Volatility Continues

Market Outlook: Now Getting 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)

From the weekend post, we were expecting some modest up movement. That did occur today. The potential count of a downward diagonal on the Dow which we showed last Friday) did not invalidate on the Dow. But it did invalidate on the S&P500, and it's Elliott Wave Oscillator signature on the Dow is not correct. So, we consider that count dead.

To be objective, the only count we see that allows the market to revisit the highs and make a minor wave 5, is that we are currently in a Minor Wave 4 triangle. Here is the reason for this based on charts we posted today in the live chat room. It is something that likely few others noticed.

S&P500 Cash Weekly - 2018 Exceeds 2015-16

The whole down turn so far in 2018 exceeds in points the number of points of the down turn in 2015-2016 which is Primary ((4)), as it is currently measured. As you know from the very definition of the term degree, you simply can not have a smaller degree wave, say Minor 4, exceed the larger degree Primary ((4))th wave in points. It violates the definition of the term degree.

This also must rule out an Intermediate wave (2) of a larger contracting diagonal. Because neither can an Intermediate Wave be larger in point size than the Primary Fourth wave.

The only way I know of for the market to potentially correct this situation is for Minor wave 4 to become a triangle. As I understand it, because triangles are measured from wave 3 to the triangle's wave (e), then it is possible this wave could have measurements smaller than 2015 - 2016, but only if a contracting triangle is formed, and if it starts as a clear zigzag. If it doesn't do this, then the upward count is over and ended at the highs as far as I can tell.

Again, a triangle must start with a zigzag downward. If this wave turns into a full-on impulse, downward, then the upward triangle is dead, and we are likely headed much lower. As of today, the odds stand at about 45:55, upward triangle versus downward impulse. Here is why.

1. There are still two (actually three) ways to count a downward impulse 
2. There is one way to count an upward triangle

The two ways to count a downward impulse, are first, Impulse down, A, up. That count is shown below.

S&P500 Cash Index - Hourly - Downward Impulse Completed, A Up

In this case, then wave (5) = 0.618 x net [ (1) through (3) ]. There is nothing wrong from a 'rules' standpoint with a wave like this. The only concern is that wave (4) is quite large and disproportionate compared to wave (2).

The second way to count a downward impulse, is as an impulse with a wave four "running triangle" still in progress. That count would look like this. For this count, it would be best if wave (c) held  the 78.6% level of the retrace on wave (a).

S&P500 Cash - Hourly Running Triangle (4)th Wave Incomplete

The very purpose of this "running triangle", is to better equalize the net distances traveled by waves (4) and waves (2), and to keep the downward movement alive with it's lower (b) wave. Further, now that price has hit the lower weekly trend line, this would be a move that breaks that trend line and perhaps generates the real bearishness needed to start a 62% retrace.

So, those are the two most likely ways for downward travel to immediately continue.

Yet, for the upward triangle, instead, then the move would have to be counted something like this.

S&P500 Cash Index - Three Waves Down in a Minor 4 Triangle

In this case, one would have to count downward, A-B-C, where C = 0.618 x A; still a somewhat common relationship between the waves.

And, yes, this does make that third potential downward count. If A = 1, then there could be an upward FLAT forming wave 2 instead of a zigzag. And, perhaps that FLAT would end at the fourth wave of one lower degree. 

Due to the extreme uncertainty in counting at this moment, from a wave-labeling perspective, it might be best to let a few waves "shake out" and see where they land.

Have a good start to your evening.
TraderJoe