Pop Out of Smaller Triangle and Turn-around

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

Today was an interesting session from several vantage points. We had shown you on yesterday's hourly chart of the S&P500, the potential for a smaller triangle than the previous one, and indicated it it could signal the 'last wave in a series dead-ahead'.

So, the market as measured by the S&P500 Index had closed yesterday at 2,840. Prices gapped up +5 points at the open to 2,845, and continued higher with small pull-backs to 2,853, another new all time high (ATH) at around 10:30 ET, making a pretty clean 'five-waves-up" to that point. At 10:30, however, the Dow refused to make a higher high at that location and truncated. The market then turned sharply lower and filled the opening gaps on the S&P500 and the Dow, trading as low as 2,825 or a -28 point intraday swing by about 13:15 ET. At that point a rally started that lifted the S&P500 to a deficit of only -1.59 points, while the DOW eeked out a gain of 41 points. The S&P500 closed out the day at 2,838.

Here is the updated hourly chart of the S&P500 Index.

S&P500 Cash Index - Hourly - Divergences

In the process of making today's new all-time high, the divergences to both the Elliott Wave Oscillator (EWO) and RSI (14) were respected. The EWO is currently red and declining. Prices initially breached the hourly channel shown to the downside, and then, recovered to approximately mid-channel.

One of the interesting things about today's price action was the potential contracting diagonal on the DOW would have invalidated if prices crossed the level of 26,393.26 and invalidation did not occur today. The highest price reached was 23,392.80 - a miss by only a few hundredth's of a point! (Thanks go out to Tony in live chat who helped insure the correct invalidation point!)

I had noted in prior blogs that if a diagonal in the DOW completed successfully, without invalidation, that I would post it here. That chart is below.

Dow Jones Industrial Average - Cash - Half Hourly Potential Diagonal

The significance of this chart is that the Dow can be counted in two ways to a wave ((5)) high. One is this way as the diagonal. (The other way is with a triangle ending at (B) of ((5)), and then the same five-waves up 1-5 shown. You should try to diagram this for yourself, with (A) and (B) of ((1)) as just a larger wave one & two). In any event, note that wave 1, up, within wave ((5)) has already been overlapped in the downward direction. 

So, while nothing is proven yet, the action of the last several days means that there are no gaps above the market at the current price, and all of the gaps are currently below the market. Given that today was a Doji candle, then it is usually required to have a lower closing daily candle for confirmation.

Even though counted correctly, the above potential diagonal must still survive the next few days without invalidating. If it does, then a more rapid price drop than we have seen in a while might be in store. All we know now is we can count both the Dow and the S&P to a fifth wave top to within one bar - the one that truncated on the Dow today.

As the Dollar Index moved to new lows this morning, as indicated by the hourly triangle we noted yesterday, Crude Oil popped to new highs above the $65 level. Gold, too, made a new local high, and may attempt to equal or better it's weekly highs.

Interesting day! Have a good start to your evening.
TraderJoe