How To Tell

Market Outlook: Possible Minor 3 Top, Waiting on Confirmation
Market Indexes: DJIA, S&P500 new All-Time-Highs
SPX Candle: Higher High, Lower Low, Lower Close; Bearish Engulfing Candle
FED Posture: Quantitative Tightening (QT)

I said in my video this past weekend that we had no confirmation that Minor Wave 3 had ended, but it might be close. Today we got the higher high that reversed - on the S&P500 Index - creating the bearish engulfing candle or outside key reversal day down. For your confidence, I'm going to show you the chart of the S&P500 Index that was created & updated live in the on-line chat room today.

S&P500 Index - 15 Minute Chart

The market - as measured by the S&P500 Index - closed Friday at 2575. It gapped up three points at the open, creating a divergence with the oscillator shown, then closed the opening gap - shown with black circle - within the first hour. After 2:00 PM the market had made a new swing low (NSL on the right) below the prior wave iv, and continued to drip lower throughout the day.

We were patient to see if a 1.618 extension of the wave off the high was made. It was, and we drew in the "base channel" you see above. We were further patient to see if a 2.618 extension off of the high would happen. It did. Around 2:30 PM prices made a further new swing low below the low of wave blue .ii of the prior up trend channel (NSL on the left). Further, we noted the level for the cash "key reversal" at 2,567.56, and cash broke down through that, as well.

Throughout the day, the oscillator continued to make new lows, and, as of the close, there is no indication of divergence, yet. By the close the S&P was down -10.23 points, and stopped at the point marked "prior highs" on the left side of the chart.

How can we tell if Minor 3 is over? First, there must not be a new high before a new low. Second wave i, up, of the prior rise must be overlapped downward. And, third, it would be best if the decline to new lows took less time than the prior rise. Since the prior rise took two days (shown), it would be best if the 2547 low was exceeded tomorrow.

With alternation on the way down (wave ii is a long, lazy flat; wave iv is a short quick zigzag about equal length to the total distance traveled by wave ii), it possible - just possible - to count the down wave as a five-wave sequence. Or else, it's fourth wave may still be forming. But, as five waves down, is it a new impulse lower? Or is the structure a big fat "c" wave which is the last wave of a fourth wave of the rise of the prior up trend?

We have seen some very goofy fourth waves - just waiting on some piece of news - so, until the requirements above are met, patience remains the order of the day.

Speaking of some goofy fourth waves, over the weekend - besides making the video I had a look at the August - September 2017 bottom with a special emphasis to analyze it the way Glen Neely might. I'm going to show you that chart below. The conclusion that results from it is stunning, so I hope your will take some time to go over the chart.

S&P500 Cash Index - August to September Low

One feature you will note is that the wave marked (b) did not make a new high over the wave marked (iii). And so, since I initially found this bottom hard to count, I thought I'd revisit it. And what did I find? Well, it is highly likely that 21 August low is only the nominal low (the price low) of the Minute (iv) wave. There is actually possibility of a contracting non-limiting triangle ending on 11 Sept.

This non-limiting triangle (which means it does not limit the thrust out of the triangle to the width of the triangle) may be responsible for the rocket-ship rise that got everyone talking about "what the heck is the Dow doing flying up there by itself??!!". In other words - that rocket ship ride may have been the thrust out of a triangle. And the difficulty for Elliott analysts is likely that it will cause them to have too many waves in their upward wave count. As shown, wave 1 is the first impulse wave that breaks the minute (iii) high.

And once again, because the (e) wave of the triangle is the further wave to the eastern side of the chart (the right of the chart), it now allows for a line from wave (iv) to 2 to not cause any part of the subsequent wave 3 to break that trend line. That is truly amazing because I could not initially count the Aug 21 - Aug 24 wave as a "five", and this may explain why.

In the future I will likely not go into so much detail as it may not be necessary. For now our only job is to see if we get confirmation or not. So, let's be patient and keep some powder dry.

For those who follow the NQ futures (chart below), you know that price got down to the 18-day SMA and that it is in danger of losing it's embedded slow stochastic reading.

NQ Daily Futures

Well. That's more than enough to think on tonight. Have a very good start to your evening.
TraderJoe