Volatility Continues - 3

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)

We said if the market opened lower this morning, it might be a good location for a B wave or a second wave down. That's how it turned out. The E-mini ES S&P500 futures had been higher over night, and traded as high as 2,677 last night, then dropped 50 points to 2,627 on the CPI report this morning, and stopped dead in it's tracks there. So, the market opened lower. 

The market as measured by the S&P500 cash index closed yesterday at 2,663 and opened down -12 points to 2,651, and traded down to 2,649 in the first fifteen minutes. Then, a few things caught our eyes. As the S&P500 made a new high today over yesterday's high, the Dow initially did not. We also noted that the Russell 2000 has exceeded 7 Feb high, and invalidated the smaller potential minute ((iv)) triangle count of a possible fourth wave lower of five to Minor A or Minor 1, lower. None of the other cash indexes or futures have done this yet, but it serves as a real "watch out" for lower counts at this time.  We also noted that the S&P500 cash index closed today over the 10-day simple moving average, and did not find much resistance at it.

Because the Dow was struggling with it's new highs, we decided to count the Dow futures today in chat room. Here is that chart, and count. Remember double parenthesis ((1)) means "circle-1" below.

Dow E-Mini YM Futures - Fifteen Minutes - Clear Impulse Up

On this count we note the high of the overnight futures at B, and then there is an Expanding Ending Diagonal C wave down, with it's characteristic "killer" fifth wave, or ((v)). 

The C wave down ends the larger ((B)) or ((2)) wave, and then the clear impulse up gets underway. In the impulse up, the wave ((4)) is at the 38% retrace, and there is no overlap between ((4)) and ((1)). Because wave ((3)) was less than 1.27 x ((1)) we even called for the possibility of a fifth wave extension, and you can see by the lower degree waves (1) - (5) that this is what occurred. 

Also notice, that each of these smaller degree waves is actually (sic) smaller than the larger degree waves. There is no wave within ((5)) which is larger than ((1)), even (3) is smaller in points than ((1)), and wave (4) is only about 80% the length of wave ((4)). So, it's degree matches, as well.

Looking at volume, you can see the up (green) volume is  the largest within wave ((3)), and again in wave (3), so that fits as well. So, what does this all mean for the longer term?

There are still two alternates which are still very, very much alive.  In the first instance, prices stay in the redefined channel, and wave Minor 4 makes a triangle, as below.

S&P500 Cash Index Weekly - Minor 4 Possibility

In this case, again, the purpose of a Minor 4 triangle is to better equalize the net distance traveled between Wave 2, and Wave 4. Because a triangle always provides alternation, this is seen as acceptable with the sharp wave 2. Here again, I am showing you the points traveled by wave 1, ((i)) and ((iii)) of Minor 3 so that you can clearly see that they fit into degree sequence. Minute wave ((i)) of Minor 3 is just smaller than wave Minor 1, minuet wave (i) is definitely smaller than Minor wave 1, and smaller than the minute wave ((i)) within Minor 1. And minute wave ((iii)) is also much smaller than wave Minor 1. Wave minute ((ii)) is also smaller than Minor wave 2, and both wave minuet  (ii)'s are smaller than minute wave ((ii)). So, they all fit.

Now, in order for Minor 4 to be smaller than Primary ((4)) at the lower left in February 2016, the it should most likely form as a triangle. That would be typical of the way a bull market can end. This count might allow the EWO to come back near the zero line, so it can't be dismissed, but it will take weeks and possibly months to complete. Given the length in time of Minor wave 3, however, it seems reasonable.

The alternate to this count is that the bull market ended at 3, as Wave Intermediate (5) in the  EWI-style count which I have shown you, and corrected their degree labeling on.  Then, the wave marked 4 is actually Minor Wave 1, down, in five waves, that we were able to count.

One sign that it is the latter count would be that a prior fourth wave location holds, or a 62 - 78% retrace in the upward direction holds, and momentum picks up to the down side. Again, I have no preference over which count it is.

Right now, flexibility, caution and patience are your weapons of survival. Use them! And have a Valentine's Day filled with love and joy. After all, that is much more important!

TraderJoe