Cash in a Parallel

Ralph Nelson Elliott would say, "use a parallel to help find the count." While we were less confident of the count on early Friday, the count likely became clearer Friday afternoon as certain benchmarks were exceeded lower and we stated we were likely in wave (iii). So, here is a SPY (cash) 4-hr chart with the current count on it. We called the Expanding Diagonal as it was forming.

SPY Cash - 4 Hr - Line Chart in a Parallel

We used a line chart so the overall form of the waves could be seen but we have crossed checked for any wave violations on the OHLC version. There is some question of overlap in iv of (iii), but the final wave in iv does not appear to overlap. The rest looks good, including the waves in the diagonal which should overlap.

Note the MACD is still wide open to the downside. We do not yet have confirmation that wave (iii) is over. Maybe that will come Monday or Tuesday. But also note there is a greater than a (iii) = 1.618 x (i). Also, note in wave (iii) that wave iii > wave i.

Yes, the chart is still an uncomfortable one. There is one heck of a lot of room for a fourth wave (iv) to form. And it might try to come back to the fourth wave of one lower degree.

Since the daily chart of the ES closed below the lower Bollinger Band in just an over-sold condition, this, and the count both suggest the initiation of new naked short positions (using the paraphrase of Ira Epstein's Guidelines for trading) would be quite risky, and Ira wouldn't advise it. Here is that daily chart for your reference.

This chart does not mean that prices can't go lower, particularly overnight, it just means that it is likely that the Smart Money will take some profits against the lower band, and the small retail trader might wind up bucking their movements in the wash of their activities.

Again, price has exceeded the 150% rule in the cash market for a minute ⓔ wave of an expanding triangle. So, this wave down might better be labeled as minute ⓒ of Minor B.

So, the overall expanded flat might be counted like this on the daily chart.

ES Futures - Daily Close - Likely Expanded Flat

Again, the futures have not really violated the expanding triangle, so if we need to go back to it, we will. But, the cash market has, and that seems like the reason to take this view for now.

Have an excellent rest of the weekend,

TraderJoe