Continuation - 4

No changes to the current count. During the trading day, the Dow Jones Industrial Average made a new all time high as James Comey, former FBI Director was testifying. The new high was promptly sold off. The S&P500 Index did not make a new high. First, let's deal with the DOW. Here is the hourly Dow (YM) futures chart we've been showing you.

Hourly DJIA (YM) Futures with Higher High In Wave 5

In order to get to 0.618 times the net distance traveled in waves 1-through-3, the Dow should have gotten to 21,288. It did not, and it fell short. Therefore, it is possible there is more to go. The above sequence of waves from wave 4 has a very definite "three-wave" look to it. So, we suspect there is a diagonal forming - most likely a contracting ending diagonal. You will note that I referred to that possibility of a diagonal even yesterday - before it started to form!

Now let's look at the SP500 5-minute cash chart. Here is how this diagonal might be labeled at this time from the same wave labeled 4 in the Dow chart, above.

SP500 5-Minute Chart : Potential Contracting Diagonal

Usually wave ((i)) of a diagonal makes it over the prior high of wave 3 to show it's motive character. It did in the Dow. It did not in the S&P500 (so there is just a split verdict there, and that is not a rule but a guideline as I understand it). Next, wave (ii) downward made a very nice 78.6% retrace - which is characteristic of many diagonals.

So, that leaves us with the idea that wave (iii) must make a higher high than wave (i) in order to continue an ending contracting diagonal upward. This is the most likely case, as we are getting daily Doji candles here. The market narrowly avoided an outside key reversal-day down today.

As the Dow chart, above, shows, any movement below the prior wave 4 would invalidate an upward diagonal. If that should happen, consider an expanding diagonal downward from the point labeled as ((i)). Again, we think that is less likely.

It could be the market is trying to "walk us over" to the date of the Fed meeting, which is on June 14th. Hard to say. In any case, the daily ES price is still above the 18-day SMA, and the daily slow stochastic is still fully embedded above the 80 level. See my paraphrase of Ira Epstein's guidelines for trading at this LINK if unfamiliar with what that means, as I do not provide trading or investment advice.

By contrast, the slow stochastic on the US Dollar Index (DX) lost it's embedded status under 20 as of the close of trading today.

That's about it for now.
Have a good night.
TraderJoe