A Matter of Degree

Market Outlook: New Highs Occurring after Hourly Triangle
Market Indexes: Most Major U.S. Equity Indexes lower; DJIA, DJU Higher
SPX Candle: Higher High, Lower Low, Higher Close - Outside Candle, Doji
FED Posture: Quantitative Tightening (QT)

After spending much of the weekend reviewing the subject of degree violations on here, and to some degree in the chat room, I ran a test in the chat room today to see if anyone took it to heart. I posted a chart which had an obvious degree violation and thought I'd wait to see if anyone would notice it or mention it. As you probably guessed ... it was crickets by all.

The chart with the obvious degree violation is this one (five minute chart of the SP500 Index).

SP500 5-Minute Chart with Obvious Degree Violations

Even though I was expecting a fifth wave up today the chart above is clearly wrong, because waves ((i)) and ((iii)) are indicated to be of a lower degree than 1, but are way longer in price than 1, itself! This is impossible under the wave principle. It violates the very meaning of the term degree. One might just as well not be plotting waves if this principle is not applied. Still, no one even 'flinched' or said anything. OK.

Before we go too long, here is the chart corrected for the proper wave degrees, and it still results in both a correct chart, and a correct prediction.

SP500 5-Minute Chart With Degree Violations Corrected

Now notice that all of the nano waves ((i)), ((ii)), ((a)), ((b)), etc. are smaller than the minuscule waves 1 and 3, for example.

This is the big problem we're having on the daily and weekly chart of the ES and YM futures. And I have to do a lot more work to resolve it at the election low, and following.

Today, price did make another new all-time-high, and then made three-waves down to the 62% retrace of this wave only (not of the whole impulse wave out of the hourly triangle). The waves we were left with once the channel ended can be counted in entirely two different ways - so it will be another gap dependent day tomorrow.

The first way to count out of the downward parallel is an an entirely legal a-b-c up corrective sequence, with waves down following it. This is because within a possible c wave, wave ((4)) does not overlap ((1)). And because diagonals are more rare, this is how it was first counted.

SP500 Cash Index - 5-Minute - Corrective Count Out of the Channel

The second way to count is,however, as a contracting leading diagonal up wave, with a downward retrace wave following it.

SP500 Cash Index - 5-Minute - Possible Diagonal out of Parallel

Here is another one of those clear cases where exactly the same internal wave structures can justify two slightly opposite counts : granted this is on quite a small time frame. In this case, it's because wave (4) above does overlap wave (1), and there are no flat waves in the structure.

So, it's a case where we must let future structure dictate the eventual count.

Regardless of the short-term indecision in the market, there is no reason to count with degree violations, particularly price degree violations. Those are as illegal as wave 2 traveling beyond the start of wave 1, but they are apparently less noticeable to people. I'm sure I have made several unintentional ones in the past, and will also monitor myself to insure they don't creep in again.

There is a lot to learn - even on a relatively unchanged day.

Have a good start to your evening!
TraderJoe