Volatility Continues - 5

Market Outlook: Now Getting Higher Volatility
Market Indexes: Major U.S. Equity Indexes were mixed to higher; NDX, DJTrans lower
SPX Candle: Higher High, Higher Low, Higher Close - Gravestone Doji Candle
FED Posture: Quantitative Tightening (QT)

Yesterday, we said for the non-overlapping impulse pattern upward from the Feb 09 low, to remain as counted, then it's wave v should not become longer than it's wave iii, That's because it's wave iii was shorter than it's wave i. This pattern in a wedge is known as an Extended First Wave Impulse (or First Extension Impulse) and one of it's key characteristics is that the retrace after the first wave is much less than 50 - 62%; in fact, in this case it is even much less than 38%, with wave ii at about 24%.

S&P500 Cash Index - 15 Minute - First Extension Impulse

Other key characteristics are: 1) as we showed yesterday, the EMA-34 on this time frame weaves through the pattern for form and balance, and each of the larger numbered waves is on an opposite side of it, 2) wave iv does not overlap wave i, allowing the impulse count, 3) Wave iv is a flat and wave ii is a zigzag - actually a truncated zigzag, which provides alternation, and 4) note the characteristic signature of the Elliott Wave Oscillator in a First Extension wave. The momentum is highest in that wave, and then diverges on waves iii and and waves iv.

I'm not sure how many of you have seen a truncated zigzag before - except perhaps in a book. Here is one in near real time. The zigzag starts with five-waves-down to ((A)), and then has three waves up to ((B)), which does not go over the top or to the 90% level, and then a quick fives waves down that ends abruptly, and in the cash market ends before the low of ((A)) is exceeded.

This truncation or failure stop, is a sign the market has much more power to spend the upside. The subsequent day's waves proved that out - choppy as they may be.

About 12:30 ET today prices started to just break down out of the wedge, and notice the measurement from the Fibonacci ruler, that wave v remained shorter than wave iii.

In terms of the hourly picture, this upward wave just cracked the 62% Fibonacci retrace level on the hourly chart we showed yesterday. That's when the break of wedge occurred. Someone was listening! Now the key question is how much of a downward retrace is made if a larger retrace begins on Monday? Will it be 38%, 62%, 78% or will it break the low? There is clearly, no way to know for sure.

One thing to watch out for: like any doji candlestick pattern, a confirming lower daily close is needed to "activate" the pattern the pattern to the down side. Will it happen? We'll see. As always, remain flexible, patient and attentive to what messages the market is sending.

For now have a very good start to your weekend.
TraderJoe