Testy Market

Market Outlook: Down trend continuing, probably Minuet iv of Minor 3
Market Indexes: Major U.S. equity indexes higher, NDX lower
SPX Candle: Lower High, Higher Low, Higher Close; Inside Candle
FED Posture: Quantitative Tightening (QT)

If you have not read yesterday's post, please read it for perspective. The market is being a bit testy from a short-term wave counting perspective.  I said a fifth wave up, v, would make a lot of sense in the c wave of (d) wave of an expanding triangle. The market opened slightly lower, made three waves down, but did not invalidate a wave iv, yet. But the downward wave is exceedingly long.

S&P500 15-Minutes Top or Triangle?

So, after the three-waves-down, a five-wave sequence did form in the shape of a near-perfect diagonal, which could represent the high of wave v, with a very slight truncation. But it did not go over the high. So, with three-waves down, and a long wave iv, that makes us question the possibilities of a failure for wave (d) of the expanding triangle on the daily chart, or the possibility of a triangle in progress for wave iv, as shown in the chart above.

If a triangle forms it's purpose would be to even out the lengths of the waves between wave ii and wave iv. The net distance traveled by a wave four is often similar to or less than the net distance traveled by a second wave, and now, only a triangle would do that. Otherwise, with a deep wave four, a failure at the high has to be suspected. For this potential smaller fourth wave triangle, above, it could be a contracting triangle, a barrier triangle or a running triangle.

By-the-way, here is how we counted out the diagonal on a three-minute chart, just as it was in progress today in the live chat room. As you can see, wave (v) is shorter than wave (iii), wave (iii) is shorter than (i), wave (iv) is shorter than (ii) and overlaps wave (i), and they are all zigzag sequences. You can also see a beautiful little leading diagonal for wave a of (v), itself. Amazing. The only thing not perfect about the diagonal was it was missing the characteristic upward 'throw-over' of the upper diagonal trend line.

S&P500 Index 3-Minute Chart Perfect Diagonal

The high of the diagonal was not exceeded by the close, but it could be if the futures gap higher tomorrow. One point to note is that prices closed around 2,510 level in cash, and the low of the diagonal is at about 2,502. That means that only eight points separates a continuing up wave from the start of the next down leg. The other point to note is that since the diagonal is inherently a triple zigzag, it can be counted as a "b" wave of a triangle at it's high, already, also. In which case, there may have already been a "c" down in the triangle, and a "d" wave up. So, stay tuned.

Yes. That is precisely the reason there are alternates in Elliott Wave counting : because a contracting triple zigzag can either be the triple zigzag, or it can be a diagonal, if the rules are met.  It is one way of the market insuring that it has options and that it's future path is not certain.

Well, that's it for me for tonight. Have a very good start to your evening.
TraderJoe