted downtrends are fairly straightforward to play: short every rally into the abyss.

SPY


Now, how likely are these bearish alternatives? I can’t really say. It’s a very expensive market that doesn’t seem like it will ever stop going up, and crashes like the COVID crash are very rare and probably unlikely to happen virtually back to back. But, in the most remarkable market any of us have ever seen, we should do our best to remain prepared for anything. And yet still, markets crash from highs, not from lows, and we’re not at any discernible low so far as I can see. It would take only a single political event of any variety to shock flight into the markets, from which, at these prices, could emerge something very difficult to stop. We all already know the many pillars supporting the bear thesis: everything ranging from debt in the system, the investing public’s heavy involvement in the markets, political risks in the strange new world that COVID has saddled us with, etc.

The main takeaway from all of this is: I do believe we are now still in a correction (at least of some degree). And depending on how the structure develops, we may need to move toward any number of these (with the exception of the first count, from which we should go straight up from here).

Now, I have posted many bullish setups on this website because they are presenting bullish structures: bullish wedges and inverse head and shoulder patterns should be accepted for what they are. However, there are so many of them, that if everyone also sees them in the same way, perhaps some of them—or even many of them—will fail. We will simply have to take what the market gives us.

If you found this guide helpful, please do me a great favor and spread it around a bit, as I squandered much of my weekend preparing it. Except don’t let anyone who likes to hate on Elliott Wave Theory see it, as it will just make them burn with anger.

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