Wedges

Market Outlook: Possibly Topping this Week
Market Indexes: All major U.S. equity indexes were lower.
SPX Candle: Lower High, Lower Low, Lower Close - Hammer Candle ?
FED Posture: Quantitative Tightening (QT)

If you did not read the special post this morning, you are encouraged to read the prior post HERE before reading this one.

The market as measured by the S&P500 Index had closed yesterday at 2,594 in what we suggested was a "b" wave. It may have been. The futures were lower overnight, and the market gapped lower to open at 2,584, and traded down to 2,578, then up to 2,587 before turning tail and dropping to 2,566 (fully -28 points lower), before turning around to trade back up to the 2,587 level the lower edge of the gap.

During the day, we gave precise price points for the levels that would cause the daily S&P500 Cash Index or the ES E-Mini S&P500 Index Futures to lose their short-term daily diagonal shape. Those levels are 2,562.96 in the cash index, and/or 2,558.75 in the December futures. Neither of those levels were hit today before the markets rebounded into the close. Today's downward retrace was just shy of the 62% mark of the prior swing low. Both of those levels remain in effect for tomorrow.

So, we now have the case in these two indexes where the fourth wave of the daily contracting diagonal could be at today's low, and one more zigzag up is needed to complete the wave sequence. Here is the simplified picture on the cash index.

S&P500 Cash Index - Wider Diagonal or Topped?

However, the DOW has broken it's near term diagonal pattern, and therefore may have topped. It is also possible for the above sequence to have topped as well - but since it contains more influence from the NASDAQ 100 stocks, we are giving the S&P500 more time.

The blue wedge line above shows the diagonal that may have topped with a truncation. The red wedge line shows the continuing potential diagonal.

The Dow Transportation Index continued to make lower lows, as in the chart below, and closed a prior mid-point gap that is shown with the black circle.

Dow Jones Transportation Index - Gap Closed

Because the NQ futures "may" still be in a longer fourth wave, we must allow as an alternate to all indexes that the "wedges" are difficult to count (b) waves. There's no problem with that. That is the usual alternate for a diagonal. A quick look at the NQ futures, below, will explain why.

NQ Daily Futures - "Possible" Flat or Triangle Wave (4) ?

One thing is clear, this was the largest down candle in the NQ since back in the JUL - SEP 2017 triangle. It literally seems like just a question of how the wave finishes. A triangle here would be superb. But .. only time will tell. So patience, calm, and rationality are still needed.

At the lows of the day, the daily ES E-mini S&P500 Index futures were both trading below the 18-day SMA, and had lost the embedded slow stochastic status. Both of them were regained before the close. As Ira says, "it's not over 'till it's over".

Have a very good start to your evening.
TraderJoe