DOW new High

In the Friday, June 9, post we wrote, "Therefore, it is likely that the top is in for the Dow, too, but, as good Elliott analysts, we must allow that if the Dow want to clean up the count a bit, it could make another marginal new high - as an alternate - and form a nicer looking expanding diagonal wave upward from the wave 4 indicated. It could do this but certainly doesn't have to, and this option is not available in the S&P500."

The Dow carried on to fulfill that new high today. Below is the chart of the Dow, as we posted it in the live chat room earlier today.

DJIA 15-Minute When Wave ((v)) became longer than wave ((iii)

Following all the rules and guidelines, the market seemed intent on completing the Expanding Diagonal.  It certainly looks better. We now have wave ((v)) longer than wave ((iii)), wave ((iii)) longer than wave ((i)) and wave ((iv)) longer than wave ((ii); with wave ((iv)) overlapping wave ((i)), but not traveling below the low of wave ((ii)). They can all be counted as three wave zigzags, and from a timing standpoint, wave ((iv)) is longer in time than wave ((ii)).

This is often a very serious pattern. It certainly increases the "risk" in the market because one can not simply assume the diagonal is an ending one until the low at wave 0 is exceeded lower. Further, there is no way to be certain that wave ((v)) is not actually a longer wave ((iii)), with the current wave ((iii)) just (a) of wave ((iii)) because of the steepness of it's rise and the short length of time of the wave.

If wave ((v)) is being made, it is wave 5 of C of the overall (b) wave we have shown for weeks now. Price is only slightly past that point.

On Friday, we said we had also ruled out and expanding diagonal for the S&P500 because it's wave had traveled below the invalidation point (same as the '0' level on the above chart'). But, in real time, we just wondered, if the S&P doesn't truncate, what else could it do to make a completed wave pattern?

The chart we developed this morning shows that possibility. It would be a contracting diagonal, not an expanding one.

SP500 2 Hr Chart - Contracting Diagonal Possibility

In this case, the S&P500 must make at least one more new high. At least wave (3) must close above wave (1). Wave (5) can sometimes truncate, but it is more usual for it to make a higher high, too. The above chart was done well before the close. The S&P500 did travel somewhat higher by the close. It too would still end the (b) wave we have been looking for - perhaps on the FED announcement or shortly thereafter. And, this is reasonable because the S&P500 has not even made a higher new all time high over wave (1), yet.

For those of you who may have been counting on the (b) wave at the location we showed over the weekend, this is precisely one of the reasons why Ira Epstein teaches there is no shorting unless price closes below the 18-day SMA (see my paraphrase of Ira Epstein's guidelines for trading located at this LINK.)

And, while the slow stochastic on the ES daily futures did break the 80 level, lower, Friday, it re-gained it today, although even the first loss of it is somewhat of a sign of weakness. Regardless, the FED meeting is tomorrow, so we simply have to observe the results while we continue to count - always following the rules and guidelines. You can see when we do that, we can make statements in the live chat room like we did today: "In order for there to be an expanding diagonal, wave ((v)) should become longer than wave ((iii))" ... and, when it did, we were able to validate the potential expanding diagonal - also known as the dreaded megaphone pattern.

The good news is it was clear from the weekend post, we were initially expecting up movement today. We got what we expected, and more.

We don't make the market, we can't force the market to do anything. We can only count, trying to follow the rules and guidelines as closely as we can.

Have a good evening.
TraderJoe