One Gap Open, Three Closed

Market Outlook: Confirmation Obtained that Minor 4 is Underway
Market Indexes: U.S. Equity Indexes Closed Lower

Let's get right to the cash chart of the S&P500 Index - Hourly, as it was discussed in the real time chat room today.

SP500 Cash Index - Hourly

When the gap lower opening crossed below the b wave of (ii), it was possible to begin counting a third wave down, shown as .iii on the chart because a contracting triangle (dotted lines sketched in yesterday) was absolutely ruled out at that point. We counted a flat for wave .ii, and a sharp for wave .iv which shows excellent alternation in this down count. Wave .v is now the extended wave in the sequence, and we do not know that it is over yet, as there has not been a good enough retracement wave yet.

Looking at the oscillator shown at the bottom of the chart, you can see that it has made a lower low than August 11, after making the divergence at yesterday's high. At this point, it only confirms the lower daily price low in the index, but it does also offer confirmation that this down wave is a third wave of some type.

When price began to fill the gap from August 14, then we added the beginnings of a channel, and continued to trade below the mid-line of the channel all day. But, price did not travel outside of the channel today. Therefore, to be completely objective at this time, we can only suggest the count is either (i), (ii), (iii) or, as the alternate, (a), (b), (c) lower.

There is no reason to conclude price movement lower is over, but we must remember, we are now in Minor 4. And, this wave should be a SHARP or a TRIANGLE. But, a SHARP can be a zigzag or a multiple zigzag, lower. So, if we are making the impulse downward, then then down wave should likely become at least a 1.27 multiple, and trade outside of the channel, lower.

But, if a multiple zigzag will be made, then price will have a bounce off the channel, and try to get to the other side. So, let's review The Eight Fold Path Method chart we showed you in our weekend post of The Right Stuff.

SP500 Cash - Three Day Chart - Bearish Engulfing Pattern

So, as you look at the chart, you can see that there is plenty of room to make one of several patterns before getting to the lower channel boundary. So, just remember this is a Minor 4th wave, until or unless proven differently. In one manner or another, price should try to attack the lower channel boundary, somewhere around 2250 - 2330.

But, because it is a wave four, one should remain flexible and patient because we will likely also face The Fourth Wave Conundrum as the market tries to fake us out in which pattern it is most likely trying to make. If it does make a triangle, a triangle can come in contracting, barrier, running and expanding types. And, if Minor 4 makes just a simple zigzag, the market can try to make an ending diagonal wave 5. The smartest people now are "open-minded" and "curious". They seek clues as to which pattern is being made.

They are not despondent that a wave 4 & 5 pattern can have lots of unpredictability to them. For, in my Elliott Wave experience, given where we are now, that is the very nature of the beast!

Be careful, and have a very good start to your evening!
TraderJoe