Diagonal Maintains Parameters

Market Outlook: Expecting Higher Volatility
Market Indexes: Major U.S. Equity Indexes were higher; S&P500 lower
SPX Candle: Higher High, Lower Low, Lower Close - Outside Candle Lower
FED Posture: Quantitative Tightening (QT)

Yesterday we said a gap up would be a great way to finish the fifth wave .v, of c of diagonal wave (iii). After being lower overnight by about six points on the announced Republican loss in Alabama, the ES futures  then turned around to higher before the open of the market. As a result, the cash market as measured by the S&P500 Index did open with a two-point gap higher, and traded up to 2,672, a new all time high, prior to the FED announcement on interest rates.

Then, the market began a slow, but volatile fade lower, spiked on the FED announcement to almost tie the high, and finally headed downward at the end of the session to close a point lower at 2,663. The cash market thus had an 'outside key reversal day down', but the ES futures did not as they did not take out the overnight low.

The hourly chart of the potential ending diagonal remains below.

S&P500 Cash Index - Hourly - Wave (iii) Likely Completed

So now the cash index would now be expected to cross below the hourly EMA-34 shown in blue. If or when it does, remember that a diagonal wave is defined by its waves (i), (iii) and (ii), (iv) boundaries. So, we can not know the exact shape of the diagonal until we know where wave (iv) has ended.

At this length wave (iii) is less than wave (i), so the diagonal measurements are still working out well. For wave (iv) to form properly in a contracting diagonal, it must remain shorter than wave (ii) and, obviously, it could not then cross beneath the wave (ii) terminus. It has already overlapped wave (i), down, so that part of the hard work is done.

Again, as per yesterday's blog, if wave (iv) should become longer than (ii) and / or break beneath the lowest low of wave (ii), then one might consider that a much larger and more complicated flat was developing and, in that case, the retrace down to the prior wave 4 would be the best alternate. We'll only post that chart if the current wave structure breaks.

Should things remain in tact, and you are looking to know what wave (v) should be like from a wave counting perspective, then, first, it must remain shorter than wave (iii). Second, it must form a zigzag. It is all right if the b wave of that zigzag is a flat or triangle, but there must in the final analysis be a zigzag visible in the structure.

And, third, since a lot of people are tracking this one - yes, it can fail. A failure or truncation, if we should get to that point might really give us pause that a larger down move is coming, so now is the time to pay very, very close attention.

Other than that, have a very nice start to your evening.
TraderJoe