How To Tell - Part 2

Market Outlook: Minor 3 Top more likely, Waiting on Final Confirmation
Market Indexes: All major U.S. Equity Markets were lower
SPX Candle: Lower High, Lower Low, Lower Close - Trend Candle lower
FED Posture: Quantitative Tightening (QT)


    After yesterday's consolidation day, the ES E-Mini S&P daily futures broke below the embedded reading of 80 on the slow stochastic as we had warned about in yesterday's post. The cash S&P had closed yesterday at 2569, and opened with a small gap lower. By the first 45-minutes of trading several of the requirements for confirming the start of Minor 4 were met. First, Friday's gap was closed while today's gap remained open. After the first hour, the S&P500 overlapped Friday's wave i, up, in the downward direction (this made any smaller degree wave four very difficult indeed!).

   That important overlap is shown in red in the chart below, which is again provided for a short time for your confidence. And, by 11:30 AM eastern, the market made a very clean 1.618 extension of it's first wave down.

S&P500 Cash Index - 15 Minute Chart - 1.618 Extension

This, as you know, is one of Neely's key requirements for considering this wave an impulse lower. The next requirement - that of the lower daily low before the higher high - was met by approximately 1 PM as the cash index touched the 2544 level.

After the 1.618 extension, we are able to count an expanded flat fourth wave as a:3, b:3, c:5 - which ended very near the 38.2% Fibonacci retracement level. These expanded flats are 'supposedly' the most common corrective wave type. We certainly have seen bucket loads of them on the way up in the bull market. Now the question is, "will this one work"? Since we saw a sharp wave for wave ii, we predicted in the live chatroom that there should be a flat or a triangle for wave iv. We need to have good alternation in order to have a good impulse. This would do it.

So far, the cash price has held the 38.2% retracement by close, but this pattern must survive the gap direction at the open tomorrow. If it does, and price gaps lower for a fifth wave we may get a true impulse wave lower. If not, then since the most recent wave we counted is a very clear 'five-waves-up', then the next most likely series would be an expanding diagonal, but it would require overlap on wave i, down.

So, stay tuned. While it is currently interesting to see some downward wave moment for a change, we need to confirm that the key requirements are met. If the futures overlap in the over-night, we might get a diagonal in the futures and an impulse in cash. That would be novel. Or, we could get a diagonal in both.

The ES futures did close above the 18-day SMA, after piercing it to the downside. So, they do have positive bias. Meanwhile, the lower daily Bollinger Band around currently around 2528 might serve as a target if the 18-day is again exceeded lower. Again, nothing in this blog is to be taken or used as trading or investment advice. This information is only helping to try to clarify the possible Elliott Wave position of the market.

Lastly, we want to note that several indexes had follow-through to the downside today, that included lower daily lows in the Russell, the NQ, the ES - as we noted - and the Dow Transports as shown in our prior posts. Here is the chart of the Dow Transports, updated with today's prices.

Dow Jones Transportation Average - Daily

The DJT price bars are getting longer in the downward direction as compared to the upward price bars. And, all this is coming at a time of near rampant bullishness as explained from the sentiment chart in the weekend video.

The ES futures volume picked up to almost 2.0 MM contracts from those 800k days. So, volume is also currently following price lower.

Yes, even on the down-side, patience and flexibility are still needed. There is always backing and filling to consider, and the alternates of diagonals versus impulse waves - or only three-wave sequences. So, after a day like today the best tonic is to "chart & measure, chart & measure". That's what an Elliottician does. They don't have opinions. They don't do "fortune telling". They chart and measure. Chart and measure.

Have a very nice start to your evening.
TraderJoe