The Fourth Wave Conundrum - Part 2

Market Outlook: Two Ways to be in Minor 4, Lower; One Way to Be in A Fifth Wave Up
Market Indexes: S&P500, DJIA, RUT, higher; NDX, lower.
Today's Candle: Higher High, Higher Low, Higher Close

The S&P500 had closed on Thursday at 2472. Prices gapped higher this morning on the soft jobs report, and on the "first of the month money" we said was often likely in previous posts. This is the typical new month inflows from pension funds, dividend reinvestment plans, company bonuses, etc. Prices then traded up to a high of 2480.38, and then started a slow fade on some profit taking late in the day, closing at 2476.55.

First, let's look at the big picture. If we take the weekly chart of the S&P, all that prices did on a low volume day like today was "grind" against the 1.618 extension. Here's a chart.

S&P500 Three-Day Chart with Extension

All day, prices just bucked up against that extension, and even given the soft labor report, and the first of the month couldn't bust it (today).

During the day, I set a limit on how I was counting the potential (x) wave higher. The good news is that level was not busted. It held by a quarter of a point. Here is how I was counting the potential y wave of the (x) wave. Remember, it should count as a-b-c to y. Right now, it does.

S&P500 Cash - Half-Hour Chart - Y Wave as ((A)), ((B)), ((C))

You can see the Fibonacci rulers. ((C)) = 1.618 x ((A)), in red, and (5) less than (3), less than (1), in blue. The problem is with (3) shorter than (1) right now, any movement over 2481 will invalidate the count and force an impulse count higher for this wave. Again, right now. It's OK.

Well, so here we are on a long weekend. And the futures will be open many hours when the cash market isn't. I can't guarantee this pattern won't bust. I can only objectively say, "it held today". It's kind of a real cliff-hanger, but it certainly is possible for the market to gap up seven or eight points on some weekend story or some foreign news. It's also possible for it to gap down. My market metrics are not good enough to tell for sure which will happen. Are yours?

And so, we must play the game of wait & see. The only thing we can say, is that - in terms of length - this up wave is greater than 1.27 times the length of the up wave from 21 Aug. That slightly favors an impulse count instead of the double zigzag. But, the EWO has headed lower, and that favors some continued downward movement towards the zero line. And the NQ futures did make a new all time high today, but closed lower. As you can see, not a lot to go on. In some ways, it feels like a game of chicken.

The Dow did fill it's first gap up - as I showed on yesterday's chart. But, while the S&P now has no gaps above, the Dow has one more such gap at 22087.

The two possible down counts for the S&P are (a), (b), (c), (x), with a further (a), (b), (c) to go. Or the 'possibility' of a leading diagonal, if this up wave breaks the ((A)), ((B)), ((C)) shown and turns into a clean impulse. That's because wave (2) in a diagonal must be an a, b, c zigzag from 21 Aug.

The DOW can be counted downward as just ((a)), and ((b)) at this time. The Dow has not retraced 78.6%, yet, but is beyond 61.8%. The problem with counting the Dow as (a) down, is that within the downward wave, there is no 1.618 extension. And so, the downward Dow wave counts better as a zigzag - like the S&P.

But, if the high in the DOW and the S&P breaks, then "most likely" we are into Minute ((v)) of Minor 3 still - one last gasp to finish Minor 3 before starting the larger Minor 4, down.

Even though we are into a resistance area here, people may have their 'opinion'. They may be bullish or bearish. We may break the all-time-high or not. But it's likely few people can conclusively state 'which' will happen, and why, from a wave counting viewpoint. This is the very essence of The Fourth Wave Conundrum.

For now, have a very good start to your weekend.
TraderJoe