Usual Expectations - 2

Market Outlook: A Challenge of the High is Underway
Market Indexes: Most Major U.S. Equity Indexes were lower; RUT higher
SPX Candle: Lower High, Higher Low, Lower Close - Inside Candle
FED Posture: Quantitative Tightening (QT)

Let's continue where we left off yesterday. The market, as measured by the S&P500 Index, closed yesterday at 2,585. While other sites and analysts took the bullish case hook-line-and-sinker, we took a different approach and said to monitor the gap direction. Prices gapped lower at the open to 2,582, and traded down to 2,579. In the process, they confirmed the case we stated yesterday that to begin any new down count, the prior wave 4 would have to be exceeded lower in less time than wave 5 took to form. That occurred on the open, the continued five-minute chart is below.

S&P500 Cash Index - 5 Minute Chart - Wave 4 Beaten in Less Time Than to Build Wave 5

The blue arrow shows how much time it took to beat the wave 4 low, the green arrow shows how much time it took to build yesterday's wave 5. So, we started a downward count. We counted five waves down, including a gap in wave (3), and monitored almost all day as a triangle formed wave (4). Without wavering, we expected a new low out of the triangle, and that occurred in the last thirty minutes of the day, making a complete five-wave sequence (:5) down to the 2,577 level. And, the gap was not closed for the balance of the day.

On this chart you will see two boxes: the first is the "height" or number of points of wave (2). We contended that the purpose of the triangle was to help equalize the net distance traveled by wave (4). Since wave (4) is measured by it's E wave, the net distance traveled thus became remarkably consistent. If the wave movement ended at B, the A wave retrace would have been "too large" in terms of net points traveled, for a fourth wave compared to wave (2). We waited, and waited, and then the thrust out of the triangle occurred and made the new lows of the day. Please note the down movement "may" not be over. Wave (5) could further subdivide. In fact, after the cash market closed the futures did continue lower still.

As far as I can tell, this is now the five waves down to an ((A)) wave, of a larger correction. What larger correction?

Shortly after the open I published in the live chat room, this chart of a potential much larger triangle in the S&P500 Cash Index - Hourly. It is a 78% triangle in both directions with waves (c) and (d) both 78.6% retraces of their prior waves.

S&P500 Cash Index - Hourly - Potential Larger Triangle

It is entirely possible to count a-b-c down to the (a) wave of the triangle, and a-b-c up to the (b) wave of such a triangle. Both of these would be the "simple-legs" of the  triangle, and then the potential diagonal downward would better count as w-x-y-x-z as the "complex" (c) leg of the triangle followed by yesterday's :5, :3, :5 upward to another "simple leg" of the triangle, and then, we were expecting an (e) wave downward to also be a simple leg. In a running triangle such as this, it is required, that the (e) wave, cross down over the origin of the triangle at (0), the prior third wave, and it did that at the close.

So, there is now a validated triangle.like it or not. Could the (e)  wave go lower? Absolutely. Does it have to? No. But, keep in mind that so far we have a five-wave down count in this last leg. So three-up, and five more down should at least be expected next. And, keep in mind, some seven leg triangles have been documented in the annals of Elliott Wave history that would add an (f) and (g) leg if the market needs more time to make it to an important event or news announcement, let's say. The only reason we mention that is this triangle - while is has the right look - may be a bit stubby, yet. Hard to know how it will finish.

Now, is  that Leading Expanding Diagonal down from the top dead? No, it most certainly is not. But, again, this is exactly what I have been trying to communicate to you is the very essence of The Fourth Wave Conundrum: exactly the same valid wave structures can result in different interpretations of the current count.

That's fine with me. I'm used to it. As I said in my YouTube channel video, it is in the fourth wave (or diagonals) that people want to know what the count is. They think things like, "don't make excuses; just tell me the count, what the target is, and how many more points up or down. I need to know what the count is because I'm being whipped around like crazy". Sorry. That is the reason I coined the term. I can show you in detail how to count. I have done that above and on numerous charts. What can not be done with high probability is state what direction the next break out will be. So, we are patient and try to do our best job counting each wave. We leave the fortune telling to others. In short, the above triangle could break up or down.

What makes the Leading Expanding Diagonal slightly less probable now than the triangle is the fact that, as a diagonal, it did not make a new low below (a) of the triangle. Why not? Well maybe it is not expressing true Motive character - the ability to get prices really moving in one direction or the other, downward in the case of the Leading Diagonal.

If you're a savvy trader, you might say, "the trend is friend until it is not". And that might add odds that the next break will be in the trend direction (or up in this case). And often that works, until the last time.

Well, that's enough for me today. Have a very good start to your week.
TraderJoe