Volatility Continues - 4

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)

Two days ago we said any down wave yesterday could be a B wave or a second wave lower, it was. Then, we counted five waves up for you on the (YM) Dow E-Mini Futures contract. Today, the market gapped up, turned lower to close the gap, and then made new highs over yesterday's highs. It did this all without overlapping previous waves on cash or on the futures. So far, we have a count of a non-overlapping impulse up from Feb 09. Here it is on the chart of S&P500 Cash Index - 15 Minutes

S&P500 Cash Index - 15-Minute Chart - Impulse Up

Because the first three-wave sequence down to yesterday's low was much less than 38%, it was 24%, and the whole wave is in a wedge shape, it appears the first wave is the extended wave in the sequence x(i). Wave (iii) would be the clear impulse we counted up for you yesterday, and wave (iv) would be a flat that formed by closing today's gap lower. So, at this point there is good alternation and every numbered wave is on an opposite side of the EMA-34 for form and balance. The appears to be some divergence at the high. The question is if that will hold tomorrow.

Since, at this point, wave (iii) is shorter than wave (i), then a wave (v) 'should' remain shorter than wave (iii), that is, unless wave (iii) is still extending. Without clear overlaps it is a tough one to gauge. 

So, this impulse "wave-in-a-wedge" can either be an A wave up or a C wave up. If it were truly a C wave one would have hoped it formed a diagonal. It has not. Therefore, it can be an A wave up in the larger Minor 4th wave triangle, or other count (see below). If it's a C wave, it would end a running flat for minute wave ((ii)) upward.

So, just to be clear, here on the hourly chart is the triangle option. It is a valid one at this point in time. It would be expected that the ((b)) wave up crest around the 78% level, but anywhere over 62 and less than 85% is fine. The degree labels were changed from the above 15-minute chart to agree with each of the scenarios below.

Figure 1. S&P500 Cash - Hourly - Triangle Option for Minor 4

The wave locations are just place-holders only, so you can see the points of the triangle, but the degrees of the waves are correct, it is five minute waves ((a)) through ((e)) to Minor 4.

The arch rival and nemesis of this count, is the Impulse & Flat count, which is shown below as an alternate until there is more proof of it.

Figure 2. S&P500 Cash - Hourly - Impulse & Flat Option for Minute ((ii))

The purpose behind this count would be to contain Minute wave ((ii)) to the 62% retracement level and allow it to end in the vicinity of a prior (iv)th wave. One of the reasons this count works is that the down wave would have consumed 42 hourly candles, while the whole up wave is now more than 54 candles, and so would be corrective to it. The next reason the count would work is that the minuet (b) wave is well within the 1.382 exterior retrace of wave (a). This is very typical of a (b) wave.

Further, the FLAT for wave ((ii)) would indicate strong downside momentum, if it should occur this way. 

And, there is even a third option, and that the current five waves up, is only the minuet (a) wave with a minuet (b) down, and a minuet (c) up yet to go to make a minute ((ii)) zigzag. It is shown depicted in the chart below. Again, it is an alternate until there is more evidence for it.

Figure 3. S&P500 Cash - Hourly - Impulse and Zigzag Option

It should be very clear that any of these options, above is reasonable. This is the true reason that alternates exist in wave counting - because the very same wave sequences can add up to different implications. And, other than there being no sign of a pull-back or correction yet, there simply is not much evidence to go on. Yes, a top that diverges with the advance-decline line can still be made. The triangle would most likely fit that bill.

Is a zigzag down from the high, like in Figure 1, and a straight shot back up to the high, possible? Yes, it is. But, at this time, there is even less wave sequence evidence for it. Is, a zigzag sequence, like in Figure 1, and then a truncation high, possible? Yes, but then, we are back to a FLAT for the minor wave 2 sequence, for the wave four structure to alternate with it.

Do you see why there is a Fourth Wave Conundrum? I hope so. I have tried to explain in pictures as well as possible for an end-of-the-day post. Anyone who tells you that their system of wave-lengths or some such nonsense provides wave counts that don't ever change just hasn't truly met Mr. Market. It is true, in all of the above pictures, the lengths of the waves doesn't change. So what? And, keep in mind, in the latest five wave sequence up, we said it is possible, that the the internal wave iii could be extending (but it is counter to the extended first wave indication). Just keep it in mind.

Have a very good start to your evening.
TraderJoe