Diagonal Maintains Parameters - 3

Market Outlook: Expecting Higher Volatility
Market Indexes: Major U.S. Equity Indexes were higher
SPX Candle: Higher High, Higher Low, Higher Close - Trend Candle
FED Posture: Quantitative Tightening (QT)


With the possibility of yesterday's truncated fifth wave (called out for you in near real time), an up wave was expected, and that's what occurred (the ES futures had made a lower low overnight, then turned around higher). The market as measured by the S&P500 Index closed yesterday at 2,652, and opened at 2,661 a nine (+9) point gap, then traded as high as 2,680, before turning slightly lower (down -8 points to 2,672) and turned around toward the close to end the day at 2,575 up +23 points.

Because there was no significant retrace within the up wave, it does not have the typical characteristics of an impulse in a channel (i.e. following The Eight Fold Path Method). When you see waves that "fly off the handle" like this, they are typically A waves or C waves. This one appears to be an A wave. First, let's look at the very detailed internal count we did today on just today's wave in the chat room.

SP500 Cash Index 3-Minute Internal Structure

After the gap up wave, there was less than a 23% retrace. That usually means we are still in the same impulse wave upward. We were right; the impulse continued to make five non-overlapping waves up. We are showing you this in an amazing level of detail. Then, when wave iv occurred, it was larger than the previous down wave without overlapping the top of i. This meant it had to be iv, and not ii of a 1-2-i-ii up at that location as that would have resulted in a degree violation. Not allowed. Then, after wave iv broke the 0 - to - ii trend line, that signaled wave v in progress. And it chopped, and it chopped higher. In then end, within the a wave, wave v was shorter than wave iii, which was shorter than wave i. Another one of those extended first wave sequences.

At that point we began calling for a "B" wave down (of some degree) and we looked foolish almost all afternoon as the market ground to higher highs. Then it occurred we might make the (b) wave of an expanded flat. And not until a half-hour before the close did the (c) wave down start, finally exceeding the tiny (a) wave lower. But, it did exceed it and the prior wave .iv, likely signalling the b wave correction. During the afternoon all of us were monitoring for an ending diagonal wave (as you can see by the blue trend lines), but one did not appear to form properly. So, a (b) wave it is. (When wave (c) did start, then we didn't look quite so foolish. Lol.)

And now, the question is, "is the down wave over?". The downward wave ended in a diagonal. Is it all of an ending diagonal (c) wave, or just a Leading Diagonal .i of of a larger (c) wave of b? For that, you have to pay close attention to the overnight futures and see if the highs break.

In any event, we still expect some upward price movement is possible. Let's now have a look at the hourly chart of the cash S&P500 Index.

S&P500 Index - Hourly - Potential Diagonal Currently Has "The Right Look"

Even though this potential diagonal has "the right look" at this time, including a characteristic throw-over of the upper boundary, it still has to be monitored to be sure it completes properly. As it is, this upward wave has a higher all-time high, but it is also on a divergence of the Elliott Wave Oscillator (EWO). Note that for proper completion to occur, then wave (v) must be shorter in price than wave (iii) from here. But, the b wave down can do almost anything it wants, as long as it does not drop below wave (iv). It would be a real good exercise for some of the readers to post the upward invalidation point and leave it in the comments. I will cross check over the weekend.

Which reminds me: time to start that weekend, so have a very good start to yours!
TraderJoe

P.S. As of this time, the futures high has broken which means either b is done, or a more complicated b wave is in progress in the futures.