Next Wave Lower Confirmed

In yesterday's post, we showed a plausible way that the next wave lower could complete as a five-wave sequence. Today, that expectation was met, as shown by the first chart of the S&P500 Cash Index.

SP500 Cash Index - 15 Minute - Next Wave Down

After the third wave, iii, at the 1.618 location then the long draw-out sideways triangle chewed up a lot of time until the vth wave broke lower out of the barrier triangle. The purpose of that triangle was to better equalize the net distance traveled in waves ii and wave iv. In doing so, the upwards diagonal (c) wave that completed on 16 Sep was confirmed as an ending diagonal. The start of the diagonal in the cash and futures was undercut today in less time than it took to build the diagonal.

So, on the daily ES futures chart, here is the picture as of the settlement.

ES Futures - Daily - Swing Line Down

The swing line has turned down, and the daily bias is down as price settled under the 18-day SMA. And, while the lower daily Bollinger Band is just starting to bend lower, the daily slow stochastic is in over-sold territory. It has not even started to embed. As of this time on the S&P500, there is no overlap on the June high as there is on the Dow.

The nature of these waves remains unlabeled at this time, as technically there are only three waves lower. It could be a-b-c, complete. But, it could just as easily become more than that, as an Intermediate (X) wave lower is expected as least to exceed the Minor B wave lower in price. So, we could have three waves down as part of a FLAT Intermediate (X) wave, down. We could have Minor A, down, Minor B up, and minute ((i)) of C down. Or, we could have minute ((i)) down, minute ((ii)), up, and minuet (i) down, today. Time will tell.

The issue is that an (X) wave sequence could be almost any one of the corrective forms. And we note today, that declines exceeded advances by only a 1:2 margin. This is not a very impulsive reading, and it certainly doesn't seem like a "kick-off" wave. Therefore, we are very, very patient with this structure. Look how long we had to be patient with the upwards diagonal to 16 Sep, and look how long we had to be patient with today's fourth wave triangle.

That's what it takes some time. Get some good rest over the weekend.

Have a good start to the evening.

TraderJoe

Plausible Next Wave Lower

Last night's high held up. ES futures prices fell apart in the after-hours. While cash gapped lower, and made a slight new low, the futures never beat their low, and created what might be a barrier triangle near the low. This is the follow-up to the potential diagonal chart in the SPY cash index showed in the prior post.

SPY Cash - 15 Minutes - Potential Triangle

 

The downward wave iii in cash is 1.618 x wave i.

The potential barrier triangle in the lower right might be the fourth wave, taking a lot of time and moving price sideways. A lower low for cash and futures might allow the downward wave to take out the start of the diagonal in less time than the diagonal took to build. But, it remains to be proven.

If proven, it could be the right shoulder of a head & shoulders top.

Have a good start to your evening.

TraderJoe

Simple, Not Easy

Below is the count we posted in the comments today of the expected potential diagonal in the 15-minute cash SPY/SPX. There is a way to count 'five-up' in the futures, too, but it does not 'look' as quite as nice as this does. We said the first up wave in cash this morning did not make it over the high, and was likely an 'a' wave of iii. The second high did exceed the prior high and can be the 'c' wave of iii. The high during the FED news conference can be seen as the vth wave high.

SPY Cash - 15-Minute - Potential Diagonal

So now, the task become simple - but not necessarily easy. The high must be monitored to be sure it is not exceeded. (Otherwise such a pattern could be a 'leading' wave and not an 'ending' one.) And, the low of the diagonal, the start of the diagonal, needs to be monitored to see if it is taken out in less time than the diagonal took to form. Since the low of wave ii has already been exceeded lower, the next milestones are the ((B)) wave of i, and then, starting to fill the gap.

So far, all the right shapes and time expectations are met. And it is a reasonable sign that price back-tested the underside of the lower diagonal trend line and failed. (It could back-test again if it wishes). It is also a good sign - as we wrote about in the comments that each peak occurred on a successive lower high of the RSI indicator on this time-frame.

We will monitor the high with you. If it should be exceeded, then price may try to head more to the 62% retracement on the ES 2-Hr chart. But, for now, we just count what we see,

Have a good start to the evening,

TraderJoe

Wedge Shape

Because of the initial wedge shape, and the divergence on the RSI, readers of this blog were asked in the early morning to be on 'overlap watch' and look for the potential of a downward overlap.

ES Futures - 30 Minutes - Count Detail

That overlap occurred late in the afternoon. The count detail is shown above. I'm still counting the (c) wave upward.

Have a good start to the evening.

TraderJoe

Only A Little Less Stuck

In Friday's post we suggested watching the falling parallel trend channel on the hourly or 2-hr chart. Today, as you can see from the chart below, price got a little above that channel.

ES Futures - 2 Hr - Above Down Channel

So, with a wave that is now almost as long in time as the suggested downward wave, there is the making of an (a),(b),(c) corrective wave sequence upward. Today could be some or all of the (c) wave upward. The upward wave (c) could extend if it likes. It would be good to see a more reasonable Fibonacci retracement level, and a little more time taken to the move. Yes, it is possible the (c) wave might morph into a diagonal wave, too.

GOLD is still in it's triangle on the 4-Hr chart. Wednesday is the FED decision. Of course the only thing they're not thinking about .. is thinking about it.

Have a good start to your evening.

TraderJoe

Stuck in the middle with You - 2

The ES daily futures made a lower low than yesterday, as was anticipated from yesterday's intraday chart. But, they did not make a new low for the move downward.

ES Futures - Daily - Lower

The result was a fairly narrow range bar with a slightly lower settlement price. The bias remains down as the day settled under the 18-day SMA, however, the daily slow stochastic is in the over-sold range.

From a wave count perspective, price is currently in this downward channel as shown on this hourly chart of the ES futures. Price again fell to the round-number support at the 3,000 level, and then bounced.

ES Futures - 1 Hr - Mid Channel

The location of price currently in the channel shows how little urgency there is at the moment to the down trend. We remain sort-of 'stuck in the middle'. If price breaks significantly above the channel, a larger B wave or 2nd wave would be counted. If price significantly breaks below the channel, a larger C wave or 3rd wave would be counted.

The NQ futures did tick below their low of two days ago. So, the swing line may have also turned negative for that index. 

Have a good start to your evening and to your weekend.

TraderJoe

Stuck in the middle with You

Yesterday we saw the likelihood of a battle brewing at the 18-day SMA. Today prices again approached the "line in the sand", missed it by three points, and were rejected lower. In doing so, first, the five-wave up scenario from yesterday was completed with a marginal new high.

ES Futures - Daily - Rejection near 18-day SMA

The daily slow stochastic is still over-sold, and it is possible for price to tag the lower Bollinger Band, again, but not certain. Here is the ES 30-minute chart to show two things: first price did first nick out the higher high to complete the impulse, upward.

ES Futures - 30 Minutes - Impulse Up Completed

 

The second thing is to show that after making the marginal higher high, price then headed quickly lower - quickly relative to the time taken in the up wave. On the down side of the chart above, price has exceeded the 62% retracement level, but has not taken out the 78.6% retracement level just yet. Here is a chart of the ES futures 5-minutes to show the current possible structure of the down wave.

ES Futures - 5 min - Possible Impulse

At the moment, we say we are "stuck in the middle" because there is no confirmation of prices below the 30-minute low of 3,295. And, on the 5-minute chart, there is no confirmation of a full impulse lower - although it is certainly possible that one could complete overnight and into tomorrow morning.

In the above chart, the RSI, on a very short term basis, definitely has the classic signature of "the third of a third" wave, with the lowest reading below the 30 level (colored circle).

So, we need to see if a fourth wave ((4)) forms without busting the pattern, and if there is any alternation to the pattern. So far, it looks OK, but it needs to hold through the overnight. Readers will note this impulse would be counted with a failed second wave that would indicate a lot of weakness in the market if the impulse plays out. If it doesn't, it is possible to consider an expanding diagonal wave lower.

GOLD appears to be in the (d) wave of its triangle, with five waves up for 'a', then 'b' down' and it could make five more waves up to tag the upper triangle trend line.

Have an excellent start to your evening.

TraderJoe