Shortened Holiday

Market Outlook: New Highs Occurring after Triangle
Market Indexes: Most Major U.S. Equity Indexes higher; DJTrans lower
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)

Today (Friday) was only a partial day of equity trading in the cash markets. The NYSE closed at 13:00 ET today. In the process, some very interesting things happened. First, the $VIX made a new lower daily low today. A daily chart of the VIX is below.

Daily $VIX makes lower daily low today

Further, the S&P500, and it's ES futures, along with the NQ futures made new all time highs today. The DOW did not. Interesting.

On the hourly S&P500 Index chart, the new all time high puts us into a fifth wave, as below.

S&P500 Index - Hourly Cash Chart - Higher All Time High

On this holiday day, I am, today only, going to post how the wave that broke out of the triangle is being counted in the live chat room on a five minute chart of the S&P500.

S&P500 Cash Index - 5-Minute Chart - From the Live Chat Room

If you study this chart in detail, there is an awful lot that can be learned about Elliott Wave analysis*.

First and foremost was a contracting leading diagonal wave (1) that was called in real time. All of the measurements of that contracting diagonal fit perfectly. Wave 5 was shorter than wave 3, wave 3 was shorter than wave 1, wave 4 was shorter than wave 2 and overlapped wave 1 without traveling beyond the end of wave 2. And each wave is zigzag sequence: within the diagonal there are no flat waves. This leading diagonal predicted a strong third wave ahead of it. That was correct. Next, a flat wave (2) was properly identified - again in real time. The flat consists of A, B, C where the B wave is higher than the (1) wave. This wave (2) consumed 52 5-minute bars and was longer in time than wave (1). Next is the strong wave (3) which has greater than a 2.618 extension over wave (1).

Notice that no part of wave (3) breaks an imaginary line from the point marked ((C)), the origin of the wave, through the point marked (2).

Once wave (3) had made a satisfactory count, then a lower swing low was made, and we were able to count a zigzag correction as A, B, C, where the B wave missed making a new ATH by an incredibly small margin. But, it's as if to provide alternation, the B wave could not make that new high. So, we pointed out the excellent alternation between waves (2) as a flat, and wave (4), as a zigzag.

Note, too, that wave (4) consumed 71 bars, and was longer in time than wave (2), and challenged the lower trend channel boundary - just as it is expected to do. Notice that wave C of wave (4) can not be counted as anything other than a contracting ending diagonal (because of internal overlaps). And all of the measurements of that contracting diagonal fit perfectly. Wave ((v)) was shorter than wave ((iii)), wave ((iii)) was shorter than wave ((i)), wave ((iv)) was shorter than wave ((ii)) and overlapped wave ((i)) without traveling beyond the end of wave ((ii)). And each wave is zigzag sequence: within the diagonal there are no flat waves.

Then Wednesday, we had a short stubby first wave up, 1, followed by another one of these long loopy flat waves for 2. Today provided wave 3 in the five non-overlapping waves shown, and the likely start of wave 4. A critical point about the count on wave 3 today is that the gap up could not be counted as "three of three". If you look at the low that precedes the gap, price is at the very bottom of the bar. Therefore, it was - correctly - surmised that the gap was only wave ((i)) of 3, and there were more waves to follow: which there were.

Once wave 3 was completed, the smaller up channel was re-drawn from the wave 1 terminus, to the wave 3 terminus, so that part of wave 3 is above the channel. This is as it should be. This is wave 3 showing you where the highest momentum of the wave was. So, to alternate with a flat wave 2, then wave 4 again should either be a sharp or a triangle that starts with a sharp. So far, so good.

You can see from the wave traveling outside of the channel, the lower RSI(5) peaks, and the angle of the various waves that momentum is now being lost!

This five minute chart has a lot to teach one about counting longer term waves without having to purchase someone's proprietary (and often wrong) tutorial. If you can obtain the tools and have a real interest, you can do this for yourself, following the rules and guidelines as they have been already defined. And you can do it on any chart from the 5-minute, to the hourly, to the daily, to the weekly.

* when working quickly in the real time chat room I did not keep the degree labels consistent with the hourly chart, and did not change them to keep the chart "just as done in real time". That's ok, degree labels can always be changed after the market closes.

I truly hope this example helps you and others out. If so, please help pay it forward, and let others know.

Have a good weekend,
TraderJoe