Today we were counting in the upward direction both because - as we noted and often note - today was the "first-of-the-month" inflows expected from pension funds, 401k's, company monthly bonuses, dividend reinvestment plans, etc., but also because there was the potential for the fourth wave (iv), up, of a downward contracting diagonal possibly being formed. A reminder of that pattern is on the ES 4-hr chart, below.
Price today traveled upward - a lot! During the day, we noted that price had traveled back to the 18-day SMA, 'the line-in-the-sand' on the daily chart - and them some. We also noted that for the contracting diagonal to remain valid, price would have to stay below 3,914.75 or else wave (iv) would become longer than wave (ii). Price got to 3,912 before traveling a tad lower to settle at 3,900.00 in a nod to the "round-number" people.
It turns out that from this level price can still make a new low, down to 3,763 provided the up wave does not invalidate first. Will the pattern maintain it's integrity? We're really not that clairvoyant - we just count & measure waves, and see if they fit typical Elliott Wave patterns. However, we did place a Wave-Counting-Stop (WCS) at today's high, as if the 3,915 level is broken, the pattern would have to be something else.
Critics of Elliott Wave patterns could hardly argue though that these 'deep retraces' are not typical of what is expected in diagonals. Each of the two retraces is over 78.6% of their prior down wave. Students of the patterns might ask, "if the 78.6% level is fatal to a pattern, then why did the wave labeled (iii) make a new low?". It's retrace wave was in excess of 78.6%.
We do see from the above chart that the EMA-34 is still pointed downward, and has each of the numbered waves on either side of it for good form and proportion. Beyond that, analysis seems to be of little merit, and we must wait to see what occurs in the overnight. Traveling below 3,880 before making a new high might be more telling.
Have a good start to the evening.