Correction Likely Begins

Yesterday we provided two very clear scenarios for how this up wave could end. The first scenario we showed you was the alternate count (until yesterday), and it was the (b) wave truncation count. The truncation occurred only in the last wave of a contracting ending diagonal, and only after that wave had retraced more than 78.6% of it's preceding wave - as we noted. We'll again show that chart in a minute.

The main count - which we said depended on a gap up today - was put on the scrap heap in the live chat room as the market opened with a gap lower today. In terms of wave counting - we counted with the main trend of the market until we could no longer. That's the way it's supposed to be done. After today's gap lower, the market retraced the gap completely, at noon, and then headed lower again. They loved 'em for lunch, but got heart burn with 'em by dinner!

Prices traded lower enough in two days to take out wave ((iv)) of the diagonal, lower, and, yet, the diagonal required almost a month of trading days to build! We have quite a lot of time left to prove out an ending diagonal. Remember, if a contracting diagonal is valid as an ending diagonal, then price should entirely retrace the diagonal - down to beyond the blue B wave in this case - in less time than it took the diagonal to build. Today saw more than a 61.8% retrace on that wave B already. We'll keep you updated on the status.

SP500 2-HR Chart : Diagonal with Truncation Ends the (b) Wave

We think this count is correct because of how many times price hit or closed on those diagonal trend lines, and the fact that the last wave ended as a three-wave sequence and took less-time than it's third wave, wave ((iii)). All of the time and price relationships are correct. Wave (v) is shorter than and took less time than wave ((iii)) which is shorter than and took less time than wave ((i)). Similarly, wave ((iv) is shorter than and took less time than wave ((ii)), and overlapped wave ((i)).

Again, we cautioned for days about the fact that downward gaps could fill. There are several prominent ones remaining - shown with red circles. Clearly, I am not neutral in price stance at the moment. I am counting waves to the down side with a target of the lower parallel trend line on the weekly charts. First target is 2317 (futures), and  the second target is 2262 (futures). In no way is this to be taken as trading or investment advice. There will be lots of backing and filling as any down trend progresses, and you and you alone are in charge of your investment decisions. I am only expressing my opinion of where I think the market is headed.

Whatever you do, please be very careful, as there are already ways to count the down move either as an impulse or as an expanding diagonal. One thing we know for sure from the live chat room is we do have three waves down at this point, and the third wave is slightly longer than 1.618 x the first. The exact count will depend on whether price gaps lower or higher tomorrow, and / or whether there is any eventual overlap on the first wave down. The first three waves down so far are 2437, 2443, 2419. We do not know that the third wave is over, but since 1.618 has been exceeded to some degree, this could signal there are more down waves ahead.

Have a very good evening. We hope we have been some help in identifying this very precocious apparent topping structure.
TraderJoe